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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) 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. [X]

Aggregate market value of voting stock held by nonaffiliates of the registrant as of March 4, 2002: $1,053,725,710.

Class A Common Stock outstanding as of March 4, 2002: 32,938,004 shares

Class B Common Stock outstanding as of March 4, 2002: 154,604 shares

Documents incorporated by reference: Part III is incorporated by reference from the Proxy Statement filed in connection with our Annual Shareholders Meeting to be held May 14, 2002.

Shurgard Storage Centers, Inc. (SSCI) is a real estate investment trust (REIT) that develops, acquires, owns and manages self storage centers and related operations. Our self storage centers offer easily accessible storage space for personal and business uses. We are one of the four largest operators of self storage centers in the United States. As of December 31, 2001, we operated a network of 477 storage centers and two business parks located throughout the United States and in Europe. Of these properties, we own or lease, directly and through our subsidiaries and joint ventures, 449 properties containing approximately 28.3 million net rentable square feet. The 449 properties include 47 in which we hold joint venture interests ranging from 50% to 99%. Of the 449 properties, 377 are located in 20 states in the U.S., and 72 are located in Europe. We also manage for third parties 30 self storage centers containing approximately 1.7 million net rentable square feet. For the year ended December 31, 2001 , our domestic properties had a weighted average annual net rentable square foot occupancy rate of 83% and a weighted average rent per net rentable square foot of $11.47.

We were incorporated in Delaware on July 23, 1993 and began operations through the consolidation on March 1, 1994 of 17 publicly held real estate limited partnerships (the Consolidation) that were sponsored by Shurgard Incorporated (the Management Company). On March 24, 1995, the Management Company merged with and into SSCI (the Merger) and we became self-administered and self-managed. In May 1997, we reincorporated in the state of Washington.

Our mission is to become the global leader in storage products and services and to ensure satisfaction and value for our customers through security, quality and innovation. Our strategy involves an emphasis on customer service and satisfaction; portfolio management; development and acquisitions; and property management systems.

• Marketing and Sales. We provide managers with sales skills to elicit customer needs and turn prospects into customers. We also have a national sales center to field telephone sales calls from individual properties. Employees at the national sales center are able to sell a unit at the store most convenient to the customer. We have implemented additional sales and marketing programs to broaden our distribution channels, such as a web site for our enhanced e-commerce business and an expanded commercial accounts and direct sales force in selected markets.

Our portfolio management strategy is to increase same store cash flow by achieving the highest rental rate structure consistent with strong occupancy rates, cost containment, improved operating leverage, and expansion of our existing stores.

Our external growth strategy is to develop new, high-quality self storage properties and to selectively acquire additional self storage properties that meet or can be upgraded to meet our standards. In general, we plan to develop or acquire new properties primarily in our existing markets and in new markets that create economies of scale with our current network of stores. In most markets, we seek to own at least 15 stores in order to realize operating and marketing efficiencies and increase brand awareness. We believe that the experience of our management team in developing and acquiring self storage properties strengthens our ability to pursue our external growth strategy.

We favor development or acquisition of self storage properties in major metropolitan markets, located near retail or high-traffic corridors, usually with significant road frontage to increase visibility. We rely on our market personnel to target areas in which to develop and acquire new stores. We utilize our staff of real estate professionals in various markets to develop and acquire new stores in the markets presenting the best opportunities. We have developed comprehensive market expansion plans for each of our target markets, and use these plans as the basis for selecting new store locations and acquisition targets. The market expansion plans utilize a demographic analysis of an area along with an evaluation of competitors' locations, rates and product quality to determine the optimum number and location of new stores.

We have integrated property management systems and procedures for marketing, advertising, leasing, operations, maintenance and security of properties and the management of on-site personnel. Our computerized management information system links our corporate office with each store. We utilize proprietary software that expedites internal auditing, financial statement and budget preparations, allows the daily exchange of information with our corporate office, and manages detailed information with respect to the tenant mix, demographics, occupancy levels, rental rates, revenue optimization, payroll and other information relating to each store. Additionally, we use a network-based accounting package that has aided in the compilation and dissemination of information from and to our stores and we use an enterprise wide-area network with remote access capability. We believe that this information system is adequate to support the management of our currently owned properties as well as planned future growth. Du ring 1999, we were recognized for our centralized sales management software (Aladdin) under Microsoft's Best Business Operations Solution award. This software enables our national sales center, commercial accounts department, and our corporate employees to have remote access to current store information.

Storage To Go, Inc. (STG) is a containerized storage business that we have been testing as a way to bring storage directly to the customer through weather resistant 8'x 5'x 8' storage containers. These containers are delivered to customers for packing. The containers are then picked up and delivered to a warehouse for storage. Customers may access their storage container in a showroom at the warehouse or have it redelivered to their home. In addition to the monthly rental charge, service fees may be charged for transportation of the container. This business venture is currently operating in the Seattle, Portland, and San Francisco markets.

In 2001, we announced the Shurgard Preferred Partnersä program, through which we provide services for a monthly fee to smaller regional storage operators. Examples of the services provided through this program are the use of our national 24-hour call center, commercial account referrals, use of our computer software management tools, and access to discount opportunities with our national vendors.

We also manage, under the Shurgard name, self storage properties owned by others that meet our quality standards. Management of such properties enables us to spread the cost of overhead across a greater number of properties. Additionally, it enables us to expand our presence in the markets in which we operate, to offer customers a broader geographic selection of self-storage properties to suit their needs, and to establish relationships with property owners that may lead to future acquisitions. Management fees that we earn are not qualifying income for REIT qualification purposes. Accordingly, we closely monitor the level of these activities to ensure our continued qualification as a REIT. At December 31, 2001, we managed 30 self storage properties for others.

For financial information about our industry segments, see our consolidated financial statements and related notes, including NOTE Q. For financial information about our foreign and domestic operations, see the consolidated financial statements and the related notes, including NOTE E.

Our stated long-term capital objectives include: maintaining conservative leverage ratios; maintaining our investment grade rating; extending our debt maturity schedule; and increasing the percentage of our unencumbered assets. We anticipate funding our growth primarily through a combination of our lines of credit, unsecured debt, preferred and common equity, and alternative capital sources. We have established a revolving domestic credit facility of up to $360 million, which we expect to be sufficient to meet our intermediate capital requirements over the next several years. In order to continue to grow at historical rates and to execute our internal business plan and meet our capital objectives, it will be necessary to continue to access the equity capital markets. Additionally, we anticipate that our dividend payout ratio will decline as we retain a higher proportion of cash flow for growth.

In order to mitigate our interest rate risk, we contract with financial institutions for derivative products that help us manage this exposure. Our investment policy prohibits us from entering into any such contract solely to secure profit by speculating on the direction of currency exchange or interest rates if unrelated to capital borrowed, lent or invested by us.

The self storage industry serves an important function in the commercial and residential real estate markets. Self storage properties were first developed in the early 1960's in the southwestern United States in response to the growing need for low-cost, accessible storage. A number of factors accelerated the demand for low-cost storage, including, among others, a more mobile society, with individuals moving to new homes and new cities needing short-term storage for their belongings, the increasing cost of housing (resulting in smaller houses), the increased popularity of apartments and condominiums, more individuals with growing discretionary income (resulting in the purchase of items such as boats and recreational vehicles that often cannot be stored at residences), the growing number of small businesses and the escalating cost of other storage alternatives. As the demand for such storage increased, and the acceptance of self storage became more widespread, self storage properties were built through out the United States. Generally, such properties were constructed along major thoroughfares that provided ready access and public visibility or in outlying areas where land was inexpensive. In certain areas of the country, where new construction was impractical because of construction costs, lack of suitable sites or other restrictions, older structures have been converted into self storage properties.

We believe, based on our experience, that the self storage industry is characterized by fragmented ownership, high gross margins, low levels of price sensitivity and increasing customer demand. Typical customers of a self storage property include individuals, ranging from homeowners to college students, and commercial users, such as sales representatives and distributors, who require frequent access, and business owners requiring seasonal storage. A single customer rarely occupies more than 1% or 2% of the net rentable area in any particular store.

Capital expenditures are generally less for self storage properties as compared to other types of commercial real estate due to the properties' structural simplicity and durable materials and the lack of tenant improvement demands. Capital expenditures include periodic expenditures for replacing roofs and pavement, as well as improvements such as expansions and unit reconfigurations. Expense items include repairing asphalt, doors, fences and masonry walls, maintaining landscaping, and repairing damage caused by customer vehicles. Minimal maintenance is required when a storage unit is vacated to prepare it for the next customer.

Competition exists in every market in which our stores are located. We compete with, among others, national, regional and local self storage operators and developers. Storage operators compete based on several factors including location, rental rates, security, suitability of the property's design to prospective tenants' needs and the manner in which the property is operated and marketed. We believe that the primary competition for potential customers of any of our self storage centers come from other self storage properties within a three-to five-mile radius of that store. We have positioned our stores within their respective markets as a high-quality operator that emphasizes customer service and security. We do not seek to be the lowest-price storage provider.

To the extent we experience new supply in our markets, the increased available storage space may reduce occupancy levels per storage property and further intensify competition among storage providers for available tenants in those markets. The extent to which we are affected by competition will depend in significant part on market conditions within a three- to five-mile radius of our stores.

The Company is subject to federal, state and local environmental regulations that apply to the ownership, management and development of real property, including regulations affecting both construction activities and the operation of self storage properties.

In developing properties and constructing improvements, we utilize environmental consultants and/or governmental data to determine whether there are any flood plains, wetlands or environmentally sensitive areas that are part of the property to be developed. If any such areas are identified, development and construction are planned in conformance with federal, state, and local environmental and land-use requirements. The principal laws that could affect us are the Resource Conservation and Recovery Act (RCRA) and the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA); state and local governments have also adopted separate but similar environmental laws and regulations that vary from state to state and locality to locality.

Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property may become liable for the costs of removal or remediation of certain hazardous substances released on or in its property. Such laws may impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances. The presence of hazardous substances on a property may adversely affect the owner's ability to sell the property or to borrow using the property as collateral, and may cause the owner or manager of the property to incur substantial remediation costs. In addition to claims for cleanup costs, the presence of hazardous substances on a property could result in the owner or manager incurring substantial liabilities as a result of a claim by a private party for personal injury or a claim by an adjacent property owner for property damage.

We have notified the Missouri Department of Natural Resources (MDNR) of elevated levels of hydrocarbons found in groundwater monitoring wells on a property in St. Louis, Missouri that we have been monitoring in accordance with a work plan approved by the MDNR. During 1998, a quarterly monitoring report revealed continued contamination in the groundwater samples. The source of the contamination is still unknown. The MDNR notified us that it will continue requiring quarterly groundwater monitoring. During 1999, at MDNR's request, a work plan was developed to address its question on whether on-site contamination might be spreading to adjacent properties. The work plan encompasses a broader scope of monitoring, including installation of four additional monitoring wells on adjacent properties. We obtained permission from neighboring property owners to install the four new wells on their properties. Ground water samples were taken from the new locations on the adjacent properties as well as the existing locatio ns. Those samples showed contamination on one (1) adjacent property, however, it is not established whether this contamination is the result of migration from the Shurgard property. Our consultant revised the work plan to incorporate the sample results. The MDNR approved a revised work plan that includes continued sampling and monitoring. We receive quarterly reports on the monitoring. In the event this ongoing monitoring indicates that significant contamination has spread to adjacent properties, the MDNR could be more aggressive in the future, and may require identification of the location of the groundwater contamination and construction of a system to remediate the problem.

Except for this property in St. Louis, we have not been notified by any governmental authority of any current, material environmental noncompliance, claim or liability in connection with any of the properties we own or manage. We have not been notified of a current claim for personal injury or property damage by a private party in connection with environmental conditions at any of the properties we own or manage. We have obtained a Phase I environmental assessment report prepared by an independent environmental consultant for each of the properties we own.

We are not aware of any environmental condition with respect to the properties we own or manage that could have a material adverse effect on our financial condition or results of operations. We cannot give assurance however, that any environmental assessments undertaken with respect to the properties have revealed all potential environmental liabilities, that any prior owner or operator of the properties did not create any material environmental condition not known to us, or that an environmental condition does not otherwise exist as to any one or more of the properties that could have a material adverse effect on our financial condition or results of operation. In addition, we cannot give assurance that (i) future laws, ordinances or regulations will not impose any material environmental liability, (ii) the current environmental condition of our owned or managed properties will not be affected by the condition of properties in the vicinity of such properties (such as the presence of leaking underground s torage tanks) or by third parties unrelated to us, or (iii) tenants will not violate their leases by introducing hazardous or toxic substances into our owned or managed properties that could expose us to liability under federal or state environmental laws.

Under the ADA, all public accommodations are required to meet certain federal requirements relating to physical access and use by disabled persons. Compliance might require, among other things, removal of access barriers. A determination that we are not in compliance with the ADA could result in the imposition of fines, injunctive relief, damages or attorneys' fees. If we were required to make modifications to comply with the ADA, our ability to make expected distributions to our shareholders could be adversely affected; however, management believes that such effect would not be material. In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to our properties. Compliance with such requirements may require substantial capital expenditures, which would reduce money otherwise available for distribution to shareholders.

The following factors are additional risks to consider in evaluating us.

REAL ESTATE INVESTMENT RISKS

WE HAVE SIGNIFICANT REAL ESTATE HOLDINGS THAT CAN BE DIFFICULT TO SELL IN UNFAVORABLE ECONOMIC CONDITIONS AND THAT CAN HAVE UNPREDICTABLE DECREASES IN VALUE. Our primary business involves owning real estate-related assets and operating self storage centers. Real estate investments can be difficult to sell, especially when economic conditions are unfavorable. This makes it difficult for us to vary our investment portfolio and to limit our risk when economic conditions change. Decreases in market rents, negative tax, real estate, and zoning law changes, and changes in environmental protection laws can also lower the value of our investments and decrease our income.

OUR REAL ESTATE DEVELOPMENT AND ACQUISITION ACTIVITIES CAN RESULT IN UNFORESEEN LIABILITIES AND INCREASES IN COSTS. We may develop our current properties or acquire more properties. Real estate development involves risks in addition to those involved in owning and operating existing properties. For example, we must hire contractors or subcontractors to develop the properties. Problems can develop with these relationships, including contract and labor disputes, unforeseen property conditions that require additional work, and construction delays. These problems can increase construction and other costs and delay the date when tenants can occupy the property and pay us rent. Properties that we acquire may not meet our performance expectations, including projected occupancy and rental rates, and we may have overpaid for acquisitions. Failure of our properties to perform as expected or unforeseen significant capital improvements could decrease our cash flow. We may also have underestimated the cost of improve ments needed for us to market a property effectively, requiring us to pay more to complete a project. If one or more of these events were to occur, we could have difficulty meeting our repayment obligations and making our expected distributions to shareholders.

WE FOCUS ALMOST EXCLUSIVELY ON SELF-STORAGE BUSINESSES, WHICH MAKES US VULNERABLE TO CHANGES IN THE PROFITABILITY OF SELF-STORAGE PROPERTIES. Our investments focus on self storage and similar businesses and related real estate interests. We do not expect to have substantial interests in other real estate investments or businesses to hedge against the risk that national trends might decrease the profitability of our self storage-related investments.

WE WOULD HAVE GREAT DIFFICULTY ACQUIRING OR DEVELOPING PROPERTIES WITHOUT ACCESS TO FINANCING. Fluctuations in market conditions or in our operating results may cause us to violate the covenants of our existing credit facilities. If we cannot access our existing financing sources, we may have to obtain equity and/or debt financing in order to develop and acquire properties. If we obtain financing by issuing additional capital stock, we could dilute the ownership of the existing shareholders. Banks or other lenders might refuse to lend us money to finance acquisitions or development, or might charge interest rates that are too high to allow us to develop and acquire new properties. If the cash flows generated from the new investment are less than the distributions payable to the new shareholders or the repayment obligations to the lender, we may have difficulty meeting our overall repayment obligations and making expected distributions to our shareholders.

WE DO NOT HAVE EXPERIENCE OR EXPERTISE IN ALL TYPES OF INVESTMENTS THAT WE MIGHT MAKE. Although we invest primarily in self-storage properties, we may also invest in other commercial ventures if our board of directors specifically approves such investments. We have no present plans to make any such investments. If we invest in other forms of real estate, we might lack the experience and expertise necessary to effectively manage and operate those properties. We might also be unfamiliar with local laws, procedures and practices, or in the operation of such other investments, reducing income or creating losses from such investments.

OUR INDIRECT INVESTMENTS MAY RESULT IN LIABILITY THAT WE CANNOT PROTECT AGAINST. We have and may continue to make participating mortgages or acquire equity interests in partnerships, joint ventures or other legal entities that have invested in real estate. Our bylaws require that we satisfy several conditions before we make these indirect investments, including that the joint investment not jeopardize our eligibility to be taxed as a REIT or result in our becoming an investment company under the Investment Company Act of 1940, as amended. These investments carry risks that are not present when we invest directly in real estate, including the risk that we may not control the legal entity that has title to the real estate, the possibility that the enterprise we invest in has liabilities that are not disclosed at the time of the investment, and the possibility that our investments are not easily sold or readily accepted as collateral by our lenders.

CHANGES IN ACCOUNTING FOR UNCONSOLIDATED INVESTMENTS MAY AFFECT THE ACCOUNTING TREATMENT OF CERTAIN OF OUR INVESTMENTS. The accounting treatment of unconsolidated investments and special-purpose entities have been the subject of discussion within the accounting profession, at Congressional hearings and within the SEC. In addition, the Financial Accounting Standards Board (FASB) is currently reviewing accounting for these entities and may issue new guidance on this topic in 2002. The accounting treatment of certain of our investments could be affected by changes being discussed including, under some proposals, the consolidation of the assets, liabilities and operations of these investments into our financial statements. This could have a corresponding adverse effects on various of our financial ratios and other financial and operational indicators unless we were to restructure those arrangements, a process that could potentially result in less favorable terms. We are not able to predict the outcome of these discussions and reviews.

WE HAVE STRONG COMPETITORS IN THE SELF-STORAGE MARKET THAT MAY HAVE BETTER RESOURCES AND OTHER ADVANTAGES OVER US. We must compete in every market in which our stores are located except in Europe. Our competitors include national, regional and many local self-storage operators and developers. Entry into the self-storage business by acquiring existing properties is relatively easy for persons or institutions with the required initial capital. Competition may increase if available funds for investment in real estate increase. Some of our competitors may have more resources than we do including better access to financing, greater cash reserves, and less demanding rules governing distributions to shareholders. Some competitors may have lower prices or better locations than ours or other advantages. Local market conditions will play a significant part in how competition affects us; additional competition has lowered occupancy levels and rental revenue of our self storage properties in specific markets from tim e to time.

WE FACE POSSIBLE LIABILITY FOR ENVIRONMENTAL CLEANUP COSTS AND DAMAGES FOR CONTAMINATION RELATED TO OUR PROPERTIES. Because we own and operate real property, various federal, state and local laws might impose liability on us for the costs of removing or remediating various hazardous substances released on or in our property. The principal federal laws that could affect us are the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act; state and local governments have also adopted separate but similar environmental laws and regulations that vary from state to state and locality to locality. These laws may impose liability whether or not we knew of or caused the release. We obtain environmental assessment reports on the properties we own or operate as we deem appropriate. These reports have not revealed any environmental liability or compliance concerns that we believe would materially and adversely affect our financial condition or results of ope rations. However, the environmental assessments undertaken by us might not have revealed all potential environmental liabilities or claims for such liabilities. The presence of hazardous substances on a property or the failure to meet environmental regulatory requirements may materially adversely affect our ability to use or sell the property, or to use the property as collateral for borrowing, and may cause us to incur substantial remediation or compliance costs. In addition, if hazardous substances are located on or released from one of our properties, we could incur substantial liabilities through a private party personal injury claim, a claim by an adjacent property owner for property damage, or a claim by a governmental entity for other damages. This liability may be imposed on us under environmental laws or common-law principles. It is also possible that future laws, ordinances or regulations will impose material environmental liability on us; the current environmental conditions of properties we own o r operate will be affected by other properties in the vicinity or by the actions of third parties unrelated to us; or our tenants will violate their leases by introducing hazardous or toxic substances into the properties we own or manage and expose us to liability under federal or state environmental laws. The costs of defending these claims, conducting this environmental remediation or responding to such changed conditions could materially adversely affect our financial condition and results of operations.

WE MUST COMPLY WITH THE AMERICANS WITH DISABILITIES ACT AND FIRE AND SAFETY REGULATIONS, WHICH CAN REQUIRE SIGNIFICANT EXPENDITURES. All our properties must comply with the Americans with Disabilities Act and with the related regulations, rules and orders commonly referred to as the ADA. The ADA has separate compliance requirements for "public accommodations" and "commercial facilities," but generally requires that buildings be made accessible to persons with disabilities. A failure to comply with the ADA could result in the U.S. government imposing fines on us and awarding damages to individuals affected by the failure. In addition, we must operate our properties in compliance with numerous local fire and safety regulations, building codes and other land use regulations. Compliance with these requirements can require us to spend substantial amounts of money, which would reduce cash otherwise available for distribution to shareholders. Failure to comply with these requirements can also affect the marketab ility of the properties.

PROPERTY TAXES CAN INCREASE AND CAUSE A DECLINE IN YIELDS ON INVESTMENTS. Each of our properties is subject to real property taxes. These real property taxes may increase in the future as property tax rates change and as our properties are assessed or reassessed by tax authorities. Depending on local market conditions, we may not be able to offset the tax increases through increases in rents or other income, reducing the amount available for distribution to our shareholders.

WE FACE POTENTIAL UNDERINSURED LOSSES ON OUR INVESTMENTS. We maintain title and other property-related insurance on all our properties. We exercise discretion in determining amounts, coverage limits and deductibility provisions of title, casualty and other insurance relating to our properties, based on appraisals and our purchase price for such property, in each case to obtain appropriate insurance coverage at a reasonable cost and on suitable terms. We currently carry the following insurance coverage: (1) commercial general liability insurance, covering up to a general aggregate of $60,000,000, with a deductible of $50,000 (2) property insurance, covering up to an aggregate of $50,000,000, with deductibles $5,000 or $20,000 under certain circumstances, and $50,000 in the case of flood damage; and (3) boiler & machinery insurance, covering up to $10,000,000 of direct damages. Depending on the type of the insurance, and subject to deductibles and coverage limits, Shurgard either receives direct payment of the replacement value of losses or tenders the defense of a claim to the insurance carrier. This might mean that, in the event of a loss, our insurance coverage would not 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 might also increase the replacement cost of a facility after it has been damaged or destroyed. In that case the insurance proceeds that we receive might not be enough to restore us to our economic position with respect to the property.

WE MIGHT LOSE REIT STATUS AND INCUR SIGNIFICANT TAX LIABILITIES. We have chosen to be taxed as a REIT under the Internal Revenue Code of 1986 (the "Code"), commencing with our taxable year ended December 31, 1994. So long as we meet the requirements under the Code for qualification as a REIT each year, we can deduct dividends paid to our shareholders when calculating our taxable income. For us to qualify as a REIT, we must meet detailed technical requirements, including income, asset and stock ownership tests, under several Code provisions which have not been extensively interpreted by judges or administrative officers. In addition, we do not control the determination of all factual matters and circumstances that affect our ability to qualify as a REIT. New legislation, regulations, administrative interpretations or court decisions might significantly change the tax laws with respect to REIT qualification or the federal income tax consequences of such qualification. We believe that we are organized so tha t we qualify as a REIT under the Code and that we have operated and will continue to operate so that we continue to qualify. However, we cannot guarantee that we will qualify as a REIT in any given year because the rules governing REITs are highly complex; - we do not control all factual determinations that affect REIT status; and - our circumstances may change in the future. For any taxable year that we fail to qualify as a REIT, we would not be entitled to deduct dividends paid to our shareholders from our taxable income. Consequently, our net assets and distributions to shareholders would be substantially reduced because of our increased tax liability. If we made distributions in anticipation of our qualification as a REIT, we might be required to borrow additional funds or to liquidate some of our investments in order to pay the applicable tax. If our qualification as a REIT terminates, we may not be able to elect to be treated as a REIT for the four taxable years following the year during which we lost the qualification. See "Federal Income Tax Considerations - Failure of Shurgard to Qualify as a REIT" in this prospectus.

OUR REIT DISTRIBUTION REQUIREMENTS ARE COMPLEX AND MAY CREATE TAX DIFFICULTIES. To maintain our status as a REIT for federal income tax purposes, we generally must distribute to our shareholders at least 90% of our taxable income each year. In addition, we are subject to a 4% nondeductible excise tax on the amount by which our distributions for a calendar year are less than the sum of 85% of our ordinary income for the calendar year, 95% of our capital gain net income for the calendar year, and any amount of our income that we did not distribute in prior years. For tax purposes we may be required to accrue as income interest, rent and other items treated as earned for tax purposes but not yet received. In addition, we may not be able to deduct currently as expenses for tax purposes some items that actually have been paid. We could also realize income, such as income from cancellation of indebtedness, that is not accompanied by cash proceeds. If one or more of these events happened, we could have taxable i ncome in excess of cash available for distribution. In such circumstances, we might have to borrow money or sell investments on unfavorable terms in order to meet the distribution requirement applicable to a REIT. See "Federal Income Tax Considerations--Overview of REIT Qualification Rules--Annual Distribution Requirements" in this prospectus.

OUR CURRENT AND POTENTIAL INVESTMENTS IN SELF-STORAGE BUSINESSES THAT ARE NOT REAL ESTATE-RELATED MAY RESULT IN LOSSES WHEN ECONOMIC CONDITIONS CHANGE. We have invested in self-storage businesses that are not real estate-related and we might make more of these investments. For example, we have invested in Shurgard Storage to Go, Inc., a business that provides customers with local delivery, pick up and storage of individual storage containers. Shurgard Storage to Go faces the same risks that we do regarding losses resulting from competition and decreases in rent in the self-storage market. In addition, because Shurgard Storage to Go does not have significant real-estate holdings or other marketable assets to borrow against, it might have difficulty borrowing necessary operating funds or attracting additional investments if economic conditions change, putting our investment at greater risk of loss.

WE MAY NOT BE ABLE TO REPAY OUR DEBT FINANCING OBLIGATIONS. We might not have sufficient net cash flow from our operations to meet required payments of principal and interest under our loans. As a result, we might not be able to refinance the existing indebtedness on the properties or might have to enter into credit terms that are less favorable than the terms of our existing indebtedness.

WE HAVE AN INVESTMENT IN INTERNATIONAL OPERATIONS THAT CARRY RISKS IN ADDITION TO OUR U.S. OPERATIONS. We invest in operations outside the United States. We face risks inherent in international business operations, including currency risks, unexpected changes in regulatory requirements, longer accounts receivable payment cycles, difficulties in staffing and managing international operations, potentially adverse tax burdens, obstacles to the repatriation of earnings and cash, and burdens of complying with different permitting standards and a wide variety of foreign laws. Each of these risks might impact our cash flow or impair our ability to borrow funds, which ultimately could adversely affect our ability to repay loans and make expected distributions to shareholders.

As of December 31, 2001, the Company employed approximately 1,000 persons. None of our employees are covered by a collective bargaining agreement. We believe that our relations with our employees are good.

The following table sets forth certain information regarding the executive officers of the Company as of December 31, 2001.

_________

For Mr. Barbo's and Mr. Beck's biographies, see our proxy statement for the annual meeting of shareholders to be held on May 14, 2002.

David Grant has served as our Executive Vice President and Director of Real Estate Investment since July 1993. He became President of Shurgard Europe (previously SSC Benelux & Co., SCA) effective January 1, 1996. Mr. Grant joined Shurgard Incorporated in November 1985 as Director of Real Estate Investment and continued to serve in that capacity until the Merger. He also served as an Executive Vice President of Shurgard Incorporated. Mr. Grant was previously a manager with Touche Ross & Co., where he was employed for approximately 10 years providing financial consulting, accounting and auditing services primarily to clients in the real estate, construction and engineering industries. Mr. Grant has a Bachelor of Arts degree in Business Administration and a Bachelor of Science degree in Accounting, both from Washington State University.

Christine McKay has served as Senior Vice President, Secretary and General Counsel since October 1999. She joined Shurgard Incorporated in June 1993, as an Assistant General Counsel. She has served as our Assistant Secretary since October 1998, and as Assistant Secretary and Division Counsel for Shurgard Storage To Go, Inc., since July 1997. Ms. McKay was previously an attorney with Williams, Kastner & Gibbs, in Seattle. She has a Bachelor of Arts degree in Business Administration from Chadron State College, and a Juris Doctorate, with honors, from Creighton University. She is a member of the Washington State Bar Association and the Corporate Counsel Section of the Washington State Bar Association.

Steve Tyler joined SSCI in May 1996 as Vice President of Operations covering the Midwest and East Coast markets. Since October, 1999 he has served as Senior Vice President of Operations. Prior to joining Shurgard, he was a Regional Operations Manager with Victoria's Secret (a division of the Limited), Casual Corner (a division of US Shoe), and a District Operating manager with The Gap and Sears. He has a Bachelor of Arts degree in Business Administration from the University of Minnesota-Duluth.

The Company owns or leases, as of December 31, 2001, directly and through its subsidiaries and joint ventures, 449 properties (including 447 self storage properties), 377 of which are located in 20 states and 72 which are located in Europe. The 449 properties include 47 in which we hold joint venture interests ranging from 50% to 99%. Our self storage properties are designed to offer accessible storage space for personal and business use. Individuals typically rent individual units in self storage properties for storage of personal belongings such as furniture, appliances, boats and other household and recreational goods. Businesses typically rent space for storage of business property such as equipment, seasonal goods, records and fixtures. We believe that it is desirable to have commercial customers because they tend to rent larger units, stay for longer terms, are more reliable payers and are less sensitive to price increases. Based on a survey of our customers conducted during 2000, we estim ate that commercial users account for approximately 25 - 30% of our total customer base.

Our self storage properties are divided into a number of self-enclosed rental units that generally range in size from 25 to 360 square feet. Many properties have uncovered storage outside the buildings for parking motor vehicles, boats, campers and other similar items suitable for outside storage. Additionally, a number of our properties include climate-controlled storage units for which we typically charge a premium.

Customers of self storage properties are generally responsible for delivering and retrieving their goods. Many leased spaces can be accessed directly by automobile or truck, but some properties, in particular the multistory buildings, have separate loading docks and elevators available for delivery and retrieval of stored goods. Customers generally have access to their unit without additional charge during normal business hours and control access to such space through the use of their personal padlocks. We offer Ryder truck rentals at a majority of our properties for added convenience to our customers and to differentiate our stores from most of our competitors. In addition to truck rentals, we sell locks, boxes and packing and storage materials at our stores.

The leasing, maintenance and operation of our stores are the responsibility of store managers. The property's security is provided through a variety of systems that may include, among others, on-site personnel, electronic devices such as intrusion and fire alarms, access controls, video and intercom surveillance devices, property fencing and lighting.

Although our stores range considerably in size, most properties consist of one or more single-story buildings. The smallest store has approximately 21,000 net rentable square feet, while the largest store has approximately 290,000 net rentable square feet. The properties generally are constructed with concrete block or tilt-up concrete panels, with steel columns or precast concrete columns that rest on concrete footings and slabs, and have built-up tar roofs or pitched truss roofs with shingles or standing seam metal roofs. The interior walls are generally constructed with metal studs and partitions or other construction materials that are secure but readily movable. The parking areas and driveways are generally asphalt or concrete. All stores have fencing, floodlights, and electronic gates.

In some cases, multistory buildings have been converted into self storage properties. In addition, similar multistory buildings for self storage have been constructed in dense urban areas where land costs, zoning and other development considerations make it impractical or undesirable to construct single-story buildings.

The following table sets forth information regarding weighted average occupancy and weighted average rent per square foot for the self storage properties and business parks owned or leased by us for the years ended December 31, 2001, 2000, and 1999. The occupancy and rental information in this and the following table is affected by new stores, which, once opened, go through a "rent-up" period during which occupancy is generally lower than at later stages.

The following table sets forth information for all properties for which we have an ownership or leasehold interest regardless of percentage ownership. The table provides weighted average occupancy and weighted average rent per square foot for the years ended December 31, 2001 through December 31, 1997.

(1) European information for 1997 is not included as the operations in Europe were in the very early stages and as such the occupancy and rates are not comparable to more recent years.

Leasing of Properties. Rental units are usually rented on a month-to-month basis. Based on our most recent evaluation of customer move-outs for the year ended 1999, the average rental period for a tenant is approximately 11 months. This average is comprised of the rental periods of business tenants, whose average stay is 18 months, and those of residential customers, whose average stay is 10 months. Rental income from leased space constitutes the primary revenue from such properties, but additional revenue is received from incidental services rendered at the properties, such as lock and box sales and truck rentals. Rental rates vary substantially depending on the size of the storage space, the property location, the quality of the property and the proximity of competition.

Other Properties. The Company owns two business parks located near Tacoma, Washington and Burke, Virginia. The business parks were built in 1979 and 1984 they contain an aggregate of approximately 158,000 net rentable square feet.

None.

No matters were submitted to a vote of shareholders during the fourth quarter of 2001.

The Company's common stock is traded on the NYSE under the symbol "SHU." As of March 4, 2002 there were 18,747 holders of record of our common stock and the reported NYSE closing price per share of common stock was $33.45.

The table below sets forth for the fiscal periods indicated the high and low closing prices per share of Common Stock as reported in published financial sources, and distributions declared.

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Holders of shares of common stock are entitled to receive distributions when declared by our Board of Directors out of any assets legally available for payment. Our bank line of credit limits our dividends to no more than 95% of funds from operations. (See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - FUNDS FROM OPERATIONS). For years prior to January 1, 2001, we were required to distribute annually to our shareholders at least 95% of our "REIT taxable income," which, as defined by the relevant tax statutes and regulations, is generally equivalent to net taxable ordinary income. As a result of legislation passed in December 1999, this distribution requirement has been reduced to 90% beginning January 1, 2001.

Shurgard Storage Centers, Inc. is a REIT headquartered in Seattle, Washington, specializing in all aspects of the self storage industry. As of December 31, 2001, we operated a network of 477 storage centers and two business parks located throughout the United States and in Europe. Of these properties, we own or lease, directly and through our subsidiaries and joint ventures, 449 operating properties containing approximately 28.3 million net rentable square feet. Of the 449 operating properties, 377 are located in 20 states in the U.S. and 72 are located in Europe. We also manage for third parties, 30 self storage centers containing approximately 1.7 million net rentable square feet. Self storage properties offer low-cost, easily accessible storage space for personal and business uses.

Our investment objective is to maximize shareholder value by increasing funds from operations through internal growth and through the acquisition and development of additional self storage properties. We believe that the experience of our management team in acquiring, developing, and operating self storage properties, our geographic diversification and our emphasis on quality will enhance our ability to achieve this objective.

Our mission is to be the global leader in storage products and services. We believe we can obtain this goal by focusing on providing exceptional customer service and the highest quality products to our customers.

As part of our focus on providing the highest quality products to our customers, we look for those storage centers that are located in well-populated retail areas. When entering a market, we seek dominant locations within specific three to five mile trade areas. "Dominant locations" refers to highly visible and accessible locations in retail corridors which create customer awareness. Through multiple locations of this kind within a metropolitan area, we establish brand recognition as well as economies of scale in operating our stores. In most markets, we seek to own at least 15 stores in order to realize these efficiencies. To further enhance brand recognition, we strive to achieve a uniform look to our properties. This is accomplished through the use of signage, color schemes, quality of the building and our trademark "lighthouse" office design in new developments.

During 2001, we opened or acquired 21 domestic storage centers directly or through joint ventures. Additionally, our European investment opened 25 developments during 2001. These European developments are located as follows: one in Belgium, five in France, nine in the Netherlands, six in Sweden, two in Denmark, and two in the United Kingdom. The following discussion of operations provides additional comparative financial information and discussion of each of the areas of growth, including Segment Performance, Ownership and Leasing Arrangements, European operations and other forms of real estate investments. A discussion of capital expenditures, financing transactions and liquidity is also included.

When used in this discussion and elsewhere in this Annual Report on Form 10-K, the words "believes," "anticipates," "projects" and similar expressions are intended to identify forward-looking statements regarding financial performance. ACTUAL RESULTS MAY DIFFER MATERIALLY DUE TO UNCERTAINTIES INCLUDING THE RISK THAT COMPETITION FROM NEW SELF STORAGE FACILITIES OR OTHER STORAGE ALTERNATIVES MAY CAUSE RENT TO DECLINE AND MAY CAUSE OCCUPANCY RATES TO DROP, TAX LAW CHANGES MAY CHANGE THE TAXABILITY OF FUTURE INCOME AND #9; INCREASES IN INTEREST RATES MAY INCREASE THE COST OF REFINANCING LONG TERM DEBT. WE MAY ALSO BE AFFECTED BY LEGISLATION OR CHANGES IN REGULATIONS OR INTERPRETATIONS REGARDING ACCOUNTING STANDARDS APPLIED TO SOME OF THE COMPANY'S EXISTING FINANCIAL AND JOINT VENTURE STRUCTURES. ACTUAL RESULTS MAY ALSO DIFFER IF INCREASES IN LABOR, TAXES, MARKETING AND OTHER OPERATING AND CONSTRUCTION EXPENSES OCCUR. Other factors which could affect our financial results are described below and in Item 1 (Business) of this Annual Report on Form 10-K. Forward-looking statements are based on estimates as of the date of this report. The Company disclaims any obligation to publicly release the results of any revisions to these forward-looking statements reflecting new estimates, events or circumstances after the date of this report.

When managing our real estate assets, we evaluate performance in two segments. The first segment, Same Stores, represents those storage centers and business parks that are not in the rent up stage and for which historical information is available. The second segment, New Stores, represents those storage centers recently acquired or developed for which performance is measured primarily based on original investment expectations. We evaluate all stores on the same basis regardless of ownership interest in the property. The following sections discuss the performance of these segments for domestic properties.

In 2001, we continued our focus on increasing net operating income (NOI) from our existing real estate assets. The primary way we analyze our performance is to measure year over year improvements in Same Store operating results. Our definition of Same Stores includes existing stores acquired prior to January 1 of the previous year as well as developed properties that have been operating for a full two years as of January 1 of the current year. Historically, newly developed properties have reached stabilization in an average of approximately 24 months. Please note that our definition of Same Stores results in the addition of stores each year as new acquisitions and developments meet the criteria for inclusion, and that we then include these stores in the previous year's comparable data. Other storage companies may define Same Stores differently, which will affect the comparability of the data. The following table summarizes Same Store operating performance as defined at December 31, 2001 and 2000.

Same Store Results (1)

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NOI has risen over the last three years due to increases in revenue, which is a function of changes in rental rates and occupancy. While the storage business is seasonal, spring and summer being peak occupancy periods, the cycle is annual and the annual revenue trend from 1999 to 2001 reflects general market changes. Revenue gains from 2000 to 2001 resulted primarily from rental rate increases, while gains from 1999 to 2000 resulted from rate increases and occupancy improvements.

The business trends in most of our markets, although slowing, continued to be positive throughout 2001. During 2001, we experienced increased competition in several of our markets where competitors have opened in the vicinity of our stores. Markets significantly impacted by this increased competition include Florida and Michigan. We believe that the quality of our storage centers as well as our geographic diversity helps mitigate the impact of competition in individual markets. Market conditions in California, Indiana, and Oregon contributed to above average revenue and NOI increases.

During the first half of 2001 we experienced revenue growth in the range of 8% to 9%, an upward trend that started during the second half of 2000, we believe, as a result of our new sales and marketing programs that we started in early 2000. We began to annualize on these revenue gains during the second half of 2001 and, as a result, we saw a decrease in year over year revenue growth during the second half of 2001 in the range of 4% to 6%. We believe that part of the slower growth rate in year over year revenues is a function of changes in the overall economy and a leveling off in incremental sales from the sales and marketing efforts started in early 2000. As a result, we have been examining our marketing and sales programs to identify areas for potential improvement. During the spring and summer of 2001, we reorganized our national sales center operations and, in the process, experienced higher than normal personnel turnover, higher call abandonment and lower sales closing ratios. The national trage dy on September 11^th further contributed to lower sales volumes as the number of calls dropped significantly in the first few weeks after the attack. The focus on the sales center is on proper training and staffing in order to improve abandonment and closing ratios. Both indicators improved significantly during the last half of 2001. Additionally, as a result of an evaluation of our marketing and sales initiatives, we have discontinued certain discount programs that we believe were inefficient and reduced our direct sales force in certain markets where the marginal results did not exceed the benefits.

Direct operating expenses were up 3.1% in 2001 from 2000 compared to 6.9% from 1999 to 2000 as the expenditures for marketing and sales campaigns implemented during 2000 annualized. Direct operating expenses were up 6.9% in 2000 compared to 1999, primarily due to marketing and sales expenditure increases of approximately 50% for the new marketing campaigns and sales center programs. These programs were implemented during the first half of 2000 and continued to ramp up during the remainder of 2000. By the second half of 2001 the year over year expense growth began to level off.

Additionally, decreased indirect operating expenses resulted in NOI after indirect costs increasing 8.6% for 2001 compared to 5.9% for 2000. Our definition of indirect operating expense includes certain shared property costs such as bank fees, district and corporate management, purchasing, national contracts personnel and marketing, as well as certain overhead costs allocated to property operations such as business information technology, legal services, human resources and accounting. Same Store indirect operating expenses rose 16.3% from 1999 to 2000 primarily due to marketing, sales and technology expenses related to the initiatives implemented in early 2000. This expense growth moderated during the last half of 2001. The decrease from 2000 to 2001 is the result of economies of scale realized by operating a larger number of stores in 2001.

We believe that, given the current economic environment, 2002 Same Store results will be in line with long-term historical trends. We expect NOI, revenue and expense growth rates in the 4-6% range. These expectations regarding growth constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act and are based on several assumptions. If any of these assumptions are not satisfied or prove to be incorrect, actual results could differ materially from those indicated in the statement. The risks and uncertainties that may cause these assumptions and this forward-looking statement to prove to be incorrect include the risks that implementation of the business plan, including marketing and sales initiatives, will not be successful and that our earnings, expenses or revenues may be affected by other factors, such as the risk that competition from new self storage facilities or other storage alternatives may cause rents to decline, occupancy rates to drop, or delays in ren t-up of newly developed properties. We may experience increases in labor, taxes, marketing and other operating expenses.

Our definition of New Stores, as shown in the table below, includes existing domestic facilities that had not been acquired or leased as of January 1 the previous year as well as domestic developed properties that have not been operating a full two years as of January 1 of the current year. The following table summarizes New Store operating performance as defined at December 31, 2001 and 2000.

Increases from year to year in NOI for the new store portfolio reflect the greater number of properties and, correspondingly, property months for the periods presented. Although this increase gives some indication of how much of our overall NOI growth results from new stores, we do not regard it as a good method of evaluating the performance of assets within this segment. Rather, we use other methods, primarily comparisons of actual results to targeted NOI for the appropriate period from opening or at maturity. The performance of our domestic acquisitions and developments are discussed in the sections that follow.

We continue to selectively seek acquisition opportunities for high quality storage centers that meet our investment standards. We typically target our acquisitions to generate a yield of 9.5-11%. We have limited our efforts to pursue only those storage centers that enhance our existing network of stores (i.e. establish greater market presence or expand an established market to create greater economies of scale). The operating results of our acquisitions are discussed below in order to show the impact of our operating strategies since the acquisition date.

The following table summarizes our acquisition activity from 1999 to 2001.

During 2001, we purchased four storage centers totaling 234,000 net rentable square feet for $19.3 million and began leasing an additional four storage centers totaling 303,000 net rentable square feet. Three of these properties are located in California, three in Michigan, one in Florida and one in Illinois and three of these properties were acquired in the fourth quarter. The average occupancy and current yield of these properties is well below our projected stabilized target as four were newly built and are still in rent-up. The 2002 projected yield on these properties is 12% (calculated as projected 2002 NOI divided by the purchase price). These projections are based on various assumptions and actual results may vary due to the factors discussed in the Overview and Risk Factors in (Item 1) Business of our Annual Report on Form 10-K.

One of the properties acquired in 2000 is located in California and six are located in Texas. The 1999 acquisitions were located in Arizona, California, Florida, Texas and Washington. The operating results of four of these 1999 acquisitions are included in Same Store Results for 2001 and in New Store Results for 2000. Seven of these 12 stores acquired in 1999 and 2000 were in lease-up at the time of acquisition with an average occupancy of 76% and an average rate of $11.51. As of December 31, 2001, occupancy in these stores averaged 90% and rates averaged $11.48. These 12 properties have a December 2001 yield of 12%, which is greater than projected at the time of purchase.

Our long-term growth plan includes development of new storage centers in markets in which we currently operate. This is primarily due to our focus on maintaining high quality standards and consistent building design to develop brand awareness. Implementation of this development strategy through early 2001 has focused on internally financed projects developed primarily through development financing joint ventures. During 2001, we changed to a new method of implementing this growth strategy through build-to-suit, tax retention operating leases under which we have an option to purchase the related properties (see Tax Retention Operating Leases under OWNERSHIP AND LEASING ARRANGEMENTS).

We typically target yields for developments at 11% to 12%. Yield is calculated as projected annualized NOI divided by the construction cost. We can give no assurance that the projections noted above regarding the development projects will occur. Actual occupancy levels and rates could be lower if we experience competition from other self storage properties and other storage alternatives in close proximity to our developments. Actual yields may also be lower if major expenses such as property taxes, labor and marketing, among others, increase more than projected. See Risk Factors in (Item 1) Business of our Annual Report on Form 10-K.

Four of the storage centers opened in 2001 were developed through our Tax Retention Operating Leases (See OWNERSHIP AND LEASING ARRANGEMENTS), one was developed through our Florida joint venture, one was developed through our Oklahoma joint venture and the remaining seven were developed by SSCI. Of these 13 properties, ten of them opened in the second half of the year with six of those opening in the fourth quarter. Accordingly, December 2001 NOI is not meaningful as a percentage of stabilized NOI at maturity.

Three of the storage centers opened in 2000 were developed through our Tennessee and Florida joint ventures and 18 were contributed to CCP/Shurgard Venture, LLC (CCP/Shurgard). The 2000 developments together generated $2.2 million in NOI for the 12 months of 2001. Of these 21 stores, nine of these opened in the fourth quarter of 2000. For the month of December 2001, these developments had NOI of $318,000, which represents 32% of projected monthly NOI at maturity, and averaged 54% occupancy. Many of these stores have experienced higher than anticipated expenses primarily in the category of real estate taxes, where expenses during 2001 were approximately $350,000 higher than anticipated. We are aggressively contesting these through appeals. Additionally, these stores are facing strong competition in their markets and are leasing up slower than expected. Although we expect to be able to reach our revenue goals for these properties in the long run, our stabilized yield will be below the targeted yield if we are unsuccessful in our real estate tax appeals.

Of the 21 stores opened in 1999, six were developed through our Florida joint ventures, three were contributed to CCP/Shurgard and nine were contributed to Shurgard/Fremont Partners II (SFPII). These 1999 developments together generated $9.5 million in NOI for the 12 months of 2001. For the month of December 2001, these developments had NOI of $922,000, which represents 81% of projected monthly NOI at maturity, and averaged 77% occupancy. This group of stores includes five stores that have been slower to reach stabilization than projected and are below 70% occupancy at December 31, 2001. We still expect these properties to meet their expected yield. The operating results of these 1999 developments are included in Same Store Results for 2001 and New Store Results for 2000.

We have various ownership and leasing arrangements with respect to properties included in our Same Store and New Store portfolios. The table below includes information as of and for the year ended December 31, 2001 which identifies the proportion of Same Store and New Store results attributable to each of these various arrangements. The following tables include 100% of the cost, operating results and other information presented regardless of our percentage ownership interest in that property. Each of the categories presented is discussed in greater detail in sections following the table.

The tables below include our pro rata portion of cost, operating results and other information for our consolidated and unconsolidated joint venture properties.

Most of our storage centers are owned or leased directly or through wholly owned subsidiaries. Additionally, as of December 31, 2001, we operate 8 properties that are built on land subject to long-term leases and 8 properties leased under short and long-term building leases. All short-term building leases include purchase options.

In order to expand our development capacity, broaden our access to capital and minimize the effect of the rent-up deficit on funds from operations (FFO, see FUNDS FROM OPERATIONS), we have pursued alternative financing options. In connection with this initiative, we formed four joint ventures, SFPI in May 1998 with Fremont Storage Partners I, SFPII in March 1999 with Fremont Storage Partners II, Shurgard/K&S I, LLC in October 1999 with K&S Storage, LLCand CCP/Shurgard, as referenced above, in May 2000 with an affiliate of JP Morgan Partners. Under these joint venture agreements, we constructed storage centers financed through the use of cash flows provided by operations and our line of credit and, upon completion, contributed those storage centers to the joint ventures. At the time of contribution, we were reimbursed to the extent our historical cost plus negative cash flow prior to the transfer exceeded our pro rata portion of required equity (calcula ted as total required funding less amounts provided from financial institutions multiplied by our ownership percentage). We either retain an option to purchase the storage centers from the joint venture or the joint venture has a right to put those storage centers to us at a future date. The purchase price is calculated as the greater of (a) that amount necessary to provide a specified return on the partners' contributed capital (12% in the case of CCP/Shurgard) or (b) annualized NOI divided by 9.25%. As a result of this option or put, we have continuing involvement with these joint ventures and do not recognize the contribution of the storage centers as a transfer in ownership for financial reporting purposes. We account for these joint ventures as financing arrangements and, as such, recognize all activities related to those properties in our financial statements. Additionally we recognize a participation rights liability and a related discount on the underlying liability for the estimated fair value of o ur partners' share of the estimated option purchase price. The discount is amortized over the term of the related agreement. During 2001, we exercised our option to acquire our joint venture partner's interest in three of the four joint ventures for a total of $69.4 million. These were accounted for as a reduction in participation rights liability.

As of December 31, 2001, we include the operations of 21 storage centers owned through CCP/Shurgard, a joint venture in which we own a 20% legal interest. Due to the details of the property contribution and purchase option related to this joint venture described above, we account for this joint venture as a financing arrangement and include all of the operating results of the properties in our financial statements. These properties are subject to $65 million in mortgage debt. During the past four years we operated an additional 32 storage centers under similar arrangements, but these storage centers are now wholly owned.

The following is a summary of the participation rights balances for the years ended December 31, 2001, 2000 and 1999:

In 2001, we executed an agreement with a third party, Storage Centers Trust 2001 (SCT) to enter into up to $250 million worth of tax retention operating leases. SCT is a trust which takes title to the development properties identified by us, constructs them to our specifications and then leases them to us for a period of four years with available extensions. We anticipate that most of our development properties over the next two years will be purchased by SCT and leased through this facility. Under the lease and related agreements, we will function as construction agent and tenant. We have the option to acquire a property at or before the end of its lease term. At the end of the lease term, we may acquire a property or it may be sold to a third party, or the lease may be extended by mutual agreement. If we elect to purchase the property, the purchase price will be equal to the total property cost plus interest carry and a fixed equity return to SCT at a combined rate of approximately 150 basis points o ver London Interbank Offering Rate (LIBOR). Prior to such purchase, we will have no ownership interest in these properties. The lease term for these properties begins upon SCT's acquisition of the land and/or an existing storage center. Financing for acquisitions is provided under a credit facility provided by commercial banks to SCT. Rent commences under the lease upon completion of construction and equals the lesser of 85% of the storage center's positive monthly net operating income or SCT's interest carry costs. In connection with these leases, we have residual lease guarantees totaling 87% of SCT's property costs. Under the terms of the lease, if we do not elect to exercise our purchase option and the properties are sold to a third party for less than SCT's property cost, then we are liable for the difference up to the guarantee amount. Guarantees under these tax retention operating leases limit the borrowing availability under our line of credit.

As of December 31, 2001, we have entered into a four-year leasing arrangement on 22 storage properties. The leases include a purchase option and a residual lease guarantee. As of December 31, 2001, we are operating seven of these storage centers and are engaged as construction agent on 15 properties, two of which we have subcontracted the construction management to an affiliate.

The following table summarizes the properties and obligations under these Tax Retention Operating Leases as of December 31, 2001.

1. The actual completed cost of these projects could vary due to delays during construction caused by weather, unforeseen site conditions, labor shortages, personnel turnover, scheduling problems with contractors, subcontractors or suppliers, or resource constraints.
2. Includes amounts for which we have not yet been reimbursed as construction agent.
3. We have subcontracted out the construction agent responsibilities for two of these properties to an affiliate.

Additionally, we have two partnerships with institutional investors owning 12 storage centers and two joint ventures which own two storage centers. Our ownership in these joint ventures ranges from 78% to 99%.

In addition to utilizing the experience of our in-house real estate development personnel, we have established relationships with quality storage operators outside our current markets. We believe that the most efficient way to operate storage centers is to saturate a market to create brand awareness and allow certain economies of scale in operation processes and advertisement. These relationships create an instant presence in a new market as affiliate owned centers begin using the "Shurgard" name. In exchange for the use of our name, computer systems and general operations support services, the affiliate pays us an affiliation fee. Additionally, these affiliation agreements provide the framework for the joint development of additional storage centers, allowing us to take advantage of the local operator's market knowledge. It is our intention that future joint development projects with these affiliates will be done under the Tax Retention Operating Lease arrangement discussed above.

The 29 properties in joint ventures have been developed primarily through our Florida and Tennessee joint ventures. Our ownership interests range from 50% to 90%, and we do not exercise effective control because all major decisions require the agreement of both parties. These joint ventures have assets with a gross book value of $99.2 million and debt of $64.2 million secured by the storage centers. Additionally, we have guaranteed $19.0 million of certain joint venture loans.

Shurgard Europe is a Belgian joint venture in which we own 2.66%, four unaffiliated institutional investors own 43.26%, our European operating partners own .25% and Recom & Co SNC (Recom) owns 53.83%. Our European operating partners are European entrepreneurs who worked with us in 1995 to establish the European operations and who joined us as original investors at that time. Recom is a Belgian partnership in which we, our European operating partners and some Shurgard Europe employees have ownership interests as described below. Our interests and those of Recom and some of our European partners reflect fully diluted equity interests, after taking into account the exercise of warrants as described below. The four institutional investors, consisting of European and U.S. banking, insurance and real estate institutions, acquired their interests in October 1999 through a commitment to invest 122 million Euro in the joint venture. On February 27, 2001, the joint venture obtained commitments from all of its owners to invest an additional 28 million Euro, which may be drawn on until December 31, 2002. The commitments were made substantially pro rata and, therefore, did not alter the percentage ownership of the parties. At December 31, 2001, Shurgard Europe had drawn on 98.5 million Euro of the initial commitment from the institutional investors and had not yet drawn on any of the additional February 2001 commitment.

Shurgard Europe is managed by a board of managers in which we hold 50% of the votes, our European operating partners hold 7% and the European investors collectively hold 43%. Substantially all major decisions require approval of managers holding at least 80% of the votes. The joint venture agreement provides that if, by December 31, 2004, the institutional investors have not had an opportunity to liquidate their interests through an initial public offering or a sale of all their interests, then they may initiate steps that could lead to an initial public offering or to the sale of Shurgard Europe or its assets in accordance with prescribed procedures. All partners' interests in Shurgard Europe are subject to a right of first refusal. We, Recom and our European operating partners are subject to other restrictions on transfer and sale. The operation of these provisions could substantially affect our ownership interest in and the structure of our European investment.

Recom, which holds a 53.83% interest in Shurgard Europe as described below, is a Belgian partnership in which we own a 9.11% interest and our European operating partners and an entity comprised of some Shurgard Europe employees own collectively a 1.24% interest. The remaining 89.65% interest is held by a trust funded by a commercial banking group through which Recom has established a $168.5 million credit facility. As a general partner of Recom, we are contingently liable for repayment of any amounts outstanding under the credit facility in the event of default. Balances under the credit facility are unsecured, bear interest at LIBOR plus 1.5% (plus certain additional costs) and mature on June 21, 2003. The loan contains customary affirmative and negative lending covenants and default provisions that apply to us, our other Recom partners and Shurgard Europe and could be due prior to maturity in the event of default by us or them in our or their separate indebtedness. Recom is managed by one of our European operating partners who is responsible for day to day operations. Any significant capital commitment or any sale of assets requires unanimous approval of all partners. We, our European operating partners and some of the Shurgard Europe employees have the right to increase our respective equity interests in Recom, pro rata in proportion to our existing ownership, by purchasing additional shares at a Euro fixed price. For example, if these partners were to purchase additional interests to provide capital for repayment of the credit facility balance at December 31, 2001, our interest would increase to 87.65%. If we were the only party to purchase additional interests for this purpose, our interest would increase to 99.58%. One of our European operating partners has an option, exercisable in June 2003, to purchase the trust's interest in Recom identified above for a fixed price and is subject to a put option, exercisable also in June  2003, with respect to the same interest at the s ame price.

As of December 31, 2001, Recom's investment in Shurgard Europe consisted of current equity of 14.9 million Euro (US$12.8 million) and warrants to purchase additional equity for 106.3 million Euro (US$91.9 million). In addition, Recom has funded Shurgard Europe subordinated debt of 112.4 million Euro (US99.5 million) which bears interest at 8.25% per annum and matures in 2009. Recom's 53.83% interest in Shurgard Europe referred to above reflects the exercise of these warrants in full.

Under this structure, of the 7.57% aggregate interest we currently own in Shurgard Europe, we hold 2.66% directly and 4.89% indirectly through Recom. If we were to increase our interest in Recom to the largest percentage identified above, our indirect interest in Shurgard Europe through Recom would increase to 53.60% and our aggregate interest in Shurgard Europe would be 56.26%.

Our portion of net loss was $1.6 million, $1.4 million and $1.0 million for the years ended December 31, 2001, 2000 and 1999, respectively. These results are reported under Expenses as "Loss from Other Real Estate Investments" in our Consolidated Statement of Net Income. Our portion of losses from FFO was $991,000, $855,000, and $185,000 for the years ended December 31, 2001, 2000 and 1999, respectively. In order to take advantage of the investment opportunity, Shurgard Europe is accelerating its expansion rate in Europe. Although the operations of existing stores are improving, this expansion will produce losses for the next three to four years as financing costs, start up losses from the additional stores and overhead costs necessary to carry out current expansion plans will continue to exceed operating income. The results of European operations are not consolidated in our financial statements, but rather our interest is accounted for under the equity method o f accounting. The data included in the following discussion and tables reflect total European operations, not our pro rata percentage.

Since 1992, Shurgard Europe has tested the self storage product on local consumers and has tailored its product to meet the needs of European consumers. European consumers tend to live in more crowded population densities and smaller living spaces that make self storage an attractive option. As of December 31, 2001, Shurgard Europe had 72 storage centers operating in six countries.

The self storage industry is not well established in much of Europe, and we believe this presents Shurgard Europe with the opportunity to become a dominant player throughout Western Europe. Although we are seeing other industry players entering the European markets, we believe that the supply being added to the market still leaves significant opportunity when compared to the overall size of the market. Shurgard Europe and its subsidiaries have established expansion plans that focus in four markets: the Benelux region (which includes Belgium, Luxembourg and the Netherlands), France, Scandinavia (including Sweden and Denmark) and the UK. The following tables include certain financial and operating information that illustrate the performance of Shurgard Europe.

The definition for European Same Stores includes existing stores acquired prior to January 1 of the previous year as well as developed properties that have been operating for a full two years as of January 1 of the current year. The following table summarizes Same Store operating performance as defined for the years ended December 31, 2001, 2000 and 1999.

In 2001, Shurgard Europe increased rental rates of Same Stores an average of 3.2% while occupancy rose nine percentage points. These rate increases, as well as increases in occupancy, resulted in the 17% revenue increase from 2000 to 2001. Direct property expenses decreased 3.8% due to decreases in marketing expenses and certain real estate taxes. The decrease in indirect operating expenses is the result of spreading certain fixed costs over more stores as our European network expands.

In 2000, Shurgard Europe increased rental rates of Same Stores an average of 9% while occupancy rose eight percentage points. These rate increases, as well as increases in occupancy, resulted in the 18% revenue increase from 1999 to 2000. Increases in revenue combined with maintaining expenses at a 3% growth resulted in the 27% Same Store NOI growth over 1999.

Shurgard Europe's strategy is to quickly dominate markets they enter by building a network of high quality storage centers that can be managed with economies of scale. There are few storage centers available for acquisition, so Shurgard Europe has focused on a strategy of in-house development for most of its European stores. Through this strategy, it is able to maintain high quality standards and consistent building design to develop brand and product awareness. Each development project progresses through a series of review processes from initial review, through due diligence, final review and finally to the land purchase and construction. We believe the success of this strategy has been greatly enhanced as a result of the substantial experience Shurgard Europe has gained through the development of over 95% of its European properties. Shurgard Europe opened 25 storage centers in 2001, 19 in 2000 and 12 in 1999. The following table summarizes European developments by country in U.S. dollars during the past three years:

During 2001, Shurgard Europe opened 25 storage centers with an estimated total cost of $109 million and net rentable square feet of 1.3 million when all phases are complete.

The 19 storage centers opened in 2000 have a total cost of approximately $83 million and net rentable square feet of 1.1 million when all phases are complete. The average occupancy at the end of December 2001 was 59% after an average of 15 months of operations. These storage centers generated $2.2 million of NOI for the year ended December 31, 2001.

The 12 storage centers opened during 1999 had an average occupancy of 73% after an average of 26 months of operations and together generated $4.0 million of NOI for the year ended December 31, 2001. For the month of December 2001, net operating income for these developments represented 75% of projected monthly NOI at stabilization (as measured in the relevant local currency).

In addition to the above completed developments, Shurgard Europe currently has another 10 storage centers under construction. The following table summarizes European development projects in progress at December 31, 2001.

In the current state of the European self storage market, we believe that a strategy of growth through development will result in higher returns over the long term. A development strategy, however, creates a short-term dilution of earnings during the rent-up phase of a project. Although certain costs, including real estate taxes and interest, are capitalized during the construction period, NOI does not generally exceed interest expense on development projects for at least the first year of operations. The amount of rent-up deficit and the timing of positive cash flow cannot be predicted with certainty as it is based on a number of factors including length of rentp, ability to collect stated rental rates on leased units, actual operating expenses incurred and the time of year a property opens. Another result of this rent-up period is a decrease in our operating margins as new property expenses are added, but the related revenue stream does not hit stabilized levels until occupancy reaches 85%.

Real estate operations revenue rose 14.5% from 1999 to 2000 and 13.0% from 2000 to 2001 as a result of factors discussed under SEGMENT PERFORMANCE. Operating expense rose 23.0% from 1999 to 2000 and 18.5% from 2000 to 2001, while real estate tax expense rose 13.7% from 1999 to 2000 and increased 12.3% from 2000 to 2001. In addition to the expenses identified under SEGMENT PERFORMANCE, operating expenses include internal acquisition costs and development expenses related to discontinued efforts of $765,000, $376,000 and $461,000 for 2001, 2000 and 1999, respectively. Additionally, direct and indirect operating expenses of $2.6 million for our containerized storage operations beginning June 30, 2001 as well as $2.2 million in expenses related to our role as construction agent for SCT are included in operating expenses for 2001. All other amounts are included in NOI after indirect operating and leasehold expenses and are discussed in SEGMENT PERFORMANCE.

Other revenue increased $4.6 million from 2000 to 2001 due to $2.2 million in fees related to our role as construction agent for the Tax Retention Operating Leases (see Tax Retention Operating Leases under OWNERSHIP AND LEASING ARRANGEMENTS), as well as revenue from our containerized storage operations which we began consolidating June 30, 2001 totaling $2.0 million.

Depreciation and amortization increased 10.7% from 1999 to 2000 and 11.2% from 2000 to 2001. This increase reflects the increased number of stores included in our consolidated financial statements over the same period of time.

General and administrative expenses increased $718,000 from 1999 to 2000 and $6.9 million from 2000 to 2001. The increase from 1999 to 2000 resulted from higher personnel and information technology expenses which are primarily related to our growth. The increase from 2000 to 2001 includes expenses associated with the disposal of two containerized storage warehouses. Excluding the effect of the disposal of these warehouses, general & administrative expense increased $2.8 million, primarily due to costs related to the restatement of our financial statements during 2001, the negotiations of certain joint venture agreements and increases in personnel and information technology expenses related to our growth.

Interest income and other rose $0.8 million from 1999 to 2000 and $2.2 million from 2000 to 2001. Increases for 2001 are primarily due to the gain from sale of property.

Interest expense consists of two components: interest on loans and amortization of participation rights discount. Interest expense on line of credit and notes payable increased $11.1 million from 1999 to 2001 due to an increase in the outstanding balances. This rise represents borrowings to purchase partnership units and to fund development of new storage centers and acquisitions. Additionally, during 2001, we capitalized $1.3 million in interest related to the construction of domestic storage centers while $3.8 million and $6.0 million were capitalized in 2000 and 1999, respectively. The amortization of participation rights discount increased from 1999 to 2001 due to the increase in the number of stores subject to participation rights and changes in the estimated cash flows related to those rights. Amortization of loan costs of $2.1 million, $2.1 million and $1.9 million is included in amortization expense for 2001, 2000 and 1999, respectively.

Minority interest decreased $72,000 from 1999 to 2000 primarily due to the purchase of additional partnership units in Shurgard Institutional Fund LP. The increase of $65,000 from 2000 to 2001 is primarily due to additional capital contributions from our California developer resulting in an increase in their ownership position.

Income tax benefit consists of the current year income tax benefit for Shurgard Storage-To-Go, Inc., for the period since consolidation, including $891,000 related to the accrual of restructuring costs due to the closure of two STG warehouses (see Containerized Storage Operations).

During 2001 we incurred $1.0 million in costs related to the early extinguishment of a $122.6 million note to a financial services company and $0.4 million related to the early extinguishment of the mortgage financing for SFP II.

In 1999, we recorded $1.1 million as a cumulative change in accounting principle in connection with the application of SOP 98-5, "Reporting on the Costs of Start-Up Activities".

The following table shows income (loss) from unconsolidated real estate investments for the years ended December 31, 2001, 2000 and 1999. All income and loss amounts reflect our pro rata ownership percentage and are reported under Expenses as "Loss from Other Real Estate Investments" in our Consolidated Statement of Net Income.

Our unconsolidated pro rata losses for STG included in Other Real Estate Investments for the year ended December 31, 2001, 2000 and 1999, respectively, are $1.7 million, $1.8 million and $2.6 million. Beginning June 30, 2001, STG is consolidated in our financial statements. The amount in other real estate investments for 2001 includes the first six months of operations prior to consolidation (See Containerized Storage Operations).

We have 29 properties in joint ventures in which our ownership interests range from 50% to 90%, and over which we do not exercise effective control because all major decisions require the agreement of both parties. These joint ventures generated $9.6 million in NOI for 2001 compared to $8.4 million in 2000. As of December 31, 2001, we had invested a total of $23.7 million in these joint ventures net of income. Additionally, we have guaranteed certain joint venture loans totaling $19.0 million. Performance related to stores developed through these joint ventures is included in the appropriate tables and section discussions (Same Stores, Domestic Acquisitions or Domestic Development) under SEGMENT PERFORMANCE.

As of December 31, 2001, we have $2.6 million invested in a participating mortgage loan. This mortgage is non-recourse to the borrower, bears interest at 8% per annum, matures in January 2005 and is secured by a storage center. Additionally, we receive contingent interest payments from the mortgaged property equal to 50% of both operating cash flow and distributions from the gain on sale of real property, in accordance with the terms of the applicable agreement. Prior to December 2001, we had similar loans outstanding on four other properties. We received $639,000, $422,000, and $562,000 in the years 2001, 2000 and 1999 in contingent interest in connection with agreements related to the five properties. During 2001, we gave notice of our intent to exercise our option to purchase the five properties and, in December 2001, purchased four of the five properties at a cost of $13.8 million, including $10.3 million outstanding under the participating mortgage. We purchased the fifth property in February 2 002. Operating results for the five properties are included in same store results for 1999 through 2001.

Since 1996 the Company has invested in Shurgard Storage To Go, Inc., a Washington corporation (STG) whose business is to provide services ancillary to self storage, including but not limited to containerized storage services. The Company originally owned five percent (5%) of the Series A Common Stock in STG and 75% of non-voting, Series B Common Stock for a combined economic interest of 71.25%. In June 2001, the Company purchased the 95% of the Series A Common stock of STG which was formerly owned by current and former key employees of the Company for $57,000. At that time, we converted our $16 million note receivable to equity and began consolidating STG in our financial statements. As of December 31, 2001, the SSCI owns 100% of STG.

In March 2001, the Board of Directors decided to close the Chicago containerized storage operations. We incurred approximately $285,000 in expenses related to this closing. In April 2001, we opened a new warehouse in Orange County, California to take advantage of business opportunities in the Southern California market. Despite a new, more aggressive advertising approach, the Orange County warehouse failed to rent up as expected. In the fourth quarter of 2001, based on poor performance outlooks, we decided to close both the Orange County and Atlanta warehouses. We expect the cost of closing down operations in these two locations to total $2.4 million. The $2.4 million exit costs include estimates of the costs associated with subleasing the warehouses, lease termination fees for warehouses and equipment, severance costs, charges to prepaid expenses, estimated loss on sale of containers and estimated loss from operations during closing.

Our losses, net of tax, related to STG for the years ended December 31, 2001, 2000 and 1999 were $5.8 million, $1.8 million and $2.7 million, respectively. The losses for 2001 include expenses accrued in the fourth quarter 2001 in connection with the closure of the Orange County and Atlanta warehouses discussed above, as well as $1.7 million in impairment of existing assets and goodwill. In connection with the warehouse closures discussed above, we performed an impairment analysis on the remaining assets and goodwill related to STG. Impairment expense was calculated as the difference between fair value, using the discounted cash flow method, and the book value. The carrying value of assets related to STG included in our balance sheet at December 31, 2001 total $10.4 million, including $8.0 million in deferred tax assets. The goodwill impairment, asset impairment and exit cost accrual are recorded in "General, administrative and other" on the Consolidated Statement of Net Income .

New accounting principles: We implemented the SOP 98-5, "Reporting on the Costs of Start-Up Activities", in the first quarter of 1999. The initial application is reported as a cumulative effect of a change in accounting principle.

Statement of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. We adopted SFAS 133 effective January 1, 2001. We use interest rate swaps to fix a portion of our variable rate debt.

The adoption of SFAS 133 on January 1, 2001 resulted in a cumulative reduction to Other Comprehensive Income (OCI) of $348,000. The reduction in OCI was attributable to losses on cash flow hedges. There was no net gain or loss recognized in earnings for the year ended December 31, 2001 due to hedge ineffectiveness. Changes in the time value of an interest rate cap have been excluded from the assessment of hedge effectiveness and are reported in "Interest income and other" on the Consolidated Statement of Net Income, and was $126,000 for the year ended December 31, 2001. Approximately $25,000 of OCI will be reclassified into earnings during the next twelve months through amortization.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS 141, "Business Combinations." SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. The adoption of SFAS 141 is not expected to have a significant impact on our financial position, results of operations, or cash flows.

In June 2001, FASB issued SFAS 142, "Goodwill and Other Intangible Assets." SFAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this statement. We are required to implement SFAS 142 on January 1, 2002. In connection with the adoption of this statement, we have evaluated our goodwill and have determined that goodwill remaining on the books as of January 1, 2002 is not impaired. The remaining goodwill of $25 million has been determined to have an indefinite life; therefore, amortization of this goodwill will cease upon adoption of this statement as well as amortization of a trademark. All remaining intangibles have been assigned to specific assets and have determinable useful lives.

In July 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations." This statement establishes accounting standards for recognition and measurement of a liability for an asset retirement obligation and the associated asset retirement cost. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. We do not expect the adoption of SFAS 143 to have a material effect on our financial position or results of operations.

In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" for the disposal of a segment of business (as previously defined in that Opinion). SFAS 144 establishes a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale. It retains the fundamental provisions of SFAS 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of the impairment of long-lived assets to be disposed of by sale. SFAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. We do not expect the adoption of SFAS 144 to have a significant impact on our financial position or results of operations.

Funds from operations (FFO), pursuant to the National Association of Real Estate Investment Trusts' (NAREIT) October 1999, White Paper on Funds from Operations, is defined as net income, calculated in accordance with GAAP including non-recurring events, except for those defined as "extraordinary items" under GAAP and gains and losses from sales of depreciable operating property, plus depreciation of real estate assets and amortization of intangible assets exclusive of deferred financing costs less dividends paid to preferred stockholders. We believe that because amortization of participation rights discount reflect our partners' increasing interests in unrecognized gains on depreciable operating properties (represented by the difference between the expected option price and our partners' contributions), it is consistent to add it back to net income. Contributions to FFO from unconsolidated entities in which the reporting entity holds an active interest are to be reflected in FFO on the same basis. We believe FFO is a meaningful disclosure as a supplement to net income because net income implicitly assumes that the value of assets diminish predictably over time while we believe that real estate values have historically risen or fallen with market conditions. FFO is not a substitute for net cash provided by operating activities or net income computed in accordance with GAAP, nor should it be considered an alternative indication of our operating performance or liquidity. In addition, FFO is not comparable to "funds from operations" reported by other REITs that do not define funds from operations in accordance with the NAREIT definition. The following table sets forth the calculation of FFO in accordance with the NAREIT definition (in thousands):

FFO for 2001 increased $5.8 million over 2000 FFO, which had risen $2.1 million over 1999. As previously discussed, this growth rate reflects the improved performance of the original portfolio of properties as well as the addition of properties over the past three years through acquisitions and developments. In 2002, assuming we grow Same Store NOI after indirect operating and leasehold expense at 4 to 6% and we continue to lease new developments from SCT, we expect FFO to increase $25 million to $30 million. This expectation regarding FFO growth constitutes a forward-looking statement within the meaning of the Private Securities Litigation Reform Act and is based on several assumptions. If any of these assumptions are not satisfied or prove to be incorrect, actual results could differ materially from those indicated in the statement. The risks and uncertainties that may cause these assumptions and this forward-looking statement to prove to be incorrect include the risks that implementation of the busine ss plan, including marketing and sales initiatives, will not be successful and that our earnings, expenses or revenues may be affected by other factors, such as the risk that competition from new self storage facilities or other storage alternatives may cause rents to decline, occupancy rates to drop, or delays in rent up of newly developed properties. We may experience increases in labor, taxes, marketing and other operating and construction expenses. For a discussion of the factors that might cause these assumptions not to occur see SEGMENT PERFORMANCE, Other Real Estate Investments, Containerized Storage, and Risk Factors in (Item 1) Business of our Annual Report on Form 10-K.

In 2001, we invested $19.3 million in the acquisition of four storage centers, $38.9 million in domestic development and expansion projects, and $7.1 million in capital improvements to our existing portfolio. The $2.0 million increase in other real estate investments reflects the amount invested in joint ventures.

During 2001, we gave notice of our intent to exercise our option to purchase five properties in which we had participating mortgages, and, in December 2001, purchased four of the five properties at a cost of $13.8 million, including $10.3 million outstanding under the participating mortgage. We purchased the fifth property in February 2002. Operating results for the five properties are included in same store results for 1999 through 2001.

In November 2001 we purchased an additional partnership unit in Shurgard Institutional Fund LP for $1.3 million. We currently own 23 of 25 units and are entitled to 92% of this partnership's limited partner distributions.

In 2000, we invested $24.9 million in the acquisition of seven storage centers, $74.8 million in domestic development and expansion projects, and $7.0 million in capital improvements to our existing portfolio. The $4.9 million increase in other real estate investments reflects primarily the $4.7 million invested in joint ventures and the $0.2 million invested in our containerized storage operation. Additionally, during 2000, loans to affiliates included in other real estate investments increased $2.2 million due to additional loans to our containerized storage operation.

Under the Management Company Merger Agreement, we were contingently obligated to issue additional shares as consideration for certain partnership interests held by the Management Company which were not valued at the time of the merger. In 1998, we recorded the issuance of 145,286 shares and in 2000 issued the final 387,933 shares related to this obligation.

In 1999, we invested $13.3 million in the acquisition of five storage centers, $103.4 million in domestic development and expansion projects, and $6.3 million in capital improvements to our existing portfolio. The $8.2 million increase in other real estate investments reflects primarily the $8.0 million invested in joint ventures and the $0.2 million invested in our containerized storage operation. Additionally, during 1999, loans to affiliates increased $2.0 million primarily due to the loan we made to our containerized storage operation.

During 1999, we purchased one limited partner unit in Shurgard Institutional Fund LP II, from an unaffiliated third party, for $1.2 million in cash. During 2000, we purchased the remaining limited partner units for $3.8 million in cash. We now own all of the limited partner units and are entitled to 100% of limited partner distributions. We continue to own a general partnership interest in this partnership which is consolidated in our financial statements.

In addition to continued investments in acquisitions and developments, we invest in improving our current portfolio of real estate. Investments in existing storage properties include primarily expansions, conversions (i.e., size of units or climate control) and certain recurring improvements to roofs, pavement, sealant and other items such as security upgrades that we believe are necessary to maintain our quality standards and our ability to generate premium returns.

Of the $6.7 million in capital improvements expended during 2001, $2.4 million was for roofs, pavement and sealant, representing approximately $0.09 per net rentable square foot. During 2000, $7.0 million in capital improvements were expended of which $1.7 million was for roofs, pavement and sealant, representing approximately $0.07 per net rentable square foot, while $1.9 million out of a total of $6.2 million was spent for these items during 1999 representing approximately $0.10 per net rentable square foot. Specifically identified capital improvements expected for 2002 total $5.4 to $6.3 million, of which $2.1 to $2.9. million represents roofs, pavement and sealant.

The balance on the domestic line of credit decreased $42.1 million from December 31, 2000 to December 31, 2001. Draws on the line were used to fund acquisitions, the purchase of partnership units, development activity and general corporate purposes, and payments were primarily made from the proceeds of bond and stock offerings. At December 31, 2001, we had an unsecured domestic line of credit to borrow up to $360 million at a spread over LIBOR, maturing February 2005. Availability under this line of credit is limited based on various financial covenants and guarantees under certain tax retention operating leases. At December 31, 2001, the current available amount was $222.1 million, of which approximately $47.8 million was outstanding. At December 31, 2001, the weighted average interest rate was 3.5%.

The balance on the domestic line of credit during 2000 decreased $12.1 million. Draws on the line were used to fund acquisitions, the purchase of partnership units, development activity and general corporate purposes, and payments were made from reimbursements from joint ventures for development costs. As of December 31, 2000, $89.9 million was outstanding and the weighted average interest rate was 7.9%

Net borrowings under the domestic line of credit during 1999 totaled $20.6 million. Draws on the line were used to fund acquisitions, purchases of partnership units, development activity and general corporate purposes. As of December 31, 1999, $102.0 million was outstanding, and the weighted average interest rate was 7.6%.

In February 2001, we issued $200 million in senior unsecured notes (approximately $198.4 million in net proceeds) which are ten year notes bearing interest at 7.75% and are due 2011. The notes require semi-annual interest payments due February 22 and August 22. Additionally, in February 2001, we raised $86.25 million (approximately $83.1 million in net proceeds) through the sale of 3.45 million shares of Series D Cumulative Redeemable Preferred Stock. These preferred shares require quarterly distributions of 8.75% per year and are callable at our option after five years, at a redemption price of $25 per share. In 2001, we raised net proceeds after offering costs of $76.0 million through the sale of 2.7 million shares of Class A Common Stock. Proceeds from these issuances were used to repay balances outstanding under our line of credit, to purchase the partnership interests noted above and to pay off our $122.6 million note payable prior to its maturity in June 2001. In connection with the payoff of t he $122.6 million note payable, we incurred approximately $1 million in expense related to the early extinguishment of this debt.

During 2000, Shurgard/Fremont Partners II (SFPII) borrowed an additional $12.9 million under its non-recourse credit facility. On October 1, 2001, we exercised our option to acquire our joint venture partner's interest in SFP II for $37.7 million. This payment was accounted for as a reduction in participation rights (See Note H in our Consolidated Financial Statements). On September 28, 2001, we repaid the partnership's outstanding mortgage financing of approximately $62.3 million with proceeds from our common stock offering and incurred $409,000 in expenses in connection with the early extinguishment of this debt.

Additionally, during 2000, CCP/Shurgard obtained a non-recourse credit facility to borrow up to $67.7 million of which $64.8 million was outstanding as of December 31, 2001. The note matures December 2003, is secured by the 21 properties owned by CCP/ Shurgard, and requires monthly payments of interest only at 275 basis points above LIBOR. We have an interest rate cap in effect for the $60.4 million which limits the interest rate to 7.50% plus the spread on the LIBOR indexed floating rate. In addition, we have an interest rate swap in effect which fixes the interest rate at 6.93%.

During 1999, Shurgard/Fremont Partners I (SFPI) borrowed an additional $2.3 million under its non-recourse credit facility. On January 30, 2001, we exercised our option to acquire our joint venture partner's interest in SFP I for $27.7 million. This payment was accounted for as a reduction in participation rights (See Note H in our Consolidated Financial Statements). Additionally, we repaid the partnership's outstanding mortgage financing of approximately $45.0 million

Additionally, K&S I, LLC, a partnership, formed on October 15, 1999, had a non-recourse credit facility from a commercial bank of $6.5 million. On July 19, 2001, we exercised our option to acquire our joint venture partner's interest in Shurgard/K&S I, LLC for $4.1 million. This payment was accounted for as a reduction in participation rights (See Note H in our Consolidated Financial Statements). Additionally, we repaid the partnership's outstanding mortgage financing of approximately $6.5 million.

We have financed one of our storage centers located in California with a participating mortgage under which the lender receives the stated interest rate of 8% per annum plus 90% of net cash flows, as defined, and participates 90% in the increased value of the property. The estimated increase in value, which is recognized as a participation rights discount, is being amortized over the life of the loan. At December 31, 2001, $6.7 million of an estimated total participation of $9.2 million had been amortized. On January 2, 2002, we gave notice that we intend to repay this loan prior to maturity.

Cash balances decreased from $7.7 million at December 31, 2000 to $7.0 million at December 31, 2001 primarily due to payment of notes payable and the purchase of participation rights offset by the common and preferred stock offerings. The following table summarizes certain information regarding our liquidity and capital resources:

Our total domestic debt at December 31, 2001 was $375.3 million, all of which is fixed rate debt or variable rate debt fixed by swap agreements. We limit our use of variable rate debt; however, at times balances could be significant enough that fluctuations in interest rates would impact our earnings. We believe that we will be able to minimize the impact of such rate fluctuations through the use of interest rate swaps and caps, refinancing or other strategies.

Cash provided by operating activities for the years ended December 31, 2001, 2000 and 1999 was $ 116.5 million, $85.6 million, and $86.1 million, respectively. We believe that our cash flow in 2002 will be sufficient to make required principal payments and distributions in accordance with REIT requirements. Operating cash flow is subject to certain risks and uncertainties that may affect our ability to meet these obligations, including the risk that implementation of the business plan, including marketing and sales initiatives, will not be successful and that our earnings, expenses or revenues may be affected by other factors, such as the risk that competition from new self storage facilities or other storage alternatives may cause rents to decline, occupancy rates to drop, or delays in rent-up of newly developed properties. Additionally, we may experience increases in labor, taxes, marketing and other operating and construction expenses.

We anticipate meeting our long-term liquidity needs primarily through a combination of our lines of credit, unsecured debt, common and preferred equity, and alternative capital sources. In order to continue to grow at historical rates and to meet our capital objectives, it will be necessary to obtain equity capital during the next two to three years. We will evaluate various alternatives, including joint ventures with private institutions and public pension funds and the issuance of additional common stock. Additionally, we anticipate reducing our distribution payout ratio in order to retain cash flow for growth.

The following tables summarize our contractual obligations and our off-balance sheet commitments (in thousands).

1. See Unconsolidated Joint Ventures under OWNERSHIP AND LEASING ARRANGEMENTS.
2. See Tax Retention Operating Leases under OWNERSHIP AND LEASING ARRANGEMENTS.
3. Bank debt for which we are contingently liable as a general partner of Recom. The debt matures in 2001, or sooner, if we, our partners in Recom or Shurgard Europe default in our separate indebtedness. See EUROPEAN OPERATIONS.

As a REIT, we are not required to pay federal income tax on annual taxable income that we currently distribute to our shareholders, provided that we distribute an amount equal to at least 90% of our taxable income. Such distributions must be made in the taxable year to which they relate or in the following taxable year if declared before the REIT timely files its tax return for such years and is paid on or before the first regular distribution payment date after such declaration. For the years ended December 31, 2001, 2000 and 1999, 12.6%, 14.7%, and 1.8% of distributions were return of capital, respectively.

As a REIT, we must derive at least 95% of our total gross income from specified classes of income related to real property, distributions, interest or certain gains from the sale or other disposition of stock or other securities. Our revenue from truck rentals, sales of locks and boxes and management services performed for other owners of properties do not qualify under this 95% gross income test. Such non-qualifying income was approximately 3% of gross revenue in 2001 and we expect to meet the 95% test in 2002. Our acquisition of additional properties will tend to reduce the percentage of non-qualifying income, while additional management contracts, including those with off balance sheet joint ventures and partnerships, and the sales of properties from the existing portfolio will tend to increase the percentage of non-qualifying income. While we intend to manage our activities so that we continue to satisfy the 95% test in the future, we can provide no assurance that non-qualifying income will not exceed 5% in future years.

Our primary market risks are interest rate exposure and foreign currency exchange rate exposure. We do not enter into speculative derivative transactions or leveraged swap agreements. The derivative instruments that we own are not held as investments and it is our intent to hold such instruments for their respective terms. Therefore, changes in their values will not have a significant effect on our operations, cash flows or financial position.

We have foreign currency exposures related to our investment in the construction, acquisition, and operation of storage centers in countries outside the US to the extent such activities are financed with financial instruments or equity denominated in non-functional currencies. Since all foreign debt is denominated in the corresponding functional currency, our currency exposure is limited to our equity investment in those countries. Countries in which we have exposure to foreign currency fluctuations include Belgium, France, the Netherlands, Sweden, Denmark and the United Kingdom. Our gross investment in these foreign operations at December 31, 2001 was $3.7 million and is not considered material. At December 31, 2001, cumulative losses, including depreciation expense, have exceeded our gross investment by $4 million. During 2001, all foreign investments are accounted for under the equity method.

The table below provides information about our derivative financial instruments and other financial instruments that are sensitive to changes in interest rates, including loans to shareholders, debt obligations and interest rate swaps. For loans to shareholders, the table presents contractual principal cash flows to be received and the weighted average interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For interest rate swaps, the table presents notional amounts and weighted average interest rates by contractual maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract.

Shurgard Storage Centers, Inc. (SSCI), a Washington corporation, was organized on July 23, 1993 to serve as a vehicle for investments in, and ownership of, a professionally managed, internationally diverse real estate portfolio consisting primarily of self-service storage properties which provides month-to-month leases for business and personal use. We intend to qualify as a real estate investment trust (REIT) as defined in Section 856 of the Internal Revenue Code.

Basis of presentation: The consolidated financial statements include the accounts of SSCI and its subsidiaries. All inter-company balances and transactions have been eliminated upon consolidation. We consolidate the accounts of those subsidiaries or joint ventures in which we have effective control as evidenced by, among other factors, a majority interest in the investment and the ability to cause a sale of assets. All investments in joint ventures that do not qualify for consolidation, but in which we exercise significant influence, are accounted for under the equity method and are included in other real estate investments.

In October 1999, a group of unaffiliated investors purchased a 42% interest in Shurgard Self Storage, SCA (formerly SSC Benelux & Co., SCA). As a result of this transaction, we no longer control Shurgard Self Storage, SCA and beginning in 1999, our remaining 7.57% interest has been accounted for under the equity method of accounting. (See Note E).

Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

New accounting principles: We implemented the SOP 98-5, "Reporting on the Costs of Start-Up Activities", in the first quarter of 1999. The initial application is reported as a cumulative effect of a change in accounting principle.

Statement of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. We adopted SFAS 133 effective January 1, 2001. We use interest rate swaps to fix a portion of our variable rate debt.

The adoption of SFAS 133 on January 1, 2001 resulted in a cumulative reduction to Other Comprehensive Income (OCI) of $348,000. The reduction in OCI was attributable to losses on cash flow hedges. There was no net gain or loss recognized in earnings for the year ended December 31, 2001 due to hedge ineffectiveness. Changes in the time value of an interest rate cap have been excluded from the assessment of hedge effectiveness, are reported in "Interest income and other" on the Consolidated Statement of Net Income and was $126,000 for the year ended December 31, 2001. Approximately $25,000 of OCI will be reclassified into earnings during the next twelve months through amortization.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS 141, "Business Combinations." SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. The adoption of SFAS 141 is not expected to have a significant impact on our financial position, results of operations or cash flows.

In July 2001, FASB issued SFAS 142, "Goodwill and Other Intangible Assets." SFAS 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this statement. We are required to implement SFAS 142 on January 1, 2002. In connection with the adoption of this statement, we have evaluated our goodwill and have determined that goodwill remaining on the books as of January 1, 2002 is not impaired. Goodwill of $25 million has been determined to have an indefinite life; therefore, amortization of this goodwill will cease upon adoption of this statement as well as amortization of a trademark. All remaining intangibles have been assigned to specific assets and have determinable useful lives.

In June 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement Obligations." This statement establishes accounting standards for recognition and measurement of a liability for an asset retirement obligation and the associated asset retirement cost. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. We do not expect the adoption of SFAS 143 to have a material effect on our financial position or results of operations.

In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" and the accounting and reporting provisions of APB Opinion 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" for the disposal of a segment of business (as previously defined in that Opinion). SFAS 144 establishes a single accounting model, based on the framework established in SFAS 121, for long-lived assets to be disposed of by sale. It retains the fundamental provisions of SFAS 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of the impairment of long-lived assets to be disposed of by sale. SFAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. We do not expect the adoption of SFAS 144 to have a significant impact on our f inancial position or results of operations.

Storage centers: Storage centers are recorded at cost. Depreciation on buildings and equipment is recorded on a straight-line basis over their estimated useful lives, which range from three to 30 years.

Other real estate investments: As of December 31, 2001, investments accounted for under the equity method included 25 joint ventures. Also, included in other real estate investments is a participating mortgage, which is accounted for as a loan.

Financing arrangements: We accounted for sales of certain storage centers in which we have continuing involvement, as defined in SFAS 66, "Accounting for Sales of Real Estate," as financing arrangements (See Note H).

Cash equivalents: Cash equivalents consist of money market instruments and securities with original maturities of 90 days or less.

Restricted cash and investments: Restricted cash and investments consist of cash deposits and represent expense reserves required by lenders.

Other assets: Other assets include financing costs, non-competition agreements, and goodwill which are presented net of accumulated amortization of $15.6 million and $23.2 million as of December 31, 2001 and 2000, respectively. Financing costs are amortized using the effective interest method over the life of the related debt and the related expense is included in amortization. Non-competition agreements and goodwill are amortized over their estimated useful lives, which range from three to 30 years.

Federal income taxes: To qualify as a REIT, we must distribute annually at least 90% of our taxable income and meet certain other requirements. Additionally, as a REIT, we will not be subject to federal income taxes to the extent of distributions. We were not required to pay any federal income tax in 1999 or 2000 and we intend to make elections regarding distributions such that we will not pay federal taxes for 2001. As a result, no provision for federal income taxes has been made in our financial statements. We are subject to certain international and state income taxes as well as certain franchise taxes; however, these taxes are currently immaterial. Legislation passed in December 1999 reduces the taxable income distribution requirements for a REIT from 95% to 90% beginning January 2001.

Shurgard Storage-To-Go, Inc. (STG), a wholly owned subsidiary, is a taxable REIT subsidiary and is subject to corporate level tax. At December 31, 2001, STG had a deferred tax asset of $8.0 million primarily attributable to net operating loss carryforwards which will expire beginning in 2017 (See Note K). When determining the necessary amount, if any, of valuation allowance on the deferred tax asset, we base our estimate on projected future taxable income from all sources.

Revenue recognition: The majority of our customers rent under month-to-month lease agreements and revenue is recognized at the contracted rate for each month occupied. Revenue related to customers who sign longer period leases is recognized ratably over the term of the lease. Management fee revenue is recognized each month for which services are rendered; these contracts are generally cancelable by either party upon specified advance of notice. Management fees from related parties were $393,000, $250,000 and $293,000 for the years ended December 31, 2001, 2000, and 1999, respectively.

Valuation of long-lived assets: Using our best estimates based on reasonable and supportable assumptions and projections, we review storage centers and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of our assets might not be recoverable. At December 31, 2001, we determined that certain assets in Shurgard Storage To Go were impaired. The closure of the two warehouses in Southern California and Atlanta caused us to evaluate the assets in the three remaining warehouses in Washington, Northern California and Oregon (See Note J). Using the discounted cash flow method for determining the fair value of assets associated with these warehouses, we determined that the remaining net book value of assets in the Oregon warehouse in the amount of $268,000, and $1.5 million of goodwill associated with the Northern California and Washington warehouses were impaired. The total impairment loss of $1.7 million is included in General, administra tive and other in the Consolidated Statement of Net Income.

Financial instruments: The carrying values reflected on the balance sheet at December 31, 2001, reasonably approximate the fair value of cash and cash equivalents, other assets, accounts payable, lines of credit, variable rate debt and other liabilities. We estimate that the fair value of loans to shareholders is $2.7 million and the fair value of the participating mortgage is $3.0 million. Based on the borrowing rates currently available to us for bank loans with similar terms and average maturities, we estimate the fair value of fixed rate long-term debt including swap arrangements is $406.5 million compared to a book value of $375.3 million.

Environmental costs: Our policy is to accrue environmental assessments and/or remediation costs when it is probable that such efforts will be required and the related costs can be reasonably estimated. The majority of our real estate facilities have undergone independent environmental investigations and our policy is to have such investigations conducted on all new real estate acquired. Although there can be no assurance that there is not environmental contamination at our facilities, we are not aware of any such contamination at any of our facilities which individually or in aggregate would be material to our business, financial condition, or results of operations.

We have entered into various construction contracts for development of new or improvements to existing storage centers. Outstanding commitments under these contracts total $2.1 million. In 2001, 2000, and 1999, we capitalized approximately $1.3 million, $3.8 million, and $6.0 million, respectively, of interest related to the development of storage centers.

In March 1999, we purchased from an unaffiliated third party one limited partner unit in Shurgard Institutional Fund LP II, an affiliated partnership, for $1.2 million in cash. In September of 2000, we purchased the remaining 3 units for $3.8 million in cash. We currently own all of the 9.5 limited partner units and are entitled to 100% of LP distributions. We continue to own a general partnership interest in this partnership. Due to our majority interest, Shurgard Institutional Fund LP II is consolidated for financial statement purposes.

In July 1998, we purchased eighteen limited partner units in Shurgard Institutional Fund LP for $22.6 million in cash ($21.2 million, net of cash received). All purchases were from unaffiliated third parties. In November 2001, we purchased an additional unit for $1.3 million. We currently own 23 of 25 units and are entitled to 92.6% of this partnership's limited partner distributions. As this represents a majority interest, Shurgard Institutional Fund LP has been consolidated for financial statement purposes since July 1998. We continue to own a general partnership interest in this partnership.

We have an agreement with a California developer under which it purchases sites in southern California and constructs storage centers on them according to our specifications. Upon completion of the rent-up period, the storage centers are purchased by a joint venture. Prior to such purchase, we have no ownership in the properties and accordingly, they are not included in any discussions in our operating results. The developer's interest in the joint venture is based upon a predetermined formula and the fair value of the property at contribution. During 1999, the joint venture purchased one of the completed storage centers for $3.1 million; during 2000 the joint venture purchased an additional completed storage center for $11.0 million; and during 2001, we purchased two of the completed storage centers for $13.4 million. At December 31, 2001, we had guaranteed $16.5 million in outstanding debt for three properties related to this agreement and may guarantee additional amounts as future properties are devel oped. We recognized approximately $1.2 million, $691,000, and $38,000 for years ended December 31, 2001, 2000, and 1999 respectively, which represents 78.7%, 77.3%, and 79.0%, respectively, of joint ventures earnings.

We have invested $2.6 million in a participating mortgage loan. This mortgage is non-recourse to the borrower, bears interest at 8% per annum and matures in January 2005. This loan is secured by one storage center. Additionally, we receive contingent interest payments from the mortgaged property equal to 50% of both operating cash flow and distributions from the gain on sale of real property, in accordance with the terms of the applicable agreement. We received $639,000, $422,000, and $562,000 in the years 2001, 2000, and 1999 in contingent interest in connection with these agreements. We have given notice that we intend to exercise our option on this property.

Pursuant to affiliation agreements with three storage operators, we have entered into 25 joint ventures in which our ownership interests range from 50% to 90%. As of December 31, 2001, we had invested a total of $23.4 million in these joint ventures, net of joint venture earnings. We have guaranteed $19.0 million of loans. The financial results for these projects are not consolidated in our financial statements because each affiliation agreement allows the local operator to control the daily operations of the property, and all significant investment decisions require the approval of both parties regardless of ownership percentage.

In October 1999, a group of unaffiliated investors purchased a 42% interest in Shurgard Self Storage, SCA for 122 million Euro ($105.2 million in U.S. dollars at December 31, 2001). As a result of this agreement, our interest in Shurgard Self Storage, SCA decreased from 13.06% to 7.57%, and we no longer have effective control of Shurgard Self Storage, SCA. The joint venture agreement requires a vote of two thirds of the Board of Managers for all major decisions; however, we continue to exercise significant influence over Shurgard Self Storage, SCA through our control of half of the seats on the Board of Managers. The negative investment balances of $4.1 million and $2.4 million are included in other liabilities as of December 31, 2001 and 2000, respectively.

Storage To Go, Inc., a containerized storage business, is a taxable REIT subsidiary and is subject to corporate level tax. In June 2001, we purchased all of the issued and outstanding shares of STG and converted the note receivable to equity. As a result of this transaction, as of December 31, 2001, our gross investment in STG was $22.9 million. We began consolidating STG in our financial statements as of the date of the purchase of the shares. Operating results prior to the purchase of voting stock is accounted under the equity method.

We have an unsecured domestic line of credit to borrow up to $360 million. This facility matures in February 2005 and requires monthly interest payments at 125 basis points over LIBOR. Availability under this line of credit is limited based on various financial covenants and guarantees under certain tax retention operating leases. At December 31, 2001, the available amount was $222.1 million. At December 31, 2001, there was $47.8 million outstanding and the weighted average rate was 3.46%.

In April 1997, we issued $100 million in senior unsecured notes, $50 million of which are seven year notes due April 2004 bearing interest at 7.5% and $50 million of which are ten year notes due April 2007 bearing interest at 7.625%. The notes require semi-annual interest due April 25th and October 25th. On February 22, 2001, we issued $200 million in senior unsecured notes that are ten-year notes bearing interest at 7.75% and are due 2011. The notes require semi-annual interest payments due February 22 and August 22.

Mortgage notes payable includes four mortgage notes. Three of these notes are each secured by a single property and require payments of interest and principal. The remaining mortgage note is secured by 21 properties accounted for as a financing arrangement (See Note H) and is a non-recourse credit facility which requires payments of interest only.

On January 30, 2001, we exercised our option to acquire our joint venture partner's interest in Shurgard/Fremont Partners I, (SFP I) for $27.7 million. This payment was accounted for as a reduction in participation rights (See Note H). Additionally, we repaid the partnerships outstanding mortgage financing of approximately $45.0 million.

On March 31, 2001, we paid off a $122.6 million note to a financial services company and incurred $1.0 million in expenses in connection with the early extinguishment of this debt.

On April 30, 2001, we paid off a $1.4 million mortgage note.

On July 19, 2001, we exercised our option to acquire our joint venture partner's interest in Shurgard/K&S I, LLC for $4.1 million. This payment was accounted for as a reduction in participation rights (See Note H). Additionally, we repaid the partnership's outstanding mortgage financing of approximately $6.5 million.

On October 1, 2001, we exercised our option to acquire our joint venture partner's interest in Shurgard/Fremont Partners II (SFP II) for $37.7 million. On September 28, 2001, we repaid the partnership's outstanding mortgage financing of approximately $62.3 million and incurred $409,000 in expenses in connection with the early extinguishment of this debt.

The maturities of principal of debt over the next five fiscal years are approximately $64.8 million in 2003, $57.3 million in 2004 and $253.2 million in 2007 and beyond. Each of these notes contains covenants that require us to submit financial information and maintain certain financial ratios. The book value of storage centers securing our notes payable is $109.0 million.

Beginning in 1998, we entered into a series of four development joint ventures with unrelated third parties. The purpose of these joint ventures was to expand our development capacity, broaden our access to capital, and to minimize the effect of the rent-up deficit on Funds from Operations (FFO) by sharing the rent-up risk with our joint venture partners. Under the terms of each joint venture, we have a 10% or 20% equity interest in each of these joint ventures, which are structured as general partnerships or limited liability companies, and generally require the agreement of both partners on all major decisions. Cash from the third-party equity contributions and the proceeds from mortgage debt were utilized to purchase the storage centers when or shortly after we completed construction. The amount paid to us was based on historical cost of the properties plus negative cash flow prior to transfer.

Under the terms of three joint ventures, we have an option to acquire the storage centers or the other investor's partnership interest. Each purchase option is exercisable at certain times, typically in two to three years. If we exercise our option, the purchase price for the properties is the greater of a base purchase price (an amount sufficient to yield a 7% return on the partners' unreturned capital contribution), or a calculated purchase price (based on the annualized net operating income (NOI) of the properties for the three or four-month period preceding the exercise of the option divided by 9.25%). We acquired the investor's partnership interest in these three joint ventures during 2001 for a total of $69.4 million. These were accounted for as a reduction in participation rights liability.

The terms of the fourth joint venture are similar to those described above, except that our joint venture partner has the right to present each property to us for purchase after the thirty-first month following the contribution of the property to the joint venture. If we elect to purchase a property, the purchase price is the greater of an amount necessary to return all partners a 12% internal rate of return on contributed equity or an amount calculated in a manner similar to the three joint ventures discussed above. If we decline to purchase a property at the stipulated price, the property, without our consent, may be sold to a third party, and in addition, our voting rights will be suspended. If the aggregate sales proceeds from any properties purchased by third parties are less than the stipulated price, our share of the proceeds will be reduced by an amount that cannot exceed our contributed capital in accordance with a formula. The joint venture cannot sell the properties to a third party prior to offering the properties to us at the stipulated price.

Due to our continuing involvement with the storage centers, in accordance with SFAS 66, "Accounting for Sales of Real Estate", we do not recognize the sale of these properties and, due to the likelihood of our exercising the options, we account for these transactions as financing arrangements. Under this method we recognize a participation rights liability and a related discount on the underlying liability for the estimated fair value of our joint venture partners' share of the estimated option purchase price based on the best evidence available to us. The discount is amortized as a component of interest expense over the term of the related agreements. Changes in the estimated fair value of the participation rights and related discount are recognized prospectively over the remaining term of the agreements.

The storage centers, mortgage notes payable, and other related assets and liabilities of the joint ventures are included in our consolidated balance sheets, and the related revenue and expenses of these properties are included in our Consolidated Statements of Net Income.

We also own a storage center subject to a participating mortgage. The lenders will receive 90% of the property's appreciation. As a result this mortgage is accounted for in the same manner as described above.

The following table summarizes the estimated liability for participation rights and the related discount:

We lease certain parcels of land and buildings under operating leases with terms up to 50 years. The future minimum rental payments required under these leases are as follows (in thousands):

Expense under these leases was approximately $2.6 million, $1.1 million and $0.7 million for the years ended December 31, 2001, 2000, and 1999, respectively.

In February 2001, we executed an agreement with a third party to enter into up to $250 million worth of tax retention operating leases in connection with the line of credit discussed in Note F. We anticipate that most of our development projects over the next two years will be developed by this third party and leased through this facility. Under the related agreements, we will function as construction agent and tenant. At the end of the lease term, we may acquire a property or it may be sold to a third party, or the lease may be extended by mutual agreement; we have the option to acquire a property at or before the end of its lease term. If we exercise our options, the purchase price for the property will be equal to the total property cost plus interest carry and a fixed equity return to the third party at a combined rate of approximately 150 basis points over LIBOR. Prior to such purchase, we will have no legal ownership in these properties. As of December 31, 2001, the third party has 11 storage center s under construction, has purchased land for construction of four additional storage centers and has four completed developments and three acquisitions. The lease term for these properties begins upon the third party's acquisition of the land and/or property. Rent commences under the lease upon completion of construction and equals 85% of the storage center's positive monthly net operating income. For the year ended December 31, 2001, we paid $122,000 in lease payments on these properties. In connection with these leases, we are liable for contingent residual lease guarantees totaling $48.4 million as of December 31, 2001.

In December 2001, the Board of Directors approved an exit plan to discontinue the operations of STG in the Atlanta and Southern California markets. In connection with this decision, we have accrued incremental costs expected to be incurred during the closing of the warehouses of $4.1 million which are included in General, administrative and other in the Consolidated Statement of Net Income. These costs consist of lease termination fees for warehouses and equipment, severance packages, charges to prepaid expenses, estimated loss on sale of containers and estimated loss from operations during closing of $2.4 million, as well as impairment losses on certain assets and goodwill of an additional $1.7 million. We expect to have the exit plan completed by the end of 2002.

In June 2001, we purchased the remaining shares of STG, a taxable REIT subsidiary, and began consolidating the assets and liabilities of STG as of that date. The income tax benefit, calculated at the statutory rate of 34%, consists entirely of deferred taxes. The components of deferred tax assets (liabilities) for STG at December 31, 2001 are included in the table below. As of December 31, 2001, no valuation allowance had been established.

In addition to the rights, privileges and powers of Class A Common Stock, Class B common stockholders received loans from SSCI to fund certain obligations to the 17 partnerships which comprise our predecessor. The loans are due between 2001 and 2003 and are secured by the Class B Common Stock. Class B Common Stock is convertible to Class A Common Stock at a one-to-one ratio as the loans are repaid. On April 27, 2000, the Board approved the extension of maturity dates of certain promissory notes to Class B common stockholders to March 1, 2003. The extended notes require quarterly payments of interest at 200 basis points above LIBOR, while those not extended are non-interest bearing. For the year ended December 31, 2001, we received $49,000 in interest income on these notes and $909,000 in principal payments.

SSCI has 40 million shares of preferred stock authorized, of which 2.8 million shares have been designated as Series A Junior Participating Preferred Stock, (none are issued and outstanding at December 31, 2001); 2.3 million shares have been designated as Series B Cumulative Redeemable Preferred Stock (2 million of which are issued and outstanding at December 31, 2001, as discussed below), 2 million shares have been designated as Series C Cumulative Redeemable preferred stock (2 million of which are issued and outstanding at December 31, 2001, as discussed below), and 3.45 million shares have been designated as Series D Cumulative Redeemable Preferred Stock (3.45 million of which are issued and outstanding at December 31, 2001, as discussed below). The Board of Directors is authorized to determine the rights, preferences and privileges of the preferred stock including the number of shares constituting any such series and the designation thereof.

Series B Cumulative Redeemable Preferred Stock require quarterly distribution payments totaling 8.8% per year and are callable at our option after five years, at a redemption price of $25 per share. Series C Cumulative Redeemable Preferred Stock require quarterly distribution payments totaling 8.7% per year and are callable at our option after five years, at a redemption price of $25 per share.

On March 24, 1995, SSCI acquired Shurgard Incorporated (the Management Company) through a merger. Under the Management Company Merger Agreement, we were contingently obligated to issue additional shares as consideration for certain partnership interests held by the Management Company, which were not valued at the time of the merger. On February 4, 1999, we issued 145,286 Class A common shares for $3.8 million related to this obligation. On June 5, 2000, we issued the final 387,933 Class A common shares due under this obligation for $9.2 million. In 2001, we raised net proceeds after offering costs of $76.0 million through the sale of 2.7 million shares of Class A Common Stock.

In February 2001, we raised $86.25 million (approximately $83.1 million in net proceeds) through the sale of 3.45 million shares of Series D Cumulative Redeemable Preferred Stock. These preferred shares require quarterly distributions of 8.75% per year and are callable at our option after five years, at a redemption price of $25 per share.

SFAS 133 requires that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income, and recognized in the statement of earnings when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment.

The effect of the implementation of SFAS 133 on our earnings was not significant. Subsequent to our adoption of SFAS 133 for the year ended December 31, 2001, other assets increased $106,000, other liabilities increased $3.0 million and other comprehensive loss increased $2.7 million. Total accumulated other comprehensive loss was $2.7 million as of December 31, 2001. For the year ended December 31, 2001, we recognized $1.2 million in interest expense related to the termination of swap agreements for SFPI and SFPII in connection with paying off the debt.

The 1993 Stock Option Plan (the 1993 Plan) provides for the granting of options for up to 3% of our outstanding shares of Class A Common Stock at the end of each year, limited in the aggregate to 5,000,000 shares. In general, the options vest ratably over five years and must be exercised within ten years from date of grant. The exercise price for qualified incentive options under the 1993 Plan must be at least equal to fair market value at date of grant and at least 85% of fair market value at date of grant for non qualified options. The 1993 Plan expires in 2003.

The 1995 Long-Term Incentive Compensation Plan (the 1995 Plan) provided for the granting of options for up to 2% of the adjusted average shares of our Class A Common Stock outstanding during the preceding calendar year, as well as stock appreciation rights, stock awards (including restricted stock), performance awards, other stock-based awards and distribution equivalent rights. The 1995 Plan required mandatory acceleration of vesting in the event of certain mergers and consolidations or a sale of substantially all the assets or a liquidation of SSCI, except where such awards were assumed or replaced in the transaction. The 1995 Plan permitted the plan administrator to authorize loans, loan guarantees or installment payments to assist award recipients in acquiring shares pursuant to awards and contains certain limitations imposed by tax legislation. The 1995 Plan allowed for grants to consultants and agents, as well as our officers and key employees. The 1995 plan expired in July 2000.

The 2000 Long-Term Incentive Compensation Plan (the 2000 Plan) provides for the granting of options for up to 1.4 million shares of our Class A Common Stock, as well as stock appreciation rights, stock awards (including restricted stock), performance awards, other stock-based awards and distribution equivalent rights. The 2000 Plan requires mandatory acceleration of vesting in the event of certain mergers and consolidations or a sale of substantially all the assets or a liquidation of SSCI, except where such awards are assumed or replaced in the transaction. The 2000 Plan permits the plan administrator to authorize loans, loan guarantees or installment payments to assist award recipients in acquiring shares pursuant to awards and contains certain limitations imposed by tax legislation. The 2000 Plan allows for grants to consultants and agents, as well as our officers, directors and key employees. We granted 34,289 and 39,525 shares of restricted Class A Common Stock to officers and key employees for years ended December 31, 2001 and 2000, respectively. The shares granted entitle the grantee to all shareholder rights: however, the shares will vest ratably over 5 years. If a grantee's employment is terminated prior to the end of the five-year period, the unvested shares will be forfeited.

In 1993, we also established the Stock Option Plan for Nonemployee Directors (the Directors Plan) for the purpose of attracting and retaining the services of experienced and knowledgeable outside directors. This plan was amended during 1995 and provided current outside directors with 6,000 shares each in 1995 and 3,000 shares each annually thereafter. Such options vest upon continued service until our next annual meeting. In 1998 the Director's Plan was amended and restated to provide for discretionary grants. The total number of shares reserved under the Plan did not change and remains at 200,000. The exercise price for options granted under the Directors Plan are equal to fair market value the day before the date of grant. As of December 31, 2001, 153,920 of these options were outstanding.

We have an employee incentive savings and stock ownership plan, in which substantially all employees are eligible to participate. Each year, employees may contribute an amount up to 15% of their annual compensation not to exceed the maximum allowable by law. Employee contributions may be invested in one or more of 8 mutual fund investment options administered by a third party. We match a portion of employee contributions and may make annual discretionary contributions in the form of company stock. Our expense for contributions to this plan was approximately $737,000, $809,000, and $989,000 for 2001, 2000 and 1999, respectively. We do not offer post-employment or post-retirement benefits.

In 1996, we established an Employee Stock Purchase Plan under which employees can elect to purchase SSCI stock through regular periodic payroll deductions without paying broker commissions. This plan provides for potential price discounts of up to 15%. Effective January 2000, a 10% discount was offered to employees under this plan.

The weighted average remaining contractual life of options outstanding at December 31, 2001 was 6.5 years and option prices ranged from $18.90 to $32.25 per share. The following table summarizes the outstanding and exercisable options under all of our plans:

The following table summarizes information about stock options outstanding and exercisable at December 31, 2001:

During 1999, 8,696 shares were issued related to performance awards granted in 1996, which were contingent on meeting performance objectives over a three-year period.

During 1999, a bonus plan was established under which employees will share a one-time bonus payment of $50 million. The bonus is an all or nothing bonus, and is earned upon achievement of the equivalent of $5.00 funds from operations (FFO, as defined by National Association of Real Estate Investment Trusts) per share annually. The $5.00 FFO threshold is measured by annualizing any single quarter FFO; e.g., a fiscal quarter FFO of $1.25 is equivalent to $5.00 FFO annually. This goal must be achieved by December 31, 2003, or no bonus will be paid. The bonus is payable to all employees based on length of service and position within the company and is subject to adjustment by the Board for unplanned expansion of existing business or new business ventures.

We have adopted the disclosure only provisions of SFAS 123, "Accounting for Stock-Based Compensation." No compensation cost has been recognized for the stock option plans. Had compensation cost for options granted under our stock option plans been determined based on the fair value at the grant date for awards in 1999, 2000 and 2001 consistent with the provisions of SFAS 123, our net income and net income per share would have been reduced to the pro forma amounts indicated below (in thousands):

The fair value of options granted under our stock option plans during 2001, 2000, and 1999 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used: dividend yield of 8.41%, 8.81%, and 8.64%; expected volatility of 19%, 28% and 22%; risk free interest rate of 5.07%, 5.12%, and 6.39%; and expected life of 6.5, 6.5 and 6.5 years, respectively.

In March 1994, we adopted a Shareholder Rights Plan and declared a distribution of one Right for each outstanding share of common stock. Under certain conditions, each Right may be exercised to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock at a purchase price of $65, subject to adjustment. The Rights will be exercisable only if a person or group has acquired 10% or more of the outstanding shares of common stock, or following the commencement of a tender or exchange offer for 10% or more of such outstanding shares of common stock. If a person or group acquires more than 10% of the then outstanding shares of common stock, each Right will entitle its holder to receive, upon exercise, common stock (or, in certain circumstances, cash, property or other securities of SSCI) having a value equal to two times the exercise price of the Right. In addition, if SSCI is acquired in a merger or other business combination transaction, each Right will entitle its holder to purc hase that number of the acquiring company's common shares having a market value of twice the Right's exercise price. We will be entitled to redeem the Rights at $.0001 per Right at any time prior to the earlier of the expiration of the Rights in March 2004 or the time that a person has acquired a 10% position. The Rights do not have voting or distribution rights, and until they become exercisable, have no dilutive effect on our earnings.

The following summarizes the computation of basic and diluted net income per share:

SSCI currently has two reportable segments: Same and New Stores. Our definition of Same Stores includes existing stores acquired prior to January 1 of the previous year as well as developed properties that have been operating for a full two years as of January 1 of the current year. We project that newly developed properties will reach stabilization in an average of approximately 24 months. New Stores include existing domestic facilities that had not been acquired as of January 1 of the previous year as well as domestic developed properties that have not been operating a full two years as of January 1 of the current year.

These reportable segments allow us to focus on improving results from our existing domestic real estate assets and renting up our new domestic facilities. We evaluate each segment's performance based on net operating income (NOI) and NOI after indirect and leasehold expenses. NOI is defined as rental revenue less direct operating expenses and real estate taxes, but does not include any allocation of indirect operating expense. Indirect and leasehold expense includes land or building lease expense and certain shared property costs such as bank fees, district and corporate management, purchasing, national contracts personnel and marketing, as well as certain overhead costs allocated to property operations such as business information technology, legal services, human resources and accounting. Indirect operating expense is allocated to stores based on number of months in operation during the period and does not include internal real estate acquisition costs or abandoned development expense.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. There are no inter-segment sales and transfers. We do not allocate development and acquisition expense, depreciation and amortization, general, administrative and other, interest expense, interest income and other (net) and minority interest to the segments.

Using the definition of Same Store and New Store described above, the portfolio of assets reported in these segments changes from year to year. Assets transition from New Store to Same Store over time. The following table illustrates the results using the 2001 Same Store and New Store base for reportable segments as of and for the years ended December 31, 2001 and 2000. Same stores includes all stores acquired prior to January 1, 2000, and domestic developments opened prior to January 1, 1999. New stores represents all stores acquired after January 1, 2000, and domestic developments opened after January 1, 1999. Disposed stores represent properties sold during 2001:

The following table illustrates the results using the 2000 Same Store and New Store base for reportable segments as of and for the years ended December 31, 2000 and 1999. Same stores includes all stores acquired prior to January 1, 1999, and all domestic developments opened prior to January 1, 1998. New stores represents all stores acquired after January 1, 1999 and domestic developments opened after January 1, 1998:

The following table reconciles the reportable segments' revenue per the table above to consolidated total revenue for the years ended December 31, 2001, 2000, and 1999:

The following table reconciles the reportable segments direct and indirect operating expense to consolidated operating expense and real estate taxes for the years ending December 31, 2001, 2000, and 1999:

The following table reconciles the reportable segments' NOI per the table above to consolidated net income for the years ending December 31, 2001, 2000, and 1999:

The following table reconciles the reportable segments' assets to consolidated assets as of December 31, 2001, 2000, and 1999:

The following tables summarize our contractual obligations and our off-balance sheet commitments.

Board of Directors and Stockholders

Shurgard Storage Centers, Inc.

Seattle, Washington

We have audited the accompanying consolidated balance sheets of Shurgard Storage Centers, Inc. and subsidiaries (the Company) as of December 31, 2001 and 2000, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedule listed in the Index at Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, such consolidated financial statements present fairly, in all material respects, the financial position of Shurgard Storage Centers, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Note B to the consolidated financial statements, in 1999 the Company changed its method of accounting for costs of start-up activities.

/s/DELOITTE & TOUCHE LLP

DELOITTE & TOUCHE LLP

Seattle, Washington

March 12, 2002

None.

Information regarding the Registrant's executive officers called for by Part III Item 10 is set forth in Item I of Part I herein under the caption "Executive Officers of the Registrant." Information regarding directors of the Company and Section 16 reporting is set forth in our proxy statement for the annual meeting of shareholders to be held May 14, 2002, and is incorporated herein by reference.

Information regarding executive compensation is set forth in our proxy statement for the annual meeting of shareholders to be held May 14, 2002, and is incorporated herein by reference.

Information regarding security ownership of certain beneficial owners and management is set forth in our proxy statement for the annual meeting of shareholders to be held May 14, 2002, and is incorporated herein by reference.

Information regarding certain relationships and related transactions is set forth in our proxy statement for the annual meeting of shareholders to be held May 14, 2002, and is incorporated herein by reference.

(a) 1. Financial Statements

2. Financial Statement Schedules

Schedule III - Real Estate and Accumulated Depreciation has been included as noted above.

3. Exhibits

__________

(23) Incorporated by reference to designated exhibit filed with the Registrant's Form 10-Q for the quarter ended September 30, 2000.

(24) Incorporated by reference to designated exhibit filed with the Registrant's From 10-K for the year ended December 31, 2000.

(25) Incorporated by reference to designated exhibit filed with the Registrant's Form 10-Q for the quarter ended March, 31, 2001.

* Management contract or compensatory plan or arrangement

2. Reports on Form 8-K

On January 17, 2001, we filed Form 8-K which announced that the development joint venture with affiliates of JP Morgan Partners ("JPMP" formerly Chase Capital Partners) in which Shurgard Storage Centers, Inc. owns a 20% interest acquired 21 properties developed by Shurgard during 2000.

On February 9, 2001, we filed Form 8-K which announced the Company's fourth quarter earnings for 2000.

On February 16, 2001, we filed From 8-K which announced that the Company had sold $200 million of senior unsecured notes due 2011. The notes were offered under SEC Rule 144A.

On February 23, 2001 we filed Form 8-K which announced the issuance of shares of its 8.75% Series D Cumulative Redeemable Preferred Stock under the Company's shelf registration statement on Form S-3 (File No. 333-21273), effective February 20, 1997 (the "Registration Statement").

On February 23, 2001 we filed Form 8-K which announced the issuance of up to 2,875,000 shares of its Class A Common Stock under the Company's shelf registration statement on Form S-3 (File No. 333-54392), effective August 24, 2001 (the "Registration Statement").

On October 5, 2001, we filed Form 8-K which announced that the Company acquired the partnership interests of Fremont Storage Partners II, LLC and Fremont FSP II, LLC (collectively "Fremont") in Shurgard/Fremont Partners II, a Washington general partnership (the "Partnership").

On November 8, 2001, we filed Form 8-K which announced the postponement of its previously announced third-quarter earnings release and conference call.

On November 19, 2001 we filed From 8-K which announced that the Company has completed its previously-announced review of its independent auditors recommendation regarding the accounting treatment of four development joint ventures, and agrees that a restatement of its financial results for 1998 through the first six months of 2001 will be necessary to comply with generally accepted accounting principles (GAAP).

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, State of Washington, on the 14^th day of March 2002.

SHURGARD STORAGE CENTERS, INC.

By: /s/  Harrell Beck

Harrell Beck

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed by the following persons in the capacities indicated below on the 14th day of March 2002.