Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

For the fiscal year ended December 31, 2003

OR

For the transition period from            to            .

Commission file number 0-11455

SHURGARD STORAGE CENTERS, INC.

(Exact name of registrant as specified in its charter)

1155 Valley Street, Suite 400, Seattle, Washington 98109

(Address of principal executive offices) (Zip code)

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

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

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

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  ¨    No  x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 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.    ¨

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

Aggregate market value of voting stock held by nonaffiliates of the registrant as of June 30, 2003: $1,249,634,937

Class A Common Stock, par value $.001 per share, outstanding as of April 30, 2004: 45,891,542 shares

Documents incorporated by reference:    none.

There are 170 pages.

This Form 10-K of Shurgard Storage Centers, Inc. includes restatements of previously reported historical financial data and related descriptions for the years ended December 31, 2002 and 2001 and for the quarters ended March 31, June 30, September 30, 2003 and 2002, as well as the quarter ended December 31, 2002. We have reassessed certain accounting policies applied historically to the items described in Note B to our Consolidated Financial Statements. We have concluded that these items have been accounted for incorrectly in the past and have restated them accordingly in this report. In addition, we have identified certain other accounting errors impacting prior periods which are also corrected in our restatements. See Note B to our Consolidated Financial Statements for further discussion of this matter, and Note W for quarterly financial data.

Table of Contents

PART I

Item 1—Business

Overview

When used in this discussion and elsewhere in this Annual Report on Form 10-K, the words “believes,” “anticipates,” “projects”, “should”, “estimates”, “expects” and similar expressions are intended to identify forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and in Section 21F of the Securities and Exchange Act of 1934 as amended. Actual results may differ materially due to uncertainties including the risk that changes in economic conditions in the markets in which we operate, and/or competition from new self storage facilities or other storage alternatives may cause rent to decline and may cause occupancy rates to drop, or may cause delays in rent up of newly developed properties, the risk that new developments could be delayed or reduced by zoning and permitting requirements outside of our control, increased competition for desirable sites, construction delays due to weather, unforeseen site conditions, labor shortages, personnel turnover, scheduling problems with contractors, subcontractors or suppliers, the risk that we may experience increases in the cost of labor, taxes, marketing and other operating and construction expenses, the risk that tax law changes may change the taxability of operating and construction, the risk that tax law changes may change the taxability of future income, the risk that increases in interest rates may increase the cost of refinancing long term debt, the risk that our alternatives for funding our business plan may be impaired by the economic uncertainty due to the impact of war or terrorism; and the risk that our interest in Shurgard Europe may be adversely affected if that entity is unable to complete formation and funding of its contemplated development joint ventures. We may also be affected by legislation or changes in regulations or interpretations regarding certain accounting standards applied to our operations and certain of our existing financial and joint venture structures of the Company. Other factors that 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. We disclaim 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.

Shurgard Storage Centers, Inc (we, our, the Company or Shurgard) is an equity real estate investment trust, or REIT, that develops, acquires, invests in, operates and manages self storage centers and related operations in the United States and Europe. Our self storage centers offer easily accessible storage space for personal and business uses. We are one of the largest owners and operators of self storage centers in the United States and the largest owner in Europe. As of December 31, 2003, we operated a network of 617 storage centers containing approximately 39 million net rentable square feet located throughout the United States and in Europe. In 2003, through a series of acquisitions we increased our direct and indirect ownership interest in Shurgard Self Storage, SCA (Shurgard Europe) from 7.57% to 85.47%.

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 that were sponsored by Shurgard Incorporated. On March 24, 1995, Shurgard Incorporated merged with and into Shurgard Storage Centers, Inc. and we became self-administered and self-managed. In May 1997, we reincorporated in the state of Washington. We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. To the extent that we continue to qualify as a REIT, we will not be subject to tax, with certain limited exceptions, on the taxable income that is distributed to our shareholders.

Our investment objective is to increase shareholder value through: (i) continued improvement in the performance of our portfolio as measured by year over year increases in Net Operating Income (NOI), (ii) acquisition of additional self storage properties, (iii) the development of new storage centers, (iv) redevelopment of selected properties, and (v) opportunities to sell properties when we feel market conditions warrant or where a property no longer fits in our strategic plans. We believe our access to capital, the geographic diversification of our portfolio, and operating economies of scale will enhance our ability to achieve this objective.

1

Table of Contents

Business Strategy

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 in the United States and Europe involves an emphasis on customer service and satisfaction, portfolio management, storage center development and acquisitions management systems.

Customer Service and Satisfaction

2

Table of Contents

Portfolio Management

Our portfolio management strategy is to increase 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.

Development and Acquisitions

Our external growth strategy is to develop new, high-quality self storage properties and to 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 for 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 rely on our market personnel to target areas in which to develop and acquire new stores. Our staff of real estate professionals in various markets develops and acquires new stores for us in the markets presenting the best opportunities. We have developed comprehensive market expansion plans for each of our target markets, including those in Europe, and use these plans as the basis for selecting new store locations and acquisition

3

Table of Contents

targets. The market expansion plans use 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.

Property Management Systems

We have integrated property management systems and procedures for marketing, advertising, leasing, operations and security of properties and the management of on-site personnel. Our computerized management information system links our corporate office with each store. We use proprietary software that facilitates 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. The software integration enables our national sales center, commercial accounts department and our corporate employees to have access to store information. We are developing significant upgrades to this software that we expect will improve management information and increase effectiveness in information compilation and dissemination to our stores.

Other Activities

Shurgard Storage to Go, LLC (STG), one of our subsidiaries, was a containerized storage business that brought storage directly to the customer through weather-resistant 8’ x 5’ x 8’ storage containers. STG delivered

4

Table of Contents

these containers to customers for packing and then picked up the containers and delivered them to a warehouse for storage. Customers had access to their storage containers in a showroom at the warehouse or could have it redelivered to their home. In addition to the monthly rental charge, we would charge service fees for transportation of the container. In December 2003, we made the decision to exit this business venture and we ceased activity in this enterprise in the first quarter of 2004. This business venture operated in 2003 in the Seattle, Portland and San Francisco markets. STG is owned by our taxable REIT subsidiary which is a disregarded entity for tax purposes and therefore is subject to federal income tax. Also, in December 2003 we made the decision to discontinue the operations of Shurgard Preferred Partners, a service and affiliation arrangement with small self-storage operators.

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 allows 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.

Capital Strategy

We seek to maintain a strong, flexible capital structure with a corporate strategy of:

We believe these strategies will continue to enable us to maintain our unsecured credit rating and allow us to access a broad array of capital sources, including bank or institutional borrowings, secured and unsecured debt and private and public equity financings.

Our notes payable are structured to create a staggered principal maturity schedule.

In order to mitigate our currency and 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.

We currently are assigned investment grade corporate credit ratings on our senior unsecured notes from Fitch Ratings, Moody’s Investors Service and Standard & Poor’s Ratings Group. Currently, Fitch has assigned a rating of BBB, Moody’s has assigned a rating of Baa2 and Standard & Poor’s has assigned a rating of BBB to our senior notes.

We also have received credit ratings from the same rating agencies on our redeemable preferred stock. Fitch Ratings has assigned a rating of BBB-, Moody’s Investors Service has assigned a rating of Baa3 and Standard & Poor’s Ratings Group has assigned a rating of BBB-. These ratings, for both our unsecured notes and our senior notes, could change based upon, among other things, our operating results, financial condition and cash flows. At

5

Table of Contents

the present time each of these rating agencies has announced that our ratings are under reconsideration pending the filing of this 2003 Form 10-K.

We have maintained consistent dividend growth. We paid dividends of $2.15 per Share of Common Stock in 2003, representing a 22% increase from the annualized rate in 1994, the year we became a public company. Additionally, we have paid 40 consecutive quarterly dividends. However there can be no assurance of future dividend payments.

We anticipate funding our short and long-term liquidity needs through a combination of retained operating cash, borrowings under our variable rate unsecured credit facilities, selling existing stores or excess land that does not fit our long term strategic plan, and/or through the issuance of additional debt or equity securities. A determination to engage in an equity or debt offering depends on a variety of factors such as general market conditions, interest rates, short and long term liquidity needs, the relative cost of debt and equity capital, and our ability to execute such transactions at a given time. A summary of debt and equity activity for the last three years is reflected on our Consolidated Statement of Cash Flows of the Consolidated Financial Statements set forth in Item 8 of this report.

While we believe we will have the financial position and access to the capital markets as needed, for our currently anticipated liquidity requirements, we cannot assure you that we will be successful in completing future arrangements, sales or offerings.

We have and may continue to enter into joint ventures, partnerships and limited liability companies as an alternative method to investing in real estate. Our decision whether to hold a property directly or indirectly is based on a variety of facts and considerations, including: (i) the economic and tax considerations of the partner or seller, (ii) our desire to diversify our capital sources based on product type and risk, (iii) our ability to enter into a new market and establish a long term relationship with an existing self storage operator/developer, (iv) our desire to preserve our capital resources to maintain liquidity or balance sheet strength, and (v) our desire to achieve higher returns on our invested capital or reduce our risk. These joint ventures, partnerships and limited liability companies utilize secured mortgage financing for a portion of their overall capitalization.

We have and will continue to seek opportunities to issue our common equity in exchange for self storage and other real estate investments. Future issuance will depend upon market conditions at the time including the market price of our equity securities.

Regulation

Environmental Regulations

We are subject to federal, state, local and foreign environmental regulations that apply to the ownership, management and development of real property, including regulations affecting both the construction and operation of self storage properties.

In developing properties and constructing improvements, we use 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 in the U.S. 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.

Under various federal, state, local and foreign 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

6

Table of Contents

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 cause the owner or manager to incur 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 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, except for the property in St. Louis discussed below. We have not been notified of any current claims 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 obtained a Phase I environmental assessment report prepared by an independent environmental consultant for the properties we own in the United States, and similar environmental reports for properties acquired in Europe.

In 1995, we 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 had been monitoring in accordance with a work plan approved by the MDNR. In 1998, a quarterly monitoring report revealed continued contamination in the groundwater samples. The MDNR notified us that it would continue requiring quarterly groundwater monitoring. During 1999, at the MDNR’s request, with the help of an environment consultant, we developed a work plan to address the MDNR’s question regarding 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. The work plan required on-going monitoring through April 2003, when the MDNR indicated that based on test results, ongoing testing was no long required. The MDNR could change its opinion on the need for monitoring and 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.

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, operating results and cash flows. 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, operating results or cash flows. 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 storage 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, state, local or foreign environmental laws.

Risk Factors

The following factors are risks associated with our business.

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 diversify our investment portfolio and to limit our risk when economic conditions change. Decreases in market rents, negative tax, real estate and zoning law

7

Table of Contents

changes, and changes in environmental protection laws may also increase our costs, lower the value of our investments and decrease our income, which would adversely affect our business, financial condition, operating results and cash flows.

Our real estate development and acquisition activities can result in unforeseen liabilities and increases in costs.    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 our 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 improvements needed for us to market a property effectively, requiring us to pay more to complete a project. If a number of these events were to occur, our business, financial condition, operating results and cash flows would be adversely affected.

We focus almost exclusively on the self storage business, which makes us vulnerable to changes in the profitability of self storage properties.    Our investments focus on self storage business and related real estate interests. We do not expect to invest in other real estate or businesses to hedge against the risk that industry trends might decrease the profitability of our self storage-related investments. As a result, unfavorable changes in the self storage industry may have a material adverse effect on our business, financial condition, operating results and cash flows.

We would have great difficulty acquiring or developing properties without access to financing.    In order to acquire and develop properties, we need access to financing sources. Currently, we finance acquisitions and development of properties through our existing credit facilities. Fluctuations in market conditions or in our operating results may cause us to violate the covenants of these existing credit facilities. If we cannot access our existing financing sources, we may need to obtain equity and/or alternative debt financing in order to continue to acquire and develop properties. If we obtain financing by issuing additional capital stock, we could further dilute the ownership of our existing shareholders. If we attempt to obtain financing by entering into alternative debt financing, we might not be able to obtain financing at reasonable interest rates, or at all. The inability to acquire and develop properties would have a material, adverse effect on our business, financial condition, operating results and cash flows.

We face risks due to our investments through joint ventures.    We invest and may continue to invest in properties through joint ventures. We often share control over the operations of the joint venture assets. Therefore, these investments may, under certain circumstances involve risks such as the possibility that our partner in an investment might become bankrupt, or have economic or business interests or goals that are inconsistent with ours, or be in a position to take action contrary to our instructions or requests or our policies or objectives. As a result, actions by one of our partners might result in subjecting properties owned by the joint venture to additional risk. Although we generally seek to maintain a sufficient level of control of any joint venture to permit our objectives to be achieved, we may be unable to take action without the approval of our joint venture partners or our joint venture partners could take actions binding on the joint venture without our consent.

If we are unable to compete successfully against other companies in the self storage industry, our occupancy rates may decline.    We face intense competition in every U.S. market in which our stores are located and to a lesser extent 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 entities 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, better locations, better services or other advantages. Local market conditions

8

Table of Contents

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 time to time. For example, from 2002 to 2003, occupancy of our properties in the Chicago market, where we had opened additional self storage facilities, dropped 6.6% resulting in decreased revenue of $299,000. If our occupancy rates or rental revenue decline our business, financial condition, operating results and cash flows will be adversely affected.

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, local and foreign laws (including European Union requirements) might impose liability on us for the costs of removing or remediation of various hazardous substances released on, from or in our property. The principal U.S. federal laws that could affect us are the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation, and Liability Act; foreign, state and local governments have also adopted separate but similar environmental laws and regulations that vary from country to country, state to state and locality to locality. These laws may impose liability whether or not we knew of or caused the release. Some of our properties were used for commercial activities involving matters regulated under environmental laws before we acquired them. We obtain environmental assessment reports on the properties we acquire, own or operate as we deem appropriate. However, the environmental assessments that we have undertaken 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 enacted, amended or reinterpreted laws, ordinances or regulations will impose material environmental liability on us, that the current environmental conditions of properties we own or operate will be affected by other properties in the vicinity or by the actions of third parties unrelated to us or that 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, state, local or foreign environmental laws or otherwise engage in activities that could expose us to such liabilities. The costs of defending these claims, conducting this environmental remediation, resolving liabilities caused by tenants or third parties or responding to such changed conditions could materially adversely affect our financial condition, operating results and cash flows.

We must comply with the Americans with Disabilities Act and fire and safety regulations, which can require significant expenditures.    All of our properties must comply with the applicable portions of the Americans with Disabilities Act and the related regulations, rules and orders, commonly referred to as the ADA, or similar applicable foreign laws. The ADA, for example, has separate compliance requirements for “public accommodations” and “commercial facilities,” but generally requires that buildings be made accessible to persons with disabilities. If we fail to comply with the ADA and other applicable laws, the U.S. or foreign government might impose fines on us and award damages to individuals affected by the failure. In addition, we must operate our properties in compliance with numerous local and foreign fire and safety regulations, building codes and other land use regulations. Compliance with these requirements could require us to spend substantial amounts of money, which could adversely affect our operating results. Failure to comply with these requirements may also affect the marketability of the properties.

If property taxes increase, our yields on investments could decline.    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 property values 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, which may adversely affect our business, financial condition, operating results and cash flows.

9

Table of Contents

We face potential underinsured losses on our investments.    We maintain title insurance on all of our U.S. properties and other property-related insurance on all of our U.S. and European properties. We exercise discretion in determining amounts, coverage limits and deductibility provisions of title, casualty and other insurance relating to our properties, taking into account the appraised or estimated value of the property in each case to obtain appropriate insurance coverage at a reasonable cost and on suitable terms. We currently carry the following insurance coverage:

Depending on the type of insurance, and subject to deductibles and coverage limits, we either receive direct payment of the replacement value of losses or tender 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.

Terrorist attacks and the possibility of armed conflict may have an adverse effect on our business, financial condition, operating results and cash flows and could decrease the value of our assets.    Terrorist attacks and other acts of violence or war, such as those that took place on September 11, 2001, or the recent war with Iraq, could have a material adverse effect on our business and operating results. There can be no assurance that there will not be further terrorist attacks against the United States or any of the European countries in which we operate. Attacks or armed conflicts that directly impact one or more of our properties could significantly affect our ability to operate those properties and thereby impair our ability to achieve our expected results. Further, we may not have sufficient insurance coverage for losses caused by a terrorist attack. Such insurance may not be

10

Table of Contents

available, or if it is available and we decide, or are required by our lenders, to obtain such terrorism coverage, the cost for the insurance may be significant in relationship to the risk covered. In addition, the adverse effects that such violent acts and threats of future attacks could have on the U.S. economy or relevant foreign economies could similarly have a material adverse effect on our business, financial condition, operating results and cash flows. Finally, further terrorist acts could cause the United States or other countries where we operate to enter into armed conflict, which could further impact our business, financial and operating results.

International Operations

We have significant international operations that carry additional risks.    We invest in, and conduct, operations outside the United States. With our increased investment and ownership position in Shurgard Europe, we face increased exposure to risks related to Shurgard Europe’s operations. The inherent risks we face in international business operations include, but are not limited to:

Each of these risks might impact our cash flow or impair our ability to borrow funds, which ultimately could adversely affect our business, financial condition, operating results and cash flows.

Our European operations have not been profitable to date and may not become profitable.    New and recently developed self storage centers require a significant amount of start-up capital and generally take a considerable amount of time to complete the lease-up period. During the early stage of the lease-up period, properties are not profitable. Because over 40% of the European properties in which we have an investment have been developed since January 1, 2002 and are still undergoing lease-up, most of these properties, and therefore our European operations in general, have not been profitable. Also our expansion efforts may require more funding than we currently anticipate, and we will need to generate significant additional revenue once the lease-up period is achieved, before we will be able to sustain or increase profitability. We cannot assure you that these properties, or other properties that Shurgard Europe and its development joint venture First Shurgard Sprl (First Shurgard) acquire and develop, will become profitable even after the lease-up periods. Failure of Shurgard Europe’s operations to become profitable would have a material adverse effect on our business, financial condition, operating results and cash flows.

Our growth strategy in Europe may not be successful.    We entered the European market in 1995 because we believed that the size and potential growth of that market made it a significant opportunity for our continued growth. Our ability to achieve our strategy in Europe depends on a number of factors, including:

11

Table of Contents

We cannot assure you that we will be successful in overcoming these risks or any other problems encountered with our European operations, some of which may be beyond our control.

We do not have operating control over Shurgard Europe.    We hold a combined indirect and direct 85.47% ownership interest in Shurgard Europe as of December 31, 2003 and Fremont Investors, Inc. our partners that we refer to as Fremont, currently holds a 12.77% ownership interest. Under the joint venture agreement governing Shurgard Europe, substantially all of the major decisions of Shurgard Europe require both our approval and the approval of Fremont, notwithstanding the difference in ownership positions. These decisions include among other things, the disposition and acquisition of assets, entry into new markets, approval of the annual business plan, the hiring of key executives and financing arrangements. As a result, we may not be able to pursue business opportunities that we consider beneficial to Shurgard Europe if Fremont does not vote in favor of these actions.

The joint venture agreement provides that if, by December 31, 2004, Fremont has not had an opportunity to liquidate its interest through an initial public offering or a sale of its ownership interest, it may initiate steps to retain an investment bank to value Shurgard Europe, at which time we have a preemptive right to purchase Fremont’s ownership interest at that value. If we do not purchase Fremont’s interest, certain procedures under the joint venture agreement could lead to an initial public offering or to the sale of Shurgard Europe or its assets. All joint venture partners’ interests in Shurgard Europe are subject to a right of first refusal. We are subject to other restrictions on the transfer and sale of our ownership interests in Shurgard Europe. The operation of these provisions could continue to affect our ownership interest in, and the structure of, our European investment.

Risks Relating to Qualification and Operation as a REIT

We might lose our REIT status and incur significant tax liabilities.    We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or 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, distribution and stock ownership tests, under several Code provisions that 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 that 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:

As a result of an administrative error, it is possible that entity classification elections for certain subsidiaries may not have been timely filed. We do not believe that our status as a real estate investment trust would be impacted as the result of such an error. However, we are currently attempting to resolve this issue definitively with the Internal Revenue Service. 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.

12

Table of Contents

We may pay taxes even if we continue to qualify as a REIT.    Even if we continue to qualify as a REIT, we are required to pay some federal, state, local and foreign taxes on our income and our property. For example, Shurgard TRS, Inc. and certain of our other corporate subsidiaries have elected to be treated as taxable REIT subsidiaries. We will be subject to a 100% penalty tax on payments we receive from these subsidiaries if the economic arrangements between the REIT and the taxable subsidiaries are not comparable to similar arrangements between unrelated third parties. In addition, all of our European subsidiaries are subject to local taxation. We also could be subject to tax in the event we, among other things:

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:

For tax purposes, we may be required to treat interest, rent and other items as earned even though we have not yet received these amounts. In addition, we may not be able to deduct currently as expenses for tax purposes some items that we have actually 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 income 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.

Our indirect investments may result in liabilities against which we cannot protect.    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 and against which we may not be able to protect ourselves, including the risk that we may not control the legal entity that has title to the real estate, the possibility that the enterprise in which we invest 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.

All of our real estate investments in Europe are held indirectly through partnerships and joint venture arrangements, including our First Shurgard joint venture. If we are unable to effectively control these indirect investments, or if they result in significant liabilities that were undisclosed at the time we entered into them, our business, financial condition, operating results and cash flows may be materially adversely affected.

Other Risks

Legislation or changes in accounting regulations or interpretations relating to such matters as consolidation of joint ventures and subsidiaries, stock options and capitalization of certain development overhead costs could substantially affect our financial reporting.    We may be affected by legislation or changes

13

Table of Contents

in regulations or interpretations regarding certain accounting standards applied to our operations and certain of our existing financial and joint venture structures. Changes in consolidation and stock options may affect the accounting treatment or net income of certain of our investments. The Financial Accounting Standards Board, or FASB, has issued rules on variable interest entities that will likely affect materially the accounting treatment of certain of our financial and joint venture structures and result in the consolidation of the assets, liabilities and operations of joint ventures that we have not previously consolidated. We have concluded that under FASB Interpretation No. (FIN) 46R “Consolidation of Variable Interest Entities”, we will consolidate both Shurgard Europe and First Shurgard in 2004. These rules are new and are subject to an evolving set of interpretations that dictate whether we consolidate or not the assets, liabilities and operations of Shurgard Europe and First Shurgard. Further evolution of the interpretation of these rules may result in a different application of these rules to our financial reporting in the future.

The implementation of the Jobs and Growth Tax Relief Reconciliation Act of 2003 may adversely affect the value of our Common Stock.    On May 28, 2003, President Bush signed the Jobs and Growth Tax Relief and Reconciliation Act of 2003 into law, which provides favorable income tax rates for certain corporate dividends received by individuals through December 31, 2008. Under this new law, REIT dividends are not eligible for the preferential capital gain rates applicable to dividends unless the dividends are attributable to income that has been subject to corporate-level tax. As a result, substantially all of the distributions paid on our shares are not expected to qualify for such lower rates. This new law could cause stock in non-REIT corporations to be more attractive to investors than stock in REITs, which may negatively affect the value of, and the market for, our Common Stock.

Inability to access the capital markets or delisting of our stock could delay or adversely affect execution of our business plan.    Due to the delay in filing our annual report on Form 10-K we will be unable for at least one year subsequent to the date hereof, to access the capital markets to raise equity or debt using our Form S-3 “shelf registration”, which may mean delays in registering additional securities for sale. In addition, we may face delays in applying to register our securities due to lengthy review by the SEC staff of this report and our subsequent filings. If our securities are delisted by the NYSE because we were late in filing this report we may face a lengthy appeal process to relist our securities, and will likewise cause us to not be in compliance under our other debt agreements.

Material weakness may still exist in our internal controls.    During 2004, our independent auditors concluded that there were deficiencies in the internal control structure of the Company, which, in the aggregate, they considered to be a material weakness under current accounting standards established by the American Institute of Certified Public Accountants. Consequently, additional review, evaluation and oversight were required on the part of Company management, during the course of the audits to ensure such internal control deficiencies were adequately compensated for. Certain corrective actions have been initiated to rectify the internal control weakness; however, we cannot assure you that these corrective actions will be effective. It is expected that our auditors will be unable to comment on the effectiveness of our remedial actions until the completion of the 2004 audit. If we do not effectively execute our plans to strengthen our internal controls, including plans to prepare us to comply with the annual internal control certification required pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related SEC rules, our auditors in the future could continue to find deficiencies in our internal control structure.

Employees

As of December 31, 2003, Shurgard and Shurgard Europe employed approximately 1,400 and 460 persons, respectively. None of our employees in the U.S. is covered by a collective bargaining agreement. One country in Europe has representation of employees through an internal collective bargaining council. We believe that our relations with our employees are good.

Executive Officers of the Registrant

The following table sets forth certain information regarding the executive officers of Shurgard as of December 31, 2003.

14

Table of Contents

Charles K. Barbo has been involved as a principal in the real estate investment industry since 1969. Mr. Barbo is one of the co-founders of Shurgard Incorporated, which was organized in 1972 to provide property management services for self storage facilities and other real estate and commercial ventures. Prior to the merger of our former management company, Shurgard Incorporated, with and into Shurgard in 1995, he served as Chairman of the Board and President of Shurgard Incorporated. On the closing of the merger with Shurgard Incorporated, he was named Chairman of the Board, President, and Chief Executive Officer of Shurgard. Mr. Barbo is a graduate of the Owner/President Management Program of Harvard Business School and has a Bachelor of Arts degree in history from the University of Washington. He is an alumnus of the Young Presidents’ Organization.

David Grant joined Shurgard Incorporated in November 1985 as Director of Real Estate. Mr. Grant served as our Executive Vice President and Director of Real Estate Investment from December 1993. In January 1996, Mr. Grant became President of Shurgard Europe and moved to Brussels, Belgium where our European headquarters are located. During this time, he also continued to serve as an Executive Vice President of Shurgard Incorporated. He returned to the U.S. in August 2003 to take on the role of President and Chief Operating Officer, and in January 2004 became Interim Chief Financial Officer. Mr. Grant has a Bachelor of Arts degree in Business Administration and a Bachelor of Science degree in Accounting, both from Washington State University.

Harrell L. Beck has served as a director of Shurgard since July 1993 and in February 2004 was appointed Executive Vice President and Chief Investment Officer. Prior to the closing of Shurgard’s merger with Shurgard Incorporated, Mr. Beck also served as Shurgard’s President. He was named Senior Vice President of Shurgard upon the closing of the merger with Shurgard Incorporated. He joined Shurgard Incorporated in April 1986 as the Eastern Regional Vice President, in 1990 became its Chief Financial Officer, and, in 1992, its Treasurer, which positions he held until his appointment as Executive Vice President in February 2004. Prior to joining Shurgard Incorporated, Mr. Beck was a manager with Touche Ross & Co., where he was employed for approximately six years, during which time he provided services primarily to clients in the real estate and aerospace industries. Mr. Beck has a Bachelor of Arts degree in Business Administration 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 previously served as our Assistant Secretary from October 1998 to 1999, and has served as Assistant Secretary and Division Counsel for STG, from 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 has served as Senior Vice President of Retail Services since August 2003, overseeing marketing, sales center and human resources. He also interfaces with field leadership regarding business plan implementation. He was Senior Vice President in charge of sales, marketing and domestic operations from November 2000 to August 2003. Mr. Tyler joined Shurgard Incorporated in May of 1996 as Regional Vice President of Midwest and East Coast markets. Prior to joining Shurgard, he was a Regional Operations Manager with Victoria’s Secret (a division of the Limited), Casual Corner (a division of U.S. 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.

15

Table of Contents

Other Available Information

We file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports with the Securities and Exchange Commission (SEC). You may obtain copies of these documents by visiting the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549, by calling the SEC at 1-800-SEC-0330 or by accessing the SEC’s website at http://www.sec.gov. In addition, as soon as reasonably practicable, after such materials are filed with or furnished to the SEC, we make copies of these documents (other than exhibits) available to the public free of charge through our web site at www.shurgard.com or by contacting our Secretary at our principal offices, which are located at 1155 Valley Street, Suite 400, Seattle, Washington 98109, telephone number (206) 624-8100.

In addition Shurgard’s corporate governance guidelines, director independence criteria, committee charters, codes of conduct and ethics, and other documents setting forth our corporate governance practices can be accessed in the “Corporate Governance” section of Shurgard’s web site at http://investorrelations.shurgard.com or by writing to the Shurgard’s Investor Relations department at our address set forth above.

Item 2—Properties

U.S. and European Properties

As of December 31, 2003, we operated a network of 617 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, 591 properties containing approximately 37.6 million net rentable square feet and manage for third parties 26 properties containing approximately 1.5 million rentable square feet.

Of the 591 properties:

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 and are more reliable payers. Based on surveys of our customers, we estimate that commercial users account for approximately 25% to 30% of our total customer base in the United States.

Our self storage properties are divided into a number of self-enclosed rental units that generally range in size from approximately 25 to 625 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.

The leasing, maintenance and operation of our stores are the responsibility of our store managers. 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.

16

Table of Contents

Although our stores range considerably in size, most domestic 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 280,000 net rentable square feet. The properties generally are constructed with concrete block or tilt-up concrete panels, with steel columns or pre-cast 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 the geographic dispersion of our self storage properties as of December 31, 2003.

17

Table of Contents

Rental of Storage Units.    Storage units are usually rented on a month-to-month basis. Based on our most recent evaluation of customer move-outs for the year ended December 31, 2003, the average rental period for a tenant is approximately 12 months. This average is comprised of the rental periods of business tenants, whose average stay approximates 20 months, and those of residential customers, whose average stay approximates 11 months. Rental income from leased space constitutes the primary revenue from such properties, but we receive additional revenue 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.    Shurgard owns two business parks located near Tacoma, Washington and Burke, Virginia. The business parks were built in 1979 and 1984, respectively, and they contain an aggregate of approximately 158,000 net rentable square feet.

Item 3—Legal Proceedings

We are a defendant in litigation filed on June 17, 2002, in the Superior Court of California for Orange County styled as Gary Drake v. Shurgard Storage Centers, Inc. et al (Case No. 02CC00152). The complaint alleges that we misrepresent the size of our storage units and seeks class action status and seeks damages, injunctive relief and declaratory relief against us under California statutory and common law relating to consumer protection, unfair competition, fraud and deceit and negligent misrepresentation. We do not currently believe that the outcome of this litigation will have a material adverse effect on our financial position, operating results or cash flows. However, we cannot presently determine the potential total damages, if any, or the ultimate outcome of the litigation. We are vigorously defending this action.

We are a defendant in litigation filed on October 30, 2002, in the United States District Court for the Northern District of California styled as Patricia Scura et al. v. Shurgard Storage Centers, Inc. (Case No. C 02-5246-WDB). The complaint alleges that we required our hourly store employees to perform work before and after their scheduled work times and failed to pay overtime compensation for work performed before and after hours and during meal periods. The lawsuit seeks class action status and seeks damages, injunctive relief and a declaratory judgment against us under the Federal Fair Labor Standards Act and California statutory wage and hour laws and laws relating to unlawful and unfair business practices. We do not currently believe that the outcome of this litigation will have a material adverse effect upon our financial position, operating results or cash flows. However, we cannot presently determine the potential total damages, if any, or the ultimate outcome of the litigation. We are vigorously defending this action.

The Company is party to various claims, complaints and other legal actions that have arisen in the normal course of business from time to time that are not described above. We believe that it is unlikely that the outcome of these other pending legal proceedings, including employment and tenant claims, in the aggregate, will have a material adverse effect upon the financial position, operating results, or cash flows of the Company.

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

No matters were submitted to a vote of shareholders during the fourth quarter of 2003.

18

Table of Contents

PART II

Item 5—Market for the Registrant’s Common Equity and Related Stockholder Matters

Our Common Stock is traded on the New York Stock Exchange (NYSE), under the symbol “SHU.” As of April 30, 2004 there were 16,732 holders of record of our Common Stock and the reported NYSE closing price per share of Common Stock was $33.30.

The table below sets forth for the fiscal periods indicated the high and low sales prices per share of Common Stock as reported in the NYSE composite tapes for applicable periods, and distributions declared.

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. There are covenants in our various debt agreements that may restrict our dividends. We are required to distribute annually to our shareholders at least 90% of our “REIT taxable income,” which, as defined by the relevant tax statutes and regulations, is generally equivalent to net taxable ordinary income, to maintain our REIT status for federal income tax purposes.

19

Table of Contents

Item 6—Selected Financial Data

This Form 10-K includes restatements of previously reported historical financial data and related descriptions for the years ended December 31, 2002 and 2001. We have reassessed certain accounting policies applied historically to the items as described in Note B to our Consolidated Financial Statements and concluded that these items have been accounted for incorrectly. In addition, we have identified certain other accounting errors impacting prior periods. As a result, we have made the appropriate adjustments to our previously issued financial statements for the years ended December 31, 2002, 2001, 2000 and 1999.

20

Table of Contents

We previously reported the following selected financial data:

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

When used in this discussion and elsewhere in this Annual Report on Form 10-K, the words “believes,” “anticipates,” “projects”, “should”, “estimates”, “expects” and similar expressions are intended to identify forward-looking statements within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and in Section 21F of the Securities and Exchange Act of 1934, as amended. Actual results may differ materially due to uncertainties including the risk that changes in economic conditions in the markets in which we operate, and/or competition from new self storage facilities or other storage alternatives may cause rent to decline and may cause occupancy rates to drop, or may cause delays in rent up of newly developed properties, the risk that new developments could be delayed or reduced by zoning and permitting requirements outside of our control, increased competition for desirable sites, construction delays due to weather, unforeseen site conditions, labor shortages, personnel turnover, scheduling problems with contractors, subcontractors or suppliers, the risk that we may experience increases in the cost of labor, taxes, marketing and other operating and construction expenses, the risk that tax law changes may change the taxability of operating and construction expenses, the risk that tax law changes may change the taxability of future income, the risk that increases in interest rates may increase the cost of refinancing long term debt, the risk that our alternatives for funding our business plan may be impaired by the economic uncertainty due to the impact of war or terrorism; and the risk that our interest in Shurgard Europe may be adversely affected if that entity is unable to complete formation and funding of its contemplated development joint ventures. We may also be affected by legislation or changes in regulations or interpretations regarding certain accounting standards applied to our operations and certain of our existing financial and joint venture structures of the Company. Other factors that could affect our financial results are described below and in Item 1 (Business) of the Annual Report on Form 10-K. Forward-looking statements are based on estimates as of the date of this report. We disclaim 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.

21

Table of Contents

OVERVIEW

Our Business

We own, operate and develop self storage properties in principal cities in the U.S. and Europe. Headquartered in Seattle, Washington, we operate as a REIT. Since our founding in 1972, Shurgard (and its predecessor company) has steadily grown its self storage investment business. We own or lease, directly and through our subsidiaries and joint ventures, 591 properties containing approximately 37.6 million net rentable square feet and manage for third parties 26 properties containing approximately 1.6 million rentable square feet. Today we are estimated to be one of the largest self storage property owners in the U.S. with a network of 469 stores located in 21 different states. We are the largest self storage owner in Europe with 122 stores located in seven countries. We directly own most of these properties but also hold an interest in some of them indirectly through our subsidiaries and joint ventures.

Our Approach to Investment in Self Storage

Our objective is to maximize shareholder value through continued improvement in the performance of our existing portfolio and through acquisition and development and investment in additional self storage properties. Historically, we have been long-term holders of storage properties that we acquire or develop because we believe these assets have steady long-term growth characteristics, low functional obsolescence and cost benefits relating to economies of scale. However, we will, from time to time, sell properties when we feel market conditions warrant or where a property fails to fit into our strategic plans. We take a long-term view of planning and executing this objective.

Over the years, we have developed significant expertise in the acquisition, design, development and management of self storage properties. We believe these capabilities enhance our investment options by giving us a better sense of local market conditions and opportunities. Relying on these capabilities, we have the flexibility to react to changing market conditions by expanding through the development of new storage properties or by acquiring existing storage properties from competitors. Further, the significant market diversification of our self storage properties adds stability and predictability to our portfolio.

We have observed that changes in people’s lives or circumstances are the key driver of demand for short-term storage space. Private individuals represent approximately 70% of our customer base. Business customers looking for expansion or transition space make up the balance, although this ratio may vary from storage center to storage center. Our customer base spans a wide range of economic strata and business types. Based on our experience in the business, we have determined that most customers place a high value on convenience through the location of the center and ease of renting, access and moving. Consequently, we have elected to focus our investment activities in densely populated, high quality neighborhoods and offer high quality products and services. We believe a growing segment of prospective customers are willing to pay higher rates for these benefits.

When we enter a new market, we seek highly visible, easily accessible locations in retail corridors to create customer awareness. Through multiple locations of this kind in a metropolitan area, we seek to establish brand recognition as well as economies of scale in operating our storage centers. In most markets, our goal is 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 through the use of signage, color schemes, quality of the buildings and our trademark “lighthouse” office design in new developments.

Our Approach to Managing the Business

We believe that the supply and demand characteristics of the self storage industry are defined by neighborhood trade areas that can range in size from one to five miles in radius. To effectively manage the business at any given location, we must be aware of the local dynamics of demand, pricing and competitor actions within the applicable neighborhood trade area.

22

Table of Contents

As a result, we approach the management of our business and portfolio on a decentralized basis by maintaining local management and market expertise in all our key markets. Our field personnel constantly monitor market trends in supply, competition, pricing and internal performance, making strategic and tactical adjustments at the storage centers as needed. Key metrics in monitoring the supply of self storage properties include construction starts, sales of doors by suppliers to the industry and inquiry levels at the storage centers. We monitor competition and pricing by watching our closing rate on inquiries and our volume of discounting for new customers. Centrally, we maintain an in-house asset management team that evaluates all investment proposals and monitors progress and performance of each property.

We take a similar approach to the business in Europe where we maintain fully integrated investment and management teams made up almost entirely of nationals in each of the countries we invest.

Our Approach to Raising Capital

Ownership in the self storage industry is highly fragmented, with the vast majority of properties owned privately by local and regional operators. We have chosen to operate as a self-managed, publicly traded REIT due to the tax benefits and flexibility it provides us for accessing new sources of capital. As a REIT we are required to distribute the majority of our annual cash flow from operations, which provides our investors a regular dividend stream that has grown steadily over time. We believe our assets are well-suited to meet this type of investment objective as they provide a highly stable cash flow. This dividend strategy means that we must fund growth by raising additional capital on a regular basis. We maintain a skilled team who regularly monitors the debt and equity markets, both private and public, to obtain the best available capital and minimize our cost of capital.

We anticipate funding our short and long-term liquidity needs through a combination of retained operating cash, borrowings under our variable rate unsecured credit facilities, selling existing stores or excess land that does not fit our long-term strategic plan, and/or through the issuance of additional debt or equity securities. A determination to engage in an equity or debt offering depends on a variety of factors such as general market conditions, interest rates, short and long-term liquidity needs, and the relative cost of debt and equity capital.

Covenants and regulatory compliance

The indenture governing our approximately $450 million of debt securities requires us to deliver our annual and quarterly filings with the SEC to the indenture trustee within 15 days after the date such periodic filings are due, and to deliver a copy of our annual report to the bondholders within 120 days of the end of our fiscal year. Failure to meet these deadlines could cause the indenture trustee to declare us in default of our bond indenture. The indenture contains a 60 day cure period following our receipt of notice from the trustee of a default. To date, we have not received notice of a default from the trustee or the bondholders. With the filing of this annual report on Form 10-K (and the delivery of copies of this filing to the trustee) we believe that we will cure any default of the reporting covenants in the indenture.

The New York Stock Exchange (NYSE) also requires that its listed companies distribute annual reports to shareholders no later than 120 days after the close of each fiscal year. On April 2, 2004 we received a letter from the NYSE that we would be included in a list of late filers posted on our Company and market data pages on the NYSE’s website. The late filer designation is a “LF” added to our trading symbol. Failure to mail the annual report to the shareholders on a timely basis could subject us to potential delisting of our securities on the NYSE. As of the date of filing this annual report on Form 10-K we have not received a notice from the NYSE that it intends to delist our stock. We believe that the “LF” designation will be removed from our trading symbol on the business day following receipt of this report by the NYSE.

23

Table of Contents

Current Industry Trends and Outlook

Supply and Demand

For the two years following the events of September 11, 2001, we have in general experienced a softening in demand at our U.S. storage centers. In addition, our new storage centers have been requiring a longer period of time to reach rental stabilization, which is typically considered to be 85% occupancy. We have historically projected new storage centers will reach their stabilized investment yields within 18 to 24 months of opening. In the last several years, new storage centers have been taking 24 to 48 months to reach stabilization. In order to counteract this slow down in the rent up pace, we offered reduced rates to attract new customers.

We believe there are two main factors contributing to the trends during this period: the slowdown in the U.S. economy, and the volume of new supply entering our markets. We believe some areas, such as Northern California and Puget Sound, have been more affected by the downturn in the local economies. Other markets, such as Chicago and parts of Texas, we believe have seen a significant amount of new supply over the past three years, contributing to weaker operating results.

In our view, the sustained rate at which new supply came in to the markets over the past three years was unusual. We attribute the continued development, in the face of declining industry fundamentals, to the historically low interest rates available to developers. Reported new construction starts have only noticeably started to decline over the past 12 months.

Beginning in 2002, in response to the reduced demand and increased competition, we became more aggressive with our sales training programs and increased our store operating hours. Additionally in 2003, we intensified our store maintenance program. We believe these efforts began to show results in the third quarter of 2003. Although customer inquires continued to be down slightly year over year, we experienced an increase in our closing rate. During the third quarter, our average occupancies stabilized and our average rental rates improved slightly.

During the fourth quarter, customer inquiries continued to be slightly lower compared to the same quarter of the previous year but average rental rates grew by 0.9% and occupancy by 1%. Our performance in the fourth quarter resulted in slightly improved overall results for 2003 when compared to annual results for 2002 (see SEGMENT PERFORMANCE for details).

Since 2002, our operations in Europe have experienced a similar softening in demand due, we believe, to the general economic conditions in Europe. Similar to new storage centers in the U.S., the periods required for new European storage centers to reach stabilization has increased, now ranging from 24 to 48 months.

Some of our European storage centers have also been affected by additional new storage centers that we have developed as we expand to reach targeted economies of scale in various markets. We believe that these effects, which include lower than expected occupancy and rental rates, are temporary. Consumer awareness of the self storage product is dramatically different in Europe as compared to the U.S. In the U.S., where self storage has existed for over 30 years, the product is well known and accepted by the U.S. consumer. Today, there are a reported 35,000 self storage facilities in the U.S. In Europe, however, self storage is still relatively new and general consumer awareness is lower. There are reported to be approximately 650 self storage properties in the European countries where we operate. As consumer awareness and acceptance grows in Europe, we believe that these effects of expansion will begin to decline.

Our European Same Store pool also exhibited some improvement in the fourth quarter of 2003 compared to the fourth quarter of 2002. Occupancy increased to 77.4% from 74.8% and the annual average rental rate increased to $20.50 per square foot from $20.21 per square foot.

24

Table of Contents

As a leader and innovator in the self storage industry, we have actively examined and experimented with new approaches to the business and related products. While we expect to continue with this approach, we have decided to exit several business lines that do not provide sufficient value to our core self storage business. At the end of 2003, we made the decision to close our STG (containerized storage) and Shurgard Preferred Partners business lines. We ceased operations in both of these activities prior to the end of the first quarter of 2004. Although we no longer operate a containerized storage business, we still see the strategic need to help our customers with the transportation of their goods and will actively continue to pursue our role as a coordinator of pack, load, and move services, without providing these services directly. We will also continue to actively operate our rental truck activities.

Acquisition and Development of Real Estate

Historically, we have grown in the U.S. both through development and acquisition, taking advantage of current market conditions to select either alternative. In Europe, most of our growth has been through development of new stores. We have made limited dispositions of properties in the past.

Currently, we believe that low interest rates in the U.S. have contributed to a rise in the price being paid by private investors to acquire existing self-storage facilities in the U.S. In this environment, we have focused on acquisitions we consider unique or strategic in nature. The current environment has also created opportunities to sell some of the assets in our portfolio that no longer meet our long-term strategic goals and we may consider some of these opportunities.

Our development of new storage centers in the U.S. has slowed in recent years as quality opportunities have become more limited. In general, we view the U.S. market as mature, with a strong supply of self storage properties. We believe future development growth opportunities will result primarily from population growth in new markets. We have placed renewed emphasis on performance and opportunities for improvement within our existing portfolio, in some instances through redevelopment of our older stores. A recent dramatic rise in steel prices may further affect our ability to develop or redevelop cost effectively.

In Europe, where we have a significant market leadership position in an emerging industry, we continue to develop new storage centers at a steady pace due to the availability of quality real estate at attractive prices. New European countries are considered from time to time as we feel conditions are appropriate. We believe continued growth in Europe will help solidify our position as market leader and improve our economies of scale in marketing and management.

Company Financial Reporting

We have experienced the following events relating to our financial reporting over the past year:

25

Table of Contents

The culmination of these events was the completion of the audit for 2003, and re-audits of 2002 and 2001 and the related audited financial statements that are included in this Form 10-K. Although the completed re-audits resulted in restatements of our prior financial statements (as disclosed in the following section of this Overview), the audit process did not result in the discovery of any material new facts or information. In addition, we have taken steps to address the need for additional personnel, improved internal control structure and stronger accounting systems that have been identified during the auditing process.

Implications and Impact of Restatements

We have restated our previously issued financial statements for the years ended December 31, 2002 and 2001, as well as for the quarters ended March 31, June 30 and September 30, 2003 and 2002 and the quarter ended December 31, 2002 for the items described below.

Consolidation of Domestic Joint Ventures

Domestically, we hold interests in 31 properties through 27 joint ventures with a variety of outside investors. Historically, these joint ventures have been included in our financial statements either on a consolidated or an equity basis.

We have determined that certain partially owned U.S. entities historically accounted for using the equity method should have been consolidated since inception of each entity. This restatement affects 26 entities and ventures in which we maintain ownership interests ranging from 50% to 90% and which hold a total of 30 storage centers. Consolidation of these entities has the effect of showing all of the assets and liabilities, revenues and expenses of these entities in our financial statements rather than showing our net investment and net earnings from these operations. At December 31, 2003 and 2002, total consolidated assets for these entities and ventures amounted to $95.6 million and $95.3 million, respectively, and total liabilities amounted to $72.9 million and $65.6 million, respectively. There was no impact on net income for any period as a result of this restatement. We had previously announced our intent to consolidate these joint ventures beginning in the quarter ended March 31, 2004 under FIN 46R. As a result of the restatement, all periods will now be reported on a comparable basis.

Valuation of Deferred Tax Assets

Historically we have incurred tax operating losses in Shurgard Europe, which includes our European operations, and in our U.S. taxable REIT subsidiary (TRS), which includes the operations of Storage To Go. We expect to continue to incur these losses in 2004. We have historically recorded in income the anticipated tax benefit of these loss carry-forwards in current year earnings.

We have determined that there was insufficient historical evidence of future profitability in both Shurgard Europe and the TRS to justify the recording of these tax benefits. These restatements result in the Company recording a full valuation allowance against its deferred tax assets on the balance sheet and eliminating approximately $870,000 ($0.03 per diluted share) and $3.1 million ($0.10 per diluted share) previously recognized as a part of our net income for the years ended December 31, 2002 and 2001, respectively. Notwithstanding the change in accounting treatment, the underlying accumulated tax losses are still available to the Company to be utilized in future years to the extent Shurgard Europe and the TRS are able to generate taxable income.

26

Table of Contents

Tax Retention Operating Lease (TROL)

In 2001, we entered into a financing structure utilizing a tax retention operating lease (TROL) in order to facilitate the development of new storage properties. In June 2003 we purchased all properties remaining in the TROL and fully consolidated the assets and related debt as of June 30, 2003.

We have determined that our historical accounting for the TROL was incorrect. We previously recorded the TROL assets as operating leases, which required us to record in our financial statements a rental payment for the lease of the TROL assets and residual lease guarantee. The proper accounting treatment requires that we carry the TROL properties and related debt on our balance sheet from inception resulting in a restatement in our financial statements beginning in 2001. We are also required to reflect the financing costs related to these properties as interest expense in lieu of the rental payments and depreciate the properties. Because the rental payments in 2001 and 2002 were less than the interest and depreciation expense, net income has been reduced in these periods, by $1.7 million ($0.05 per diluted share) and $6.8 million ($0.19 per diluted share), respectively. There will be no further impact of this change in accounting on future financial statements, other than reduced depreciation expense.

Other restatement items

We also have restated our consolidated financial statements for the effects of the following items:

Summary

The aggregate impact of all restatement items including the restatement for preferred stock issuance costs discussed in Note C, resulted in a decrease in net income available to common shareholders compared to previously reported amounts of $10.5 million ($0.28 per diluted share) and $10.5 million ($0.34 per diluted share) for the years ended December 31, 2002 and 2001, respectively.

27

Table of Contents

The effects of the restatement items described above on our net income available to common shareholders and earnings per share are as follows:

The following is a comparison of the major changes to the Company’s balance sheet as of December 31, 2002 as a result of the restatements:

28

Table of Contents

Most of our cash flow is generated from our self storage properties (see our discussion of same store and new store included in SEGMENT PERFORMANCE). The following chart shows our storage center revenue as a result of the restatement. Increased operating expenses relate primarily to the accrual of certain expenses in the proper periods.

Item 6—Selected Financial Data, Results of Operations, and Note B to our Consolidated Financial Statements further discuss these restatements and their specific impact on our historical financial statements.

CONSOLIDATED STATEMENTS OF INCOME

Our discussion and analysis of financial condition and operating results is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Net Income:  Net income was $37.6 million for 2003, a decrease of $10.4 million, or 22% compared to the results for 2002 due to decreased income from storage center operations, as well as an increase in the interest expense on loans related to our development activity. The decline in income from storage center operations is the result of an increase in impairment of long lived assets, and general, administrative and other. The increase from $22.8 million in 2001 to $48.1 million in 2002 is primarily due to an increase in income from storage center operations and a decrease in the amortization of participation rights discount and interest on loans.

Storage Center Operations Revenue:  Storage center operations revenue was $297.0 million for 2003, an increase of $29.2 million, or 11% compared to the results for 2002 as a result of factors discussed under SEGMENT PERFORMANCE.

Other Revenue:  Other revenue increased from $5.0 million in 2002 to $5.3 million in 2003 primarily due to the increased revenue from our tenant insurance referral program. Our insurance referral program generated $1.4 million in 2003 compared to $765,000 in 2002. Other revenue also included $3.2 million in 2003, $3.2 million in 2002 and $2.0 million in 2001 from our containerized storage operations which we began consolidating in June 30, 2001.

Operating Expenses:  Operating expenses, in addition to the expenses identified under SEGMENT PERFORMANCE, include internal acquisition costs and development expenses related to abandoned development efforts of $1.2 million, $1.2 million and $773,000 for 2003, 2002 and 2001, respectively. Direct and indirect operating expenses of $4.0 million, $3.4 million and $2.7 million for our containerized storage operations are also included in operating expenses for 2003, 2002 and 2001, respectively.

29

Table of Contents

Depreciation and Amortization:  Depreciation and amortization was $56.4 million for 2003, compared to $51.3 million for 2002 and $47.2 million for 2001. The increase is due to an increased number of stores included in our consolidated financial statements over the same period of time. Beginning January 1, 2002, we ceased amortization of goodwill (see Note O to our Consolidated Financial Statements).

Impairment Expenses:  We recorded impairment expenses of $12.7 million, $1.6 million, and $2.3 million in 2003, 2002 and 2001, respectively. In 2003, we recorded a $9.9 million impairment expense related to certain real estate assets, of this amount $7.5 million relates to four properties associated with our joint venture CCP/Shurgard (see Note I to our Consolidated Financial Statements). Additionally in 2003 we recognized a $1.1 million impairment expense related to our decision to exit the containerized storage business and a $1.6 million write down of a note receivable. The $2.3 million impairment expense we recorded in 2001 relates primarily to the cost associated with closing the operations of certain warehouses of STG (see note M to our consolidated financial statements).

General, Administrative and Other Expenses:  General and administrative expenses were $18.0 million for 2003, an increase of $8.1 million, or 82% compared to 2002 This increase is primarily attributable to a $5.2 million increase in accounting and professional fees and a $1.1 million increase in compensation expense related to newly created positions. The decrease in general and administrative expense of $1.5 million from 2001 to 2002 is primarily the result of accruing $2.8 million in 2001 related to exit costs associated with the closure of certain warehouses of STG ( see note M to our consolidated financial statements).

Interest Income and Other, Net:  Interest income and other decreased from $6.3 million in 2002 to $4.5 million in 2003. This is primarily attributable to recording a one-time lease termination settlement of $1.8 million in 2002.

Interest Expense:  Interest expense consists of two components: interest on loans and amortization of participation rights discount. Interest expense on the lines of credit and notes payable decreased from 2001 to 2002 and increased from 2002 to 2003 due to variances in the outstanding balances. The increase in 2003 relates primarily to an increase in mortgage notes payable related to the purchase of 74% of Morningstar in June 2002 and to additional senior notes payable of $200 million that were issued in March 2003. Additionally, we capitalized interest related to the construction of domestic storage centers of $2.3 million, $2.3 million and $1.9 million in 2003, 2002 and 2001, respectively. In 2003, we reduced the participation rights liability by $6.9 million, which resulted in a corresponding reduction of interest expense (See Note I to our Consolidated Financial Statements). In 2002, we reduced the participation rights liability associated with CCP/Shurgard by $6.4 million which resulted in decreased amortization for the second half of 2002. Interest expense also included amortization of loan costs of $2.6 million, $2.4 million and $2.9 million in 2003, 2002 and 2001, respectively.

Unrealized Loss on Financial Instruments:  During 2001, we entered into three interest rate swaps to mitigate the risk of interest rate fluctuations related to the Company’s various options at the end of its TROL transaction. Since these transactions do not qualify for hedge accounting treatment under SFAS No. 133, we recorded $2.2 million, $11.0 million and $1.6 million in unrealized loss for these financial instruments for the years ended December 31, 2003, 2002 and 2001, respectively.

Minority Interest:  Minority interest increased from $645,000 in 2001 to $866,000 in 2002 and to $1.2 million in 2003, which relates to the growing operations of our consolidated subsidiaries and the inclusion of the 26% non-controlled interest in Morningstar for the first full year in 2003, as discussed previously.

Income Tax Expense:  Income tax expense consists of a current tax expense on a consolidated Belgian subsidiary, Recom & Co., SNC (Recom), that we started consolidating in June 2003. We have recorded a full valuation allowance against our net deferred tax assets for the years ended December 31, 2003, 2002 and 2001.

30

Table of Contents

UNCONSOLIDATED OPERATIONS

The following table shows losses from unconsolidated real estate investments for the years ended December 31, 2003, 2002 and 2001. All income and loss amounts reflect our pro rata ownership percentage and are reported under Expenses as Equity in Losses from Other Real Estate Investments, net in our Consolidated Statements of Income.

Equity in losses of other real estate investments, net

Shurgard Europe

In 2003, we increased our direct and indirect ownership interest in Shurgard Europe from 7.57% to 85.47% through the following transactions: (i) in April, we completed the purchase of a 10.64% ownership interest for $49.7 million; (ii) in June, we increased our indirect ownership by 42.5% through a purchase of additional ownership interest in Recom (a Belgian entity that holds a 53.8% ownership interest in Shurgard Europe) for a price of $856,000; (iii) in July, we completed the purchases of a 19.86% ownership interest for approximately $101.6 million; (iv) in October, a further transaction increased our direct and indirect ownership through Recom by 4.63% for 395,000 shares of our Class A Common Stock with an approximate value of $14.3 million and the forgiveness of certain promissory notes totaling $1.7 million and; (v) in December, we further increased our ownership in Recom resulting in a 0.25% increase in our ownership of Shurgard Europe by converting $24.9 million of outstanding bonds to equity. We also purchased $153 million of Recom bonds and started consolidating Recom in June 2003. Although we own 85.47% of Shurgard Europe as of December 31, 2003, the results of European operations are not consolidated in our financial statements. Our interest in Shurgard Europe is accounted for under the equity method of accounting because our remaining partner maintains substantive and important approval rights relating to certain significant operating decisions (see OFF BALANCE SHEET TRANSACTIONS). We recorded losses from European operations of $3.2 million, $1.2 million, and $2.6 million for the years ended December 31, 2003, 2002 and 2001, respectively. Shurgard Europe’s properties generated $34.0 million in Net Operating Income (NOI) after leasehold expense in 2003 compared to $21.3 million in 2002 and $11.0 million in 2001.

Participating Mortgages

As of December 31, 2001, we had $2.6 million invested in a participating mortgage loan for which we recorded $1.5 million of equity in earnings. We received 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 purchased the mortgaged property in February 2002 and the related participating mortgage receivable was repaid. Operating results for the five properties are included in Same Store results for 2003, 2002 and 2001 (see SEGMENT PERFORMANCE).

Containerized Storage

STG, a containerized storage business, is wholly owned by Shurgard TRS, a taxable REIT subsidiary, and is subject to federal income tax. Prior to October 2002, STG operated as Shurgard Storage To Go, Inc., a separate

31

Table of Contents

taxable REIT subsidiary. In June 2001, we purchased all of the issued and outstanding shares of STG and converted our outstanding note receivable to equity. As a result of this transaction, we began consolidating STG in our financial statements as of the date of the purchase of the shares. Operating results prior to June 2001 are accounted for under the equity method. The amount in equity in losses of other real estate investments for 2001 includes the first six months of operations prior to consolidation (See Containerized Storage Operations under TAXABLE REIT SUBSIDIARY OPERATIONS). In December 2003, we made the decision that we would exit the containerized storage business and we had ceased to use the warehouses as of the end of the first quarter 2004.

SEGMENT PERFORMANCE

We evaluate performance of our real estate assets in two segments. The first segment, Same Store, 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 Store, 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. We believe net operating income (NOI) is a meaningful disclosure of operating performance as a supplement to net income because we rely on NOI for purposes of making decisions with respect to resource allocations, current property values, segment performance, and comparing period-to-period and market-to-market property operating results. NOI is defined as Storage center operations revenues less direct operating and real estate tax expense for each of our properties. For a reconciliation of Same Store and New Store NOI to net income see Note V to our Consolidated Financial Statements. The following sections discuss the performance of these segments for domestic properties.

Domestic Same Stores

Our definition of Same Store includes domestic existing stores acquired prior to January 1 of the previous year as well as domestic developed properties that have been operating for a full two years as of January 1 of the current year. Our definition of Same Store results in the addition of stores each year as new acquisitions and developments meet the criteria for inclusion, so we then include these stores in the previous year’s comparable data. Other storage companies may define Same Store differently, which will affect the comparability of the data. The following table summarizes Same Store operating performance as defined at December 31, 2003. The 2002 and 2001 information has been restated (see Note B to our Consolidated Financial Statements).

32

Table of Contents

Same Store Results (1)

(a) During 2003, Same Store revenue increased 1.8% over 2002. In 2002, we started to experience erosion in occupancy and in rental rates that we attributed to general economic conditions and to the rate reductions being offered by competitors. In response to these conditions, we provided additional training to our direct sales team and store management personnel, and we re-aligned our sales center to improve our closing ratios on inquiries made by customers. We believe these initiatives, together with an improvement in the general economic conditions starting in the fourth quarter of 2003, resulted in an increase in our average occupancy without having to further adjust our rates downward. Additionally, increases in retail sales contributed approximately $594,000 in revenue increases from 2002 to 2003, which reflect improvements in the management of our inventory and the portfolio of retail products offered. Also the increases in late fees contributed to approximately $586,000 increase in revenue.

(b) Personnel expenses increased due to Sunday openings and incentive-based wage increases for store employees.

(c) Repair and maintenance costs increased significantly in 2003 over 2002 due to higher than normal snow removal costs experienced by our properties in the northeastern region of the U.S. Additionally, we created a centralized maintenance program that enabled us to accelerate our repair activities for our older U.S. properties.

(d) NOI has risen from 2002 to 2003 primarily due to increases in storage center operations revenue, which is a function of changes in rental rates and occupancy. While the storage business is seasonal, with spring and summer being peak occupancy periods, the year-over-year trends from 2002 to 2003, we believe, are representative of general market changes. Revenue increases from 2002 to 2003 resulted primarily from occupancy increases in stores that became Same Store in 2003 and were offset by a slight decrease in the rental rate.

33

Table of Contents

(e) Indirect operating expenses increased primarily due to increased salaries, new management positions and incentive compensation expenses.

The following table summarizes Same Store operating performance as defined at December 31, 2002. The 2002 and 2001 information has been restated (see Note B to our Consolidated Financial Statements).

Same Store Results (1)