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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

(Mark One)

For the quarterly period ended March 31, 2004

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)

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

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

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

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

Shares outstanding at July 1, 2004

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

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Explanatory Note

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

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Shurgard Storage Centers, Inc.

Form 10-Q

For the Three Months ended March 31, 2004

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Shurgard Storage Centers, Inc.

Part I, Item 1: Condensed Consolidated Balance Sheets

(Amounts in thousands except share data)

(unaudited)

See notes to unaudited Condensed Consolidated Financial Statements

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Shurgard Storage Centers, Inc.

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

(unaudited)

(Amounts in thousands except per share data)

See notes to unaudited Condensed Consolidated Financial Statements

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See notes to unaudited Condensed Consolidated Financial Statements

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Shurgard Storage Centers, Inc.

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

(unaudited)

(Amounts in thousands)

See notes to unaudited Condensed Consolidated Financial Statements

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See notes to unaudited Condensed Consolidated Financial Statements

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Shurgard Storage Centers, Inc.

Part I, Item 1: Notes to Condensed Consolidated Financial Statements

Three months ended March 31, 2004

(unaudited)

Note A – Organization

Shurgard Storage Centers, Inc. (We, our, the Company or Shurgard), a Washington corporation, was organized on July 23, 1993. The Company serves as a vehicle for investments in, and ownership of, a professionally managed, internationally diverse real estate portfolio consisting primarily of self-service storage properties that provides month-to-month leases for business and personal use primarily in the United States and Europe. We operated a network of 616 storage centers containing approximately 39 million net rentable square feet located throughout the United States and in Europe as of March 31, 2004. As of January 1, 2004, pursuant to the adoption of new accounting standards, we started consolidating our European operations in our consolidated financial statements. We intend to qualify as a real estate investment trust (REIT) as defined in Section 856 of the Internal Revenue Code.

This Form 10-Q includes restatements of previously reported historical financial data and related descriptions for the quarter ended March 31, 2003. We reassessed certain accounting policies and concluded certain items had been accounted for incorrectly in the past and restated for them accordingly. In addition, we identified certain other errors impacting prior quarterly periods and corrected for them in our restatements. The restated financial statements were included in our 2003 Annual Report on Form 10-K filed on May 17, 2004. See Note C for further discussion of this matter.

Note B – Variable Interest Entities and Cumulative Effect of Change in Accounting Principle

In December 2003, the FASB issued FASB Interpretation No. (FIN) 46R, “Consolidation of Variable Interest Entities”, a revision to FIN 46, which was issued in January 2003. Under FIN 46R, a variable interest entity (VIE) must be consolidated by a company if that company is subject to a majority of the expected losses from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. FIN 46R also requires disclosures about variable interest entities that a company is not required to consolidate, but in which it has a significant variable interest. We adopted FIN 46R as of January 1, 2004.

We have assessed Shurgard Self Storage SCA (Shurgard Europe), in which we have a 85.47% ownership interest, under the provisions of FIN 46R and have concluded that it meets the definition of a VIE. We have also concluded that we are the primary beneficiary effective from June, 2003. As a result, Shurgard Europe has been consolidated in our financial statements beginning January 1, 2004. The consolidation of Shurgard Europe has a significant effect on the presentation of our financial position, operating results and cash flows (see summarized financial information at Note J). As of March 31, 2004, Shurgard Europe had a credit facility collateralized by assets with a net book value of $540.1 million (see Note E). Shurgard Europe’s creditors had no recourse to the general credit of Shurgard.

In January, 2003 Shurgard Europe created a joint venture entity, First Shurgard, SPRL (First Shurgard), to develop approximately 38 storage facilities in Western Europe. Shurgard Europe has a 20% interest in this venture. We have also determined that First Shurgard is a VIE, and that Shurgard Europe is the primary beneficiary. Accordingly, First Shurgard has been consolidated in our financial statements beginning January 1, 2004. At March 31, 2004 First Shurgard had total assets of $177.0 million, total liabilities of $85.5 million and had a credit facility collateralized by assets with a net book value of $148.8 million (see Note F). As of March 31, 2004, First Shurgard’s creditors had no recourse to the general credit of Shurgard and Shurgard Europe other than Shurgard’s commitment to subscribe up to $20 million in preferred bonds in an event of default. We have an option to put 80% of the bonds issued by First Shurgard to Crescent Euro Self Storage Investments, Shurgard Europe’s partner in the joint venture (see Note S).

Upon adoption of FIN 46R we recognized a cumulative effect of change in accounting principle of approximately $2.3 million relating to the consolidation of First Shurgard. This is the result of eliminating all intercompany profits from inception of First Shurgard in 2003 as required under FIN 46R. Prior to adoption of FIN 46R, we eliminated our 20% ownership share of intercompany profits.

The adoption of FIN 46R and the related consolidation of Shurgard Europe resulted in us recognizing as storage center assets the excess value we paid for our ownership interest in Shurgard Europe over the net book value and the excess fair value of the minority shareholders interests over the net book value as of June 28, 2003, the date we became the primary beneficiary. These amounts were allocated to underlying buildings and land and the amount allocated to buildings is being depreciated over the remaining estimated useful lives. As we are the primary beneficiary of First Shurgard from its inception in 2003, we have determined that the net book value represents the fair value of First Shurgard’s assets and liabilities at inception. As a result, there was no adjustment to First Shurgard’s assets upon the adoption of FIN 46R.

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We do not believe that any of our other investees are VIEs under the provisions of FIN 46R.

Note C – Restatements

We have restated our previously reported quarterly information for the quarter ended March 31, 2003. We reassessed certain accounting policies and concluded certain items had been accounted for incorrectly in the past and restated for them accordingly. In addition, we identified certain other errors impacting prior quarterly periods and corrected for them in our restatements. The restated financial statements were reported and are further discussed in our 2003 Form 10-K filed on May 17, 2004.

The most significant items that we restated for are as follows:

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The effect of these restatements on our net income available to Common shareholders and earnings per share are as follows:

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The aggregate impact of these restatements on the Condensed Consolidated Statement of Income for the three months ended March 31, 2003 are as follows (in thousands):

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Note D - Basis of Presentation

Basis of presentation: The Condensed Consolidated Financial Statements include the accounts of Shurgard and our consolidated subsidiaries presented on an accrual basis in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the requirements of Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the informative disclosures required by GAAP for complete financial statements. In our opinion, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of our financial condition at March 31, 2004 and December 31, 2003 and the results of operations and cash flows for the three month periods ended March 31, 2004 and 2003. Interim results are not necessarily indicative of the results for the year ending December 31, 2004. The interim financial statements should be read in conjunction with our 2003 Annual Report on Form 10-K. All intercompany balances and transactions have been eliminated in consolidation.

Consolidated and Unconsolidated subsidiaries: We consolidate all wholly-owned subsidiaries. We assess whether partially owned subsidiaries are VIEs as defined by FIN46R. Upon implementation of FIN46R in January 1, 2004 we consolidated all VIEs of which we are the primary beneficiary. Partially-owned subsidiaries and joint ventures that are not VIEs are consolidated when we control the decision-making of the entity. We evaluate partially-owned subsidiaries and joint ventures held in partnership form in accordance with the provisions of Statement of Position (SOP) 78-9, “Accounting for Investments in Real Estate Ventures”, to determine whether the rights held by other investors constitute “important rights” as defined therein. For partially-owned subsidiaries or joint ventures held in corporate form (including limited liability companies with governance provisions that are the functional equivalent of regular corporations), we consider the guidance of Statement of Financial Accounting Standard (SFAS) No. 94 “Consolidation of All Majority-Owned Subsidiaries” and Emerging Issues Task Force (EITF) 96-16, “Investor’s Accounting for an Investee When the Investor has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights” and, in particular, whether rights held by other investors would be viewed as “participating rights” as defined therein. To the extent that any minority investor has important rights in a partnership or participating rights in a corporation, including substantive veto rights, the related entity will generally not be consolidated.

Unconsolidated subsidiaries and joint ventures over which we have significant influence are accounted for using the equity method. In applying the equity method, our proportionate share of intercompany profits are eliminated as a component of equity in earnings of unconsolidated entities.

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

Reclassifications: Certain prior year amounts have been reclassified to conform to the current presentation with no effect on shareholders’ equity or net income.

Storage centers: Storage centers are recorded at cost. Depreciation on buildings and equipment is recorded on a straight-line basis over their estimated useful lives. Building assets are depreciated on average over 30 years, and equipment and leasehold improvements over 5 years. We capitalize costs related to development and construction of storage centers. We capitalize interest incurred during the construction period of storage centers, using a weighted-average interest rate of our line of credit and senior notes payable. Repair and maintenance costs are recognized in expense as incurred, unless the costs are incurred for the replacement of existing building infrastructures. Gains and losses on assets sold or retired are reflected in earnings. Using our best estimates based on reasonable and supportable assumptions and projections, we review storage centers and other long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of our assets might not be recoverable.

Revenue recognition: The majority of our customers rent under month-to-month lease agreements and revenue is recognized at the contracted rate for each month occupied. Revenue related to customers who sign longer period leases is recognized ratably over the term of the lease. Management fee revenue is recognized each month for which services are rendered; these contracts are generally cancelable by either party on specified advanced notice.

We recognize revenue related to profit sharing contracts related to our tenant insurance referral program based on the excess of premiums over claims and administrative costs.

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Federal income taxes: To qualify as a REIT, we must distribute annually at least 90% of our taxable income and meet certain other requirements. As a REIT, we will not be subject to U.S. federal income taxes to the extent of distributions. We were not required to pay any federal income tax in 2003 and we intend to make elections regarding distributions such that we will not pay U.S. federal taxes for 2004. As a result, no provision for U.S. federal income taxes for the REIT has been made in our financial statements. We are subject to certain state income taxes as well as certain franchise taxes. Shurgard Europe and its subsidiaries are subject to income taxes in the respective jurisdictions of the countries in which they operate.

We have deferred tax assets arising primarily from cumulative net operating losses arising in certain taxable subsidiaries including our European subsidiaries. We evaluate both the positive and negative evidence that we believe is relevant in assessing whether the deferred tax assets will be realized. When we determine that it is more likely than not that we will not realize the tax asset either in part or in whole, a valuation allowance is provided. One significant factor representing negative evidence in the evaluation of whether deferred tax assets arising from cumulative net operating losses will be realized is historical taxable income or loss of the entity. In cases where a taxable entity has not demonstrated a history of achieving taxable income, this represents significant negative evidence in assessing whether the amounts will be realized and generally requires that a valuation allowance is provided.

Recom & Co., SNC (Recom) is a Belgian partnership which holds a portion of our interest in Shurgard Europe. Recom has been consolidated in our financial statements since we increased our ownership to 88.1% through the acquisition of third party interests in June 2003 and assumed responsibility for management of that entity. Recom is subject to Belgian income tax for which a provision has been made in our financial statements.

Derivative financial instruments: We use derivative instruments to manage exposures to interest rate, credit and foreign currency risks. Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the impact of these exposures as effectively as possible. SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”, as amended, requires that all derivatives be recognized in the balance sheet and measured at fair value. Gains or losses resulting from changes in the fair value of derivatives are recognized in earnings or recorded in other comprehensive income, and recognized in the statements of income when the hedged item affects earnings, depending on the purpose of the derivatives and whether they qualify for hedge accounting treatment. Changes in the fair value of derivative instruments that do not qualify for hedge accounting under SFAS No. 133 are recognized in earnings. To qualify for hedge accounting, the details of the hedging relationship must be formally documented at inception of the arrangement, including the risk management objective, hedging strategy, hedged item, specific risks that are being hedged, the derivative instrument and how effectiveness is being assessed. The derivative must be highly effective in offsetting either changes in fair value or cash flows, as appropriate, for the risk being hedged. Effectiveness is evaluated on a retrospective and prospective basis based on quantitative measures of correlation. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, we discontinue hedge accounting prospectively, as discussed below.

We discontinue hedge accounting prospectively when (1) we determine that the derivative is no longer effective in offsetting changes in the fair value or cash flows of a hedged item (including hedged items such as firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; (4) a hedged firm commitment no longer meets the definition of a firm commitment; or (5) we determine that designating the derivative as a hedging instrument is no longer appropriate.

When hedge accounting is discontinued due to our determination that the derivative no longer qualifies as an effective fair-value hedge, we will continue to carry the derivative on the balance sheet at its fair value but cease to adjust the hedged asset or liability for changes in fair value. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, we will continue to carry the derivative on the balance sheet at its fair value, removing from the balance sheet any asset or liability that was recorded to recognize the firm commitment and recording it as a gain or loss in current-period earnings. When we discontinue hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period, the gain or loss on the derivative remains in accumulated other comprehensive income and is reclassified into earnings when the forecasted transaction affects earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter, the gains and losses that were accumulated in other comprehensive income will be recognized immediately in earnings. In all situations in which hedge accounting is discontinued and the derivative remains outstanding, we will carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current-period earnings.

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Other comprehensive income

The following tables summarize components of other comprehensive income (in thousands):

The currency translation adjustment represents Shurgard Europe’s and Recom’s currency translation loss.

Financing Arrangements: We account for sales of certain storage centers in which we have continuing involvement as financing arrangements (see Note G).

Financial Instruments with characteristics of both Liabilities and Equity: We adopted the requirements of SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” in the third quarter of 2003, and there was no impact on our financial position, operating results or cash flows. However, the minority interests associated with certain of our consolidated joint ventures and our European subsidiaries, that have finite lives under the terms of the partnership agreements, represent mandatorily redeemable interests as defined in SFAS No. 150. As of March 31, 2004, the aggregate book value of these minority interests in finite-lived entities in our Consolidated Balance Sheet was $148.7 million and we believe that the estimated aggregate settlement value of these interests was approximately $163.1 million. This amount is based on the estimated liquidation values of the assets and liabilities and the resulting proceeds that we would distribute to our joint venture partners assuming dissolution as of March 31, 2004. As required under the terms of the respective partnership agreements, subsequent changes to the estimated fair value of the assets and liabilities of the consolidated joint ventures will affect our estimate of the aggregate settlement value. The partnership agreements do not limit the amount that the minority partners would be entitled to in the event of liquidation of the assets and liabilities and dissolution of the respective partnerships.

Stock compensation: On December 31, 2002, we adopted the disclosure provisions of SFAS No. 148 “Accounting for Stock-Based Compensation—Transition and Disclosure” and continue to account for stock-based compensation under APB Opinion No. 25 “Accounting for Stock Issued to Employees”. Therefore, the adoption of SFAS No. 148 did not have any effect on our financial position, operating results or cash flows.

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The following table reflects pro forma net income as if we had recognized stock-based compensation expense using the fair value method in accordance with SFAS No. 123.

Note E - Lines of Credit

The following table summarizes our lines of credit:

As of March 31, 2004 we had an unsecured domestic line of credit to borrow up to $360 million. This facility matures in February 2005 and requires monthly interest payments at 125 basis points over LIBOR. Availability under this line of credit is limited based on various financial covenants. As of March 31, 2004, the current available amount was $79.05 million.

In April 2004, we entered into a new unsecured credit agreement to borrow an additional $100 million at an interest rate of 125 basis points over LIBOR or the prime rate at our option. The facility was provided by a sub-group of our existing bank group and was fully underwritten by our agent bank. The facility contains various covenants that are consistent with our $360 million revolving credit facility and matures in February 2005.

Our consolidated subsidiary Shurgard Europe has a bridge credit agreement denominated in Euros to borrow up to €310 million ($377.4 million as of March 31, 2004). This revolving credit facility matures in December 2004, bears interest at a rate of 200 basis points over EURIBOR and is collateralized by mortgages on substantially all of the Shurgard Europe’s storage centers and certain other assets of Shurgard Europe. The bridge credit facility is subject to customary banking covenants. As of March 31, 2004, this credit facility was collateralized by assets with a net book value of $540.1 million.

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Note F - Notes Payable

Shurgard Europe’s consolidated subsidiary First Shurgard has a senior credit agreement denominated in Euro to borrow up to €140 million ($170.4 million as of March 31, 2004). This facility matures in May 2008, bears interest at a rate of 225 basis points over EURIBOR (4.8% as of March 31, 2004) with a one year extension option subject to meeting certain covenants, and is repayable in installments of €600,000 ($731,000 at March 31, 2004) per quarter starting not earlier than May 2006, and increasing to €1,750,000 ($2,130,000 at March 31, 2004) in May 2007. As of March 31, 2004, this credit facility was collateralized by assets with a net book value of $148.8 million.

As of March 2004, we reduced by $17.4 million the outstanding balance on the mortgage note payable of a joint venture accounted for as a financing arrangement. We relinquished our rights on certain properties of the joint venture to which the debt applied and which collateralized the notes to the extent of the amount reduced (see Note G).

Our domestic mortgage notes payable and European senior credit agreement consist of the following:

As of March 31, 2004 and December 31, 2003 the domestic mortgage notes payable were collateralized by storage centers with a net book value of $250.0 million and $269.5 million, respectively.

Note G - Participation Rights

In May 2000, we formed a joint venture, CCP/Shurgard Venture, LLC (CCP/Shurgard), with an affiliate of JP Morgan Partners CCPRE-Storage, LLC (CCPRE). Under this joint venture agreement, we constructed storage centers financed through the use of cash flows provided by operations and our line of credit and, upon completion, contributed those storage centers to the joint venture. At the time of contribution, we were reimbursed to the extent our historical cost plus negative cash flow prior to the transfer exceeded our pro rata portion of required equity (calculated as total required funding less amounts provided from financial institutions multiplied by our ownership percentage). Our partner had the right to cause the joint venture to put those storage centers to us. The purchase price for the put is calculated as the greater of (a) that amount necessary to provide a specified return on the partners’ contributed capital (12% in the case of CCP/Shurgard) or (b) annualized NOI (See Note U) divided by 9.25%, plus assumption or payoff of the allocated mortgage debt. We have continuing involvement with this joint venture and do not recognize the contribution of the storage centers as a transfer in ownership for financial reporting purposes. We account for this joint venture as a financing arrangement and, as such, recognize all activities related to those properties in our financial statements. Additionally, we recognize a participation

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rights liability and a related discount on the underlying liability for the estimated fair value of our joint venture partners’ share of the estimated option purchase price based on the best evidence available to us. The discount is amortized as a component of interest expense over the estimated term of the related agreements. Changes in the estimated fair value of the participation rights and related discount are recognized prospectively over the remaining term of the agreements. The storage centers, mortgage notes payable, and other related assets and liabilities of the joint ventures are included in our Condensed Consolidated Balance Sheets, and the related revenue and expenses of these properties are included in our Condensed Consolidated Statements of Income.

In September 2003, CCPRE exercised its right to have the joint venture put five properties to us. In March 2004 we gave notice of our intention to acquire one of the properties subject to the offer for $4.4 million and declined to purchase the remaining four properties at the put price. The properties that we did not agree to purchase under the put may be sold on the open market at the discretion of our joint venture partner. The decision not to purchase these four properties resulted in a $6.9 million reduction of our net participation rights liability at December 31, 2003, representing the accrued participation liability recorded for these properties through September 30, 2003, and a corresponding increase in income was recorded in interest income and other, net. An impairment loss of $7.5 million was recorded at December 31, 2003 to reflect the anticipated decline in value to be recovered by us upon disposition of the related properties in 2004. We relinquished all rights to the properties when we declined to purchase them, we account for this joint venture as a financing arrangement and therefore we ceased to consolidate these four properties and the related debt in March 2004. On June 25, 2004 we entered into a purchase and sale agreement with CCPRE to purchase CCPRE’s 80% membership interest in CCP/Shurgard. Assuming the terms and conditions are met the transaction will take place on December 15, 2004 at a purchase price of approximately $46 million.

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

Note H - Storage Centers

Buildings and equipment are presented net of accumulated depreciation of $403.1 million and $322.0 million as of March 31, 2004 and December 31, 2003, respectively.

As of March 31, 2004 storage centers included building and equipment from Shurgard Europe of $934.6 million, net of accumulated depreciation of $71.3 million.

Note I – Acquisitions

Minnesota Mini-Storage

On June 30, 2003, we completed the acquisition of five entities owning a total of 19 self storage centers located in Minnesota and operated under the name of Minnesota Mini-Storage. The results of Minnesota Mini- Storage have been included in our Condensed Consolidated Financial Statements since that date. We entered into this transaction to gain a market presence in Minnesota. As consideration in the transaction, we issued 3,050,000 shares of our common stock at closing and have agreed to issue an additional 50,000 shares if the properties meet certain revenue targets prior to the end of 2005. The acquisition was accounted for as a purchase transaction. Due to the contingent shares issuable, the purchase price is not yet finalized; thus, the allocation of the purchase price is subject to change. As of March 31, 2004 and December 31, 2003, we had recorded a liability of $1.8 million, in relation with the contingent purchase price, which is included in Accounts payable and other liabilities in the Condensed Consolidated Balance Sheet.

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The following table summarizes unaudited pro forma results of operations for the three months ended March 31, 2003 as if Minnesota acquisition had taken place at the beginning of that period.

Other acquisitions

On February 27, 2004 we acquired the remaining limited partner’s interests in Shurgard Institutional Fund L.P. (Institutional I) for $2.5 million and increased our share of ownership interest from 92.6% to 99%. The calculation of the purchase price payable for the acquired limited partner’s interests was governed by the terms of the partnership agreement of Institutional I, and was based upon the fair market value of the properties owned by Institutional I as determined by a third party appraisal.

Note J – Investment in Shurgard Europe

In 2001, 2002 and through April 2003 our ownership interest in Shurgard Europe was 7.6%. During the period from April 2003 through December 31, 2003, we entered into several transactions which resulted in an additional 47.15% indirect ownership in Shurgard Europe and 30.75 % direct ownership interest. Our combined direct and indirect ownership in Shurgard Europe at December 31, 2003 totaled 85.47% with an investment value of $319.3 million. The difference between our investment in Shurgard Europe and our proportionate share of the underlying equity was primarily a result of the fact that we paid more than book value for the ownership interests in Shurgard Europe acquired from our former investment partners. This difference was attributed to the underlying buildings and land owned by Shurgard Europe and, accordingly, the amount attributed to buildings is being depreciated over the remaining estimated useful lives. European operations are conducted in Belgium, Sweden, France, the Netherlands, the United Kingdom, Denmark and Germany. In January 2003, Shurgard Europe created a new joint venture entity, First Shurgard, to develop approximately 38 storage facilities in Western Europe. Shurgard Europe has a 20% interest in this venture. We owned or leased 122 properties in seven European countries containing approximately 6.7 million rentable square feet as of March 31, 2004.

As discussed in Note B, upon the adoption of FIN 46R we started consolidating Shurgard Europe and its subsidiary First Shurgard as of January 1, 2004.

Below is summarized financial information for Shurgard Europe. Shurgard Europe’s functional currency is the Euro. This financial information has been translated from the Euro to the U.S. dollar for reporting purposes. Non-monetary assets and liabilities are converted at historical exchange rates, monetary assets and liabilities are re-measured at the exchange rate in effect as of the end of each period and income statement accounts are re-measured at the average exchange rate for each period. This financial information is presented before elimination of intercompany balances with Shurgard. Upon consolidation of Shurgard Europe as of March 31, 2004, the bonds payable to Shurgard of $59.1 million are eliminated as well as the related interest expense of $1.9 million.

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Shurgard Self Storage S.C.A.

Condensed Consolidated Balance Sheets