UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2009

Commission File Number: 0-24071

SOVRAN ACQUISITION LIMITED PARTNERSHIP

(Exact name of Registrant as specified in its charter)

Delaware		16-1481551
(State of incorporation or organization)		(I.R.S. Employer Identification No.)

6467 Main Street
Williamsville, NY 14221 (Address of principal executive offices) (Zip code)

(716) 633-1850 (Registrant’s telephone number including area code)

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

Title of Securities		Exchanges on which Registered
Not applicable		Not Applicable

Securities registered pursuant to section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)

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

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

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

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

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

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

     As of February 15, 2010, 27,966,979 Units of Limited Partnership Interest were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Definitive Proxy Statement for the Annual Meeting of Shareholders of the Company to be held on May 26, 2010 (Part III).

 

 

TABLE OF CONTENTS

Part I
Item 1. Business			3
Item 1A. Risk Factors			8
Item 1B. Unresolved Staff Comments			13
Item 2. Properties			14
Item 3. Legal Proceedings			15
Item 4. Submission of Matters to a Vote of Security Holders			15
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			15
Item 6. Selected Financial Data			17
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			30
Item 8. Financial Statements and Supplementary Data			31
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			53
Item 9A. Controls and Procedures			53
Part III
Item 10. Directors, Executive Officers and Corporate Governance			55
Item 11. Executive Compensation			55
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			55
Item 13. Certain Relationships and Related Transactions, and Director Independence			57
Item 14. Principal Accountant Fees and Services			57
Part IV
Item 15. Exhibits, Financial Statement Schedules			57
SIGNATURES
EX-10.5
EX-12.1
EX-21.1
EX-31.1
EX-31.2
EX-32.1

Part I

     When used in this discussion and elsewhere in this document, the words “intends,” “believes,” “expects,” “anticipates,” and similar expressions are intended to identify “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933 and in Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Operating Partnership to be materially different from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the effect of competition from new self-storage facilities, which would cause rents and occupancy rates to decline; the Operating Partnership’s ability to evaluate, finance and integrate acquired businesses into the Operating Partnership’s existing business and operations; the Operating Partnership’s ability to effectively compete in the industry in which it does business; the Operating Partnership’s existing indebtedness may mature in an unfavorable credit environment, preventing refinancing or forcing refinancing of the indebtedness on terms that are not as favorable as the existing terms; interest rates may fluctuate, impacting costs associated with the Operating Partnership’s outstanding floating rate debt; the Operating Partnership’s ability to comply with debt covenants; any future ratings on the Operating Partnership’s debt instruments; the Operating Partnership’s reliance on its call center; the Operating Partnership’s cash flow may be insufficient to meet required payments of principal, interest and distributions; and tax law changes that may change the taxability of future income.

Item 1. Business

     Sovran Acquisition Limited Partnership (the “Operating Partnership”) is the entity through which Sovran Self Storage, Inc. (the “Company”), a self-administered and self-managed real estate investment trust (“REIT”), conducts substantially all of the Company’s business and owns substantially all of the Company’s assets. We refer to the self-storage properties in which we have an ownership interest and are managed by us as “Properties.” We began operations on June 26, 1995. We were formed to continue the business of our predecessor company, which had engaged in the self-storage business since 1985. At February 15, 2010, we held ownership interests in and managed 381 Properties consisting of approximately 24.7 million net rentable square feet, situated in 24 states. Among our 381 Properties are 27 Properties that we manage for a consolidated joint venture of which we are a majority owner and 25 Properties that we manage for a joint venture of which we are a 20% owner. We believe we are the fourth largest operator of self-storage properties in the United States based on facilities owned and managed. Our Properties conduct business under the user-friendly name Uncle Bob’s Self-Storage ^®.

     At December 31, 2009, the Company is a 98.5% economic owner of the Operating Partnership and controls it through Sovran Holdings, Inc. (“Holdings”), a wholly owned subsidiary of the Company incorporated in Delaware and the sole general partner of the Operating Partnership. This structure is commonly referred to as an umbrella partnership real estate investment trust (“UPREIT”). The Board of Directors of Holdings, the members of which are the same as the members of the Board of Directors of the Company, manages the affairs of the Operating Partnership by directing the affairs of Holdings. The Company’s limited partner and indirect general partner interests in the Operating Partnership entitle it to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to its ownership interest therein and entitle the Company to vote on all matters requiring a vote of the limited partners.

     The Operating Partnership’s other limited partners are persons who contributed their direct or indirect interests in certain self-storage properties to the Operating Partnership. The Operating Partnership is obligated to redeem each unit of limited partnership (“Unit”) at the request of the holder thereof for cash equal to the fair market value of a share of the Company’s common stock, par value $.01 per share (“Common Shares”), at the time of such redemption, provided that the Company at its option may elect to acquire any such Unit presented for redemption for one Common Share or cash. With each such redemption or acquisition by the Company, the Company’s percentage ownership interest in the Operating Partnership will increase. In addition, whenever the Company issues Common Shares, the Company is obligated to contribute any net proceeds therefrom to the Operating Partnership and the Operating Partnership is obligated to issue an equivalent number of Units to the Company.

     The Operating Partnership may issue additional Units to acquire additional self-storage properties in transactions that in certain circumstances defer some or all of the sellers’ tax consequences. The Operating Partnership believes that many potential sellers of self-storage properties have a low tax basis in their properties and

would be more willing to sell the properties in transactions that defer Federal income taxes. Offering Units instead of cash for properties may provide potential sellers partial Federal income tax deferral.

     Our principal executive offices are located at 6467 Main Street, Williamsville, New York 14221, our telephone number is (716) 633-1850 and our web site is www.sovranss.com.

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

Industry Overview

     We believe that self-storage facilities offer inexpensive storage space to residential and commercial users. In addition to fully enclosed and secure storage space, many facilities also offer outside storage for automobiles, recreational vehicles and boats. Better facilities, such as those managed by the Operating Partnership, are usually fenced and well lighted with gates that are either manually operated or automated and have a full-time manager. Our customers rent space on a month-to-month basis and have access to their storage area during business hours and in certain circumstances are provided with 24-hour access. Individual storage units are secured by the customer’s lock, and the customer has sole control of access to the unit.

     According to the 2010 Self-Storage Almanac, of the approximately 48,700 facilities in the United States, less than 11% are managed by the ten largest operators. The remainder of the industry is characterized by numerous small, local operators. The shortage of skilled operators, the scarcity of capital available to small operators for acquisitions and expansions, and the potential for savings through economies of scale are factors that are leading to consolidation in the industry. We believe that, as a result of this trend, significant growth opportunities exist for operators with proven management systems and sufficient capital resources.

Property Management

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

Personnel:

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

Marketing and Sales:

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

	–		A Customer Care Center (call center) that services new and existing customers’ inquiries and facilitates the capture of sales leads that were previously lost;
	–		Internet marketing, which provides customers information about all of our stores via numerous portals and e-mail;
	–		A rate management system, that matches product availability with market demand for each type of storage unit at each store, and determines appropriate pricing. The Operating Partnership credits this program in achieving higher yields and controlling discounting;

	–		Dri-guard, that provides humidity-controlled spaces. We became the first self-storage operator to utilize this humidity protection technology. These environmental control systems are a premium storage feature intended to protect metal, electronics, furniture, fabrics and paper from moisture; and
	–		Uncle Bob’s trucks, that provide customers with convenient, affordable access to vehicles to help move their goods into storage, and which also serve as moving billboards to help advertise our storage facilities.

Ancillary Income:

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

Information Systems:

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

Property Maintenance:

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

Environmental and Other Regulations

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

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

Insurance

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

Federal Income Tax

     The Operating Partnership does not pay federal income taxes because we qualify as a partnership for federal and state income tax purposes and our partners are required to include their respective shares of profits and losses in their income tax returns.

Competition

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

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

Investment Policy

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

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

Disposition Policy

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

     During 2009 we sold five non-strategic storage facilities located in Massachusetts, North Carolina and Pennsylvania for net cash proceeds of $16.3 million resulting in a loss of $1.6 million. During 2008 we sold one non-strategic storage facility located in Michigan for net cash proceeds of $7.0 million resulting in a gain of $0.7 million. No storage facilities were sold in 2007.

Distribution Policy

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

     On May 6, 2009, recognizing the need to maintain maximum financial flexibility in light of the current state of the capital markets, our Board of Directors reduced the quarterly distribution from $0.64 per unit to $0.45 per unit, for an annual rate of $1.80 per unit.

Borrowing Policy

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

     On June 25, 2008, we entered into agreements relating to new unsecured credit arrangements, and received funds under those arrangements. As part of the agreements, we entered into a $250 million unsecured term note maturing in June 2012 bearing interest at LIBOR plus 1.625%. The proceeds from this term note were used to repay the Operating Partnership’s previous line of credit that was to mature in September 2008, the Operating Partnership’s term note that was to mature in September 2009, the term note maturing in July 2008, and to provide for working capital. In October 2009, the Operating Partnership repaid $100 million of the term note entered into in June 2008. The 2008 agreements also provide for a $125 million (expandable to $175 million) revolving line of credit maturing June 2011 bearing interest at a variable rate equal to LIBOR plus 1.375%, and requires a 0.25% facility fee. At December 31, 2009, there was $125 million available on the unsecured line of credit.

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

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

Employees

     We currently employ a total of 1,051 employees, including 381 property managers, 24 area managers, and 511 assistant managers and part-time employees. At our headquarters, in addition to our three senior executive officers, we employ 132 people engaged in various support activities, including accounting, human resources, customer care, and management information systems. None of our employees are covered by a collective bargaining agreement. We consider our employee relations to be excellent.

Available Information

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

our codes of ethics and Charters of our Governance, Audit Committee, and Compensation Committee are available free of charge on our website at http://www.sovranss.com.

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

Item 1A. Risk Factors

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

Our Acquisitions May Not Perform as Anticipated

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

We May Incur Problems with Our Real Estate Financing

Unsecured Credit Facility and Term Notes. We have a line of credit and term note agreements with a syndicate of financial institutions and other lenders. This unsecured credit facility and the term notes are recourse to us and the required payments are not reduced if the economic performance of any of the properties declines. The unsecured credit facility limits our ability to make distributions to our unitholders, except in limited circumstances.

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

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

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

Covenants and Risk of Default. Our unsecured credit facility and term notes require us to operate within certain covenants, including financial covenants with respect to leverage, fixed charge coverage, minimum net worth,

limitations on additional indebtedness and distribution limitations. If we violate any of these covenants or otherwise default under our unsecured credit facility or term notes, then our lenders could declare all indebtedness under these facilities to be immediately due and payable which would have a material adverse effect on our business and could require us to sell self-storage facilities under distress conditions and seek replacement financing on substantially more expensive terms.

Our Debt Levels May Increase

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

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

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

	•		Decreases in demand for rental spaces in a particular locale;
	•		Changes in supply of similar or competing self-storage facilities in an area;
	•		Changes in market rental rates; and
	•		Inability to collect rents from customers.

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

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

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

	•		Changes in national economic conditions;
	•		Changes in general or local economic conditions and neighborhood characteristics;
	•		Competition from other self-storage facilities;
	•		Changes in interest rates and in the availability, cost and terms of financing;

	•		The impact of present or future environmental legislation and compliance with environmental laws;
	•		The ongoing need for capital improvements, particularly in older facilities;
	•		Changes in real estate tax rates and other operating expenses;
	•		Adverse changes in governmental rules and fiscal policies;
	•		Uninsured losses resulting from casualties associated with civil unrest, acts of God, including natural disasters, and acts of war;
	•		Adverse changes in zoning laws; and
	•		Other factors that are beyond our control.

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

     Uninsured and Underinsured Losses Could Reduce the Value of our Self Storage Facilities. Some losses, generally of a catastrophic nature, that we potentially face with respect to our self-storage facilities may be uninsurable or not insurable at an acceptable cost. Our management uses its discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to acquiring appropriate insurance on our investments at a reasonable cost and on suitable terms. These decisions may result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the full current market value or current replacement cost of our lost investment. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it infeasible to use insurance proceeds to replace a property after it has been damaged or destroyed. Under those circumstances, the insurance proceeds received by us might not be adequate to restore our economic position with respect to a particular property.

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

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

There Are Limitations on the Ability to Change Control of Sovran

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

     These ownership limits may:

	•		Have the effect of precluding an acquisition of control of Sovran by a third party without consent of our Board of Directors even if the change in control would be in the interest of the Company’s shareholders; and
	•		Limit the opportunity for the Company’s shareholders to receive a premium for shares of its common stock they hold that might otherwise exist if an investor were attempting to assemble a block of common stock in excess of 9.8% or 15%, as the case may be, of the outstanding shares of the Company’s stock or to otherwise effect a change in control of Sovran.

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

     Other Limitations. Other limitations could have the effect of discouraging a takeover or other transaction in which holders of some, or a majority, of the Company’s outstanding common stock might receive a premium for their shares of the Company’s common stock that exceeds the then prevailing market price or that those holders might believe to be otherwise in their best interest. The issuance of additional shares of preferred stock could have the effect of delaying or preventing a change in control of Sovran even if a change in control were in the shareholders’ interest. In addition, the Maryland General Corporation Law, or MGCL, imposes restrictions and requires that specified procedures with respect to the acquisition of stated levels of share ownership and business combinations, including combinations with interested shareholders. These provisions of the MGCL could have the effect of delaying or preventing a change in control of Sovran even if a change in control were in the shareholders’ interest. Waivers and exemptions have been granted to the initial purchasers of the Company’s former Series C preferred stock in connection with these provisions of the MGCL. In addition, under the Partnership’s agreement of limited partnership, in general, we may not merge, consolidate or engage in any combination with another person or sell all or substantially all of our assets unless that transaction includes the merger or sale of all or substantially all of the assets of the Partnership, which requires the approval of the holders of 75% of the limited partnership interests thereof. If we were to own less than 75% of the limited partnership interests in the Partnership, this provision of the limited partnership agreement could have the effect of delaying or preventing us from engaging in some change of control transactions.

The Failure of Sovran Self Storage, Inc. to Qualify as a REIT Would Have Adverse Consequences

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

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

     If the Company were to fail to qualify as a REIT in any taxable year, the Company would not be allowed a deduction for distributions to shareholders in computing its taxable income and would be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Unless entitled to relief under certain Code provisions, the Company also would be ineligible for qualification as a REIT for

the four taxable years following the year during which its qualification was lost. As a result, distributions to the shareholders would be reduced for each of the years involved. Although the Company currently intends to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause its Board of Directors to revoke its REIT election.

We May Pay Some Taxes, Reducing Cash Available for Unitholders

     Even if the Company qualifies as a REIT for federal income tax purposes, we are required to pay some federal, foreign, state and local taxes on our income and property. Certain of the Company’s corporate subsidiaries have elected to be treated as “taxable REIT subsidiaries” of the Company for federal income tax purposes. A taxable REIT subsidiary is taxable as a regular corporation and is limited in its ability to deduct interest payments made to us in excess of a certain amount. In addition, if the Company receives or accrues certain amounts and the underlying economic arrangements among its taxable REIT subsidiaries and it are not comparable to similar arrangements among unrelated parties, the Company will be subject to a 100% penalty tax on those payments in excess of amounts deemed reasonable between unrelated parties. Finally, some state and local jurisdictions may tax some of our income even though as a REIT the Company is not subject to federal income tax on that income because not all states and localities follow the federal income tax treatment of REITs. To the extent that the Company or any taxable REIT subsidiary is required to pay federal, foreign, state or local taxes, we will have less cash available for distribution to unitholders.

We May Change the Distribution Policy in the Future

     In 2009, our board of directors authorized and we declared quarterly distributions of $0.64 per unit for the first fiscal quarter; the equivalent of an annual rate of $2.56 per unit. With respect to the second quarter of 2009, recognizing the need to maintain maximum financial flexibility in light of the current state of the capital markets, our board of directors reduced the quarterly distribution to $0.45 per unit, for an annual rate of $1.80 per unit. A $0.45 per unit distribution was also declared with respect to the third and fourth quarters of 2009. We can provide no assurance that the board will not reduce or eliminate entirely distributions in the future.

     A recent Internal Revenue Service revenue procedure allows the Company to satisfy the REIT income distribution requirements with respect to its 2010 and 2011 taxable years by distributing up to 90% of its dividends for such years on its common stock in shares of its common stock in lieu of paying dividends entirely in cash, so long as the Company follows a process allowing its shareholders to elect cash or stock subject to a cap that the Company imposes on the maximum amount of cash that will be paid. Although the Company may utilize this procedure in the future, it currently has no intent to do so.

     Our board of directors will continue to evaluate our distribution policy on a quarterly basis as they monitor the capital markets and the impact of the economy on our operations. The decision to authorize and pay distributions in the future, as well as the timing, amount and composition of any such future distributions, will be at the sole discretion of our board of directors in light of conditions then existing, including our earnings, financial condition, capital requirements, debt maturities, the availability of capital, applicable REIT and legal restrictions and the general overall economic conditions and other factors. Any change in our distribution policy could have a material adverse effect on the market price of the Company’s common stock.

The Company May Have Rescission Liability in Connection with Sales of Unregistered Shares to Certain Investors

     As previously disclosed in our Form 10-Q for the three months ended March 31, 2009, from December 2008 through April 2009, the Company sold an aggregate of 653,757 shares of common stock under its dividend reinvestment and stock purchase plan (the “DRSPP”) which were not registered under the Securities Act as a result of the expiration in November 2008 of its registration statement covering the DRSPP. Some or all of those sales, which resulted in proceeds to the Company of approximately $14.0 million, may have violated Section 5 of the Securities Act. Purchasers of shares issued in violation of Section 5 have a right to rescind their purchases for a period of twelve months following the date of original purchase under Section 13 of the Securities Act. As a result, the Company could be required to repurchase some or all of the shares issued under the DRSPP during this period at the original sale price plus statutory interest.

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

     As of December 31, 2009, 147 of our 381 self-storage facilities are located in the states of Texas and Florida. For the year ended December 31, 2009, these facilities accounted for approximately 42.0% of store revenues. This concentration of business in Texas and Florida exposes us to potential losses resulting from a downturn in the economies of those states. If economic conditions in those states continue to deteriorate, we will experience a reduction in existing and new business, which may have an adverse effect on our business, financial condition and results of operations.

Item 1B. Unresolved Staff Comments

     None.

Item 2.		Properties

     At December 31, 2009, we held ownership interests in and managed a total of 381 Properties situated in twenty-four states. Among the 381 self-storage facilities are 27 properties that we manage for a consolidated joint venture of which we are a majority owner and 25 properties that we manage for a joint venture of which we are a 20% owner.

     Our self-storage facilities offer inexpensive, easily accessible, enclosed storage space to residential and commercial users on a month-to-month basis. Most of our Properties are fenced with computerized gates and are well lighted. A majority of the Properties are single-story, thereby providing customers with the convenience of direct vehicle access to their storage spaces. Our stores range in size from 21,000 to 181,000 net rentable square feet, with an average of approximately 65,000 net rentable square feet. The Properties generally are constructed of masonry or steel walls resting on concrete slabs and have standing seam metal, shingle, or tar and gravel roofs. All Properties have a property manager on-site during business hours. Customers have access to their storage areas during business hours, and some commercial customers are provided 24-hour access. Individual storage spaces are secured by a lock furnished by the customer to provide the customer with control of access to the space.

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

     The following table provides certain information regarding the Properties in which we have an ownership interest and manage as of December 31, 2009:

		Number of
		Stores at												Percentage
		December 31,				Square				Number of				of Store
		2009				Feet				Spaces				Revenue
Alabama			22				1,587,552				11,895				4.9	%
Arizona			9				532,834				4,723				2.3	%
Connecticut			5				300,860				2,866				1.9	%
Colorado			4				276,927				2,374				1.3	%
Florida			57				3,641,512				33,394				15.1	%
Georgia			27				1,710,528				13,935				6.1	%
Kentucky			2				144,872				1,323				0.6	%
Louisiana			14				836,350				7,309				3.7	%
Maine			2				114,265				1,010				0.5	%
Maryland			4				172,083				2,037				0.9	%
Massachusetts			12				664,614				6,067				3.2	%
Michigan			6				354,608				3,035				1.1	%
Mississippi			12				922,933				7,116				3.4	%
Missouri			7				432,039				3,791				2.0	%
New Hampshire			4				259,555				2,331				1.0	%
New York			28				1,590,577				14,566				8.4	%
North Carolina			14				723,262				6,223				2.7	%
Ohio			23				1,558,905				12,900				5.5	%
Pennsylvania			4				208,400				1,630				0.8	%
Rhode Island			4				168,346				1,565				0.8	%
South Carolina			8				443,158				3,782				1.7	%
Tennessee			4				291,204				2,457				0.9	%
Texas			90				6,624,499				54,563				26.9	%
Virginia			19				1,130,226				10,528				4.3	%
Total			381				24,690,109				211,420				100.0	%

     At December 31, 2009, the Properties had an average occupancy of 80.0% and an annualized rent per occupied square foot of $10.29.

Item 3.		Legal Proceedings

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

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

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

Part II

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

     There is no established public trading market for Units. As of February 15, 2010, there were 11 holders of record of Units.

     The following table sets forth the quarterly distributions per Unit paid by the Operating Partnership to holders of its Units with respect to each such period.

History of Distributions Declared on Units
March 2008		$0.630 per unit
June 2008		$0.630 per unit
September 2008		$0.640 per unit
December 2008		$0.640 per unit
March 2009		$0.640 per unit
July 2009		$0.450 per unit
October 2009		$0.450 per unit
January 2010		$0.450 per unit

     The partnership agreement of the Operating Partnership (the “Partnership Agreement”) provides that the Operating Partnership will distribute all available cash (as defined in the Partnership Agreement) on at least a quarterly basis, in amounts determined by the general partner in its sole discretion, to the partners in accordance with their respective percentage interest in the Operating Partnership. Distributions are declared at the discretion of the Board of Directors of Holdings, the general partner of the Operating Partnership and a wholly-owned subsidiary of the Company, and will depend on actual funds from operations of the Operating Partnership, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, and such other factors as the Board of Directors may deem relevant. The Board of Directors of Holdings may modify the Operating Partnership’s distribution policy from time to time, subject to the terms of the Partnership Agreement.

     The Operating Partnership’s line of credit contains customary representations, covenants and events of default, including covenants which restrict the ability of the Operating Partnership to make distributions in excess of stated amounts. In general, during any four consecutive fiscal quarters the Operating Partnership may only distribute up to 105% of the Operating Partnership’s funds from operations (as defined in the related agreement). The line of credit contains exceptions to these limitations to allow the Operating Partnership to make any distributions necessary to allow the Company to maintain its status as a REIT. The Operating Partnership does not anticipate that this provision will adversely affect the ability of the Operating Partnership to make distributions, as

currently anticipated.

EQUITY COMPENSATION PLAN INFORMATION

     The following table sets forth certain information as of December 31, 2009, with respect to equity compensation plans under which shares of the Company’s Common Stock may be issued.

Number of

securities to be

issued upon

Weighted average

Number of

exercise of

exercise price of

securities

outstanding

outstanding

remaining available

options, warrants

options, warrants

for future issuance

Plan Category

and rights (#)

and rights ($)

(#)

Equity compensation plans approved by shareholders:

2005 Award and Option Plan

316,163

$

42.86

998,330

1995 Award and Option Plan

46,300

$

27.23

0

2009 Outside Directors’ Stock Option and Award Plan

9,500

$

23.15

137,044

1995 Outside Directors’ Stock Option Plan

25,505

$

46.23

0

Deferred Compensation Plan for Directors (1)

29,390

N/A

27,671

Equity compensation plans not approved by shareholders:

N/A

N/A

N/A

Item 6.		Selected Financial Data

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

		At or For Year Ended December 31,
(dollars in thousands, except per unit data)		2009				2008				2007				2006				2005
Operating Data
Operating revenues		$	195,011			$	200,193			$	190,013			$	162,541			$	134,524
Income from continuing operations			22,438				37,803				40,184				37,306				34,379
(Loss) income from discontinued operations (1)			(784	)			1,880				1,661				1,738				1,940
Net income			21,654				39,683				41,845				39,044				36,319
Net income attributable to common unitholders			20,294				38,120				38,741				35,003				31,706
Income from continuing operations per common unit attributable to common unitholders— diluted			0.87				1.63				1.73				1.80				1.72
Net income per common unit attributable to common unitholders — basic			0.84				1.72				1.81				1.90				1.87
Net income per common unit attributable to common unitholders — diluted			0.84				1.72				1.81				1.90				1.85
Distributions declared per common unit (2)			1.54				2.54				2.50				2.47				2.44
Balance Sheet Data
Investment in storage facilities at cost		$	1,387,583			$	1,366,615			$	1,300,847			$	1,115,255			$	865,692
Total assets			1,185,201				1,212,528				1,164,475				1,053,033				784,195
Total debt			481,219				623,261				566,517				462,027				339,144
Total liabilities			520,142				692,381				610,644				495,175				364,856
Limited partners’ redeemable capital interest			15,005				15,118				16,951				24,575				22,512
Partners’ capital			650,054				505,029				536,880				533,283				396,827
Other Data
Net cash provided by operating activities		$	59,123			$	77,132			$	85,175			$	64,656			$	60,724
Net cash used in investing activities			(4,448	)			(82,711	)			(190,267	)			(176,567	)			(79,156	)
Net cash (used in) provided by financing activities			(48,451	)			6,055				61,372				154,730				20,238

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

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

Disclosure Regarding Forward-Looking Statements

     When used in this discussion and elsewhere in this document, the words “intends,” “believes,” “expects,” “anticipates,” and similar expressions are intended to identify “forward-looking statements” within the meaning of that term in Section 27A of the Securities Act of 1933 and in Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the effect of competition from new self-storage facilities, which would cause rents and occupancy rates to decline; the Operating Partnership’s ability to evaluate, finance and integrate acquired businesses into the Operating Partnership’s existing business and operations; the Operating Partnership’s ability to effectively compete in the industry in which it does business; the Operating Partnership’s existing indebtedness may mature in an unfavorable credit environment, preventing refinancing or forcing refinancing of the indebtedness on terms that are not as favorable as the existing terms; interest rates may fluctuate, impacting costs associated with the Operating Partnership’s outstanding floating rate debt; the Operating Partnership’s ability to comply with debt covenants; any future ratings on the Operating Partnership’s debt instruments; the regional concentration of the Operating Partnership’s business may subject it to economic downturns in the states of Florida and Texas; the Operating Partnership’s reliance on its call center; the Operating Partnership’s cash flow may be insufficient to meet required payments of principal, interest and distributions; and tax law changes that may change the taxability of future income.

Business and Overview

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

Operating Strategy

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

A.

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

–

We seek to differentiate our self-storage facilities from our competition through innovative marketing and value-added product offerings including:

	–		Our Customer Care Center, which answers sales inquiries and makes reservations for all of our Properties on a centralized basis,
	–		The Uncle Bob’s truck move-in program, under which, at present, 258 of our stores offer a free Uncle Bob’s truck to assist our customers in moving into their spaces,
	–		Our dehumidification system, known as Dri-guard, which provides our customers with a better environment to store their goods and improves yields on our Properties, and
	–		Internet marketing and sales.

	–		Our “Name your Price” concession differentiates us from the “free month” offer now prevalent in our industry, and allows us to engage the customer in a unique manner. We are able to customize this offer based on occupancies and demand.
	–		Our customized property management systems enable us to improve our ability to track trends, set optimal pricing levels, enjoy considerable economies of scale in vendor and supply pricing, and control collections and accounts receivable.

–

In addition, our managers are better qualified and receive a significantly higher level of training than they did in past years, customer access and security are greatly enhanced as a result of advances in technology, and property appearance and functionality have been improved.

B.

Acquiring additional stores:

	–		Our objective is to acquire new stores one or two at a time in markets we currently operate in. By so doing, we can add to our existing base, which should improve market penetration in those areas, and contribute to the benefits achieved from economies of scale.
	–		We may also enter new markets if we can do so by acquiring a group of stores in those markets. We feel that our marketing efforts and control systems would enhance even those portfolios that have been managed efficiently by independent operators, and that attractive returns can be generated by such acquisitions.

C.

Expanding our management business:

–

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

D.

Expanding and enhancing our existing stores:

–

Over the past five years, we have undertaken a program of expanding and enhancing our Properties. In 2007, we expended approximately $25 million to add some 444,000 square feet of premium space (i.e., air-conditioned and/or humidity controlled) to our Properties; in 2008, we spent approximately $26 million to add 403,000 square feet and to convert 95,000 square feet to premium storage; and in 2009, we completed construction of a new 78,000 square foot facility in Richmond, Virginia, added 175,000 square feet to other existing Properties, and converted 64,000 square feet to premium storage for a total cost of approximately $18 million.

Supply and Demand

     We believe the supply and demand model in the self-storage industry is micro market specific in that a majority of our business comes from within a five mile radius of our stores. The current economic conditions and the credit market environment have resulted in a decrease in new supply on a national basis in 2008 and 2009. With the decrease of debt and equity capital brought about by the credit market tightening in the past year, we have seen capitalization rates on acquisitions (expected annual return on investment) increase to approximately 8.0% and expect continued increases in 2010. From 2003 to 2007, the historically low interest rates available to developers resulted in increased supply on a national basis. We experienced some of this excess supply in certain markets in Texas and Florida from 2003 to 2007, but because of the demand model, we did not see a widespread effect on our stores in those years. In 2008, the Florida market was negatively affected by the current economic downturn and in 2009 many markets were affected as consumers pulled back spending.

Operating Trends

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

     While we enjoyed same store revenue growth from 2003 through 2008, in 2009 our same store revenue

decreased 3.1%, primarily because of the aforementioned issues. We expect conditions in most of our markets to remain challenging and are forecasting -2% to 0% revenue growth on a same store basis in 2010.

     We were able to reduce many expenses at the store operating level in 2009 to mitigate the effect of the revenue decline. Expenses related to operating a self-storage facility had increased substantially over the previous five years as a result of expanded hours, increased health care costs, property insurance costs, and the costs of amenities (such as Uncle Bob’s trucks). While we do not expect further expense decreases in 2010, we do believe expense increases will be at a manageable level of between 2% and 4%.

Critical Accounting Policies and Estimates

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

     Carrying value of storage facilities: We believe our judgment regarding the impairment of the carrying value of our storage facilities is a critical accounting policy. Our policy is to assess any impairment of value whenever events or circumstances indicate that the carrying value of a storage facility may not be recoverable. Such events or circumstances would include negative operating cash flow, significant declining revenue per storage facility, or an exception that, more likely than not, a property will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Impairment is evaluated based upon comparing the sum of the expected undiscounted future cash flows to the carrying value of the storage facility, on a property by property basis. If the sum of the undiscounted cash flow is less than the carrying amount, an impairment loss is recognized for the amount by which the carrying amount exceeds the fair value of the asset. If cash flow projections are inaccurate and in the future it is determined that storage facility carrying values are not recoverable, impairment charges may be required at that time and could materially affect our operating results and financial position. Estimates of undiscounted cash flows could change based upon changes in market conditions, expected occupancy rates, etc. At December 31, 2009 and 2008, no assets had been determined to be impaired under this policy.

     Estimated useful lives of long-lived assets: We believe that the estimated lives used for our depreciable, long-lived assets is a critical accounting policy. We periodically evaluate the estimated useful lives of our long-lived assets to determine if any changes are warranted based upon various factors, including changes in the planned usage of the assets, customer demand, etc. Changes in estimated useful lives of these assets could have a material adverse impact on our financial condition or results of operations. We have not made significant changes to the estimated useful lives of our long-lived assets in the past and we don’t have any current expectation of making significant changes in 2010.

     Consolidation and investment in joint ventures: We consolidate all wholly owned subsidiaries. Partially owned subsidiaries and joint ventures are consolidated when we control the entity. Investments in joint ventures that we do not control but for which we have significant influence over are reported using the equity method. Under the equity method, our investment in joint ventures are stated at cost and adjusted for our share of net earnings or losses and reduced by distributions. Equity in earnings of real estate ventures is generally recognized based on our ownership interest in the earnings of each of the unconsolidated real estate ventures.

     Revenue and Expense Recognition: Rental income is recognized when earned pursuant to month-to-month leases for storage space. Promotional discounts are recognized as a reduction to rental income over the promotional period, which is generally during the first month of occupancy. Rental income received prior to the start of the rental period is included in deferred revenue.

     Qualification as a REIT: The Company operates, and intends to continue to operate, as a REIT under the

Code, but no assurance can be given that we will at all times so qualify. To the extent that it continues to qualify as a REIT, the Company will not be taxed, with certain limited exceptions, on the taxable income that is distributed to the Company’s shareholders. If the Company fails to qualify as a REIT, any requirement to pay federal income taxes could have a material adverse impact on our financial conditions and results of operations.

Recent Accounting Pronouncements

     In June 2009, the FASB issued revised accounting guidance under ASC Topic 810, “Consolidation” by issuing SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). The revised guidance amends previous guidance (as previously required under FASB Interpretation No. 46(R), “Variable Interest Entities”) for determining whether an entity is a variable interest entity (“VIE”) and requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE. Under the revised guidance, an enterprise has a controlling financial interest when it has a) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and b) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. The revised guidance also requires an enterprise to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has power to direct the activities of the VIE that most significantly impact the entity’s economic performance. The revised guidance also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE, requires enhanced disclosures and eliminates the scope exclusion for qualifying special-purpose entities. The revised guidance is effective for the first annual reporting period that begins after November 15, 2009, with early adoption prohibited. The Operating Partnership is currently evaluating the impact that the adoption of the revised guidance will have on its consolidated financial statements.

YEAR ENDED DECEMBER 31, 2009 COMPARED TO
YEAR ENDED DECEMBER 31, 2008

     We recorded rental revenues of $186.9 million for the year ended December 31, 2009, a decrease of $5.6 million or 2.9% when compared to 2008 rental revenues of $192.5 million. Of the decrease in rental revenue, $6.2 million resulted from a 3.2% decrease in rental revenues at the 352 core properties considered in same store sales (those properties included in the consolidated results of operations since January 1, 2008). The decrease in same store rental revenues was a result of a 2.1% decrease in average rental income per square foot as a result of increased move-in incentives used in 2009 to attract customers. We also experienced a decrease in square foot occupancy of 115 basis points, which we believe resulted from general economic conditions, in particular the housing sector. These decreases were partially offset by a $0.6 million increase in rental revenues resulting from having the three stores acquired in 2008 included for a full year of operations. Other income, which includes merchandise sales, insurance commissions, truck rentals, management fees and acquisition fees, increased in 2009 primarily as a result of $0.3 million increase in commissions earned from our customer insurance program.

     Property operating and real estate tax expense decreased $2.0 million, or 2.7%, in 2009 compared to 2008. Much of the decrease resulted from numerous expense control initiatives and from a reduction in yellow page advertising at the 352 core properties considered same stores. These expense decreases were partially offset by a 4.1% increase in same store property tax expense and $0.3 million of additional expenses incurred from having the 2008 acquisitions included for a full year of operations. We expect same-store operating costs to increase only moderately in 2010 with increases primarily attributable to utilities and property taxes.

     General and administrative expenses increased $1.4 million or 7.9% from 2008 to 2009. The increase primarily resulted from the write-off of construction in progress projects that were terminated and an increase in internet advertising.

     Depreciation and amortization expense decreased to $33.4 million in 2009 from $33.9 million in 2008, primarily as a result of a $1.0 million decrease in amortization of in-place customers leases relating to previous year acquisitions, offset partially by a full year of depreciation on those acquisitions.

     Interest expense increased from $38.1 million in 2008 to $50.1 million in 2009 as a result of the following factors:

	•		A credit ratings downgrade by Fitch Ratings in May 2009 on our unsecured floating rate notes triggered a 1.75% increase in the interest rate on our $150 million term notes and a 0.375% increase in the interest rate on our $250 million term notes. The increase was effective from May to October of 2009, at which time our credit rating was upgraded back to investment grade rating after the Company’s common stock offering in October 2009;
	•		At March 31, 2009, the Operating Partnership had violated the leverage ratio covenant contained in the line of credit and term note agreements. In May 2009, the Operating Partnership obtained a waiver of the violation as of March 31, 2009. The fees paid to obtain the waiver were approximately $0.9 million and are included in 2009 interest expense and;
	•		On October 5, 2009, the Operating Partnership used proceeds from the issuance of common stock to terminate the interest rate swap agreements with notional amounts of $75 million and $25 million (see Note 9 of our financial statements). The total cost to terminate the swaps was $8.4 million and is included as additional interest expense in 2009 and;
	•		In October 2009, we wrote-off to interest expense $0.6 million of unamortized financing fees related to the $100 million term note that was repaid with the proceeds of the common stock offering.

     The casualty loss recorded in 2009 relates to insurance proceeds received that were less than the carrying value of a building damaged by a fire at one of our facilities.

     During 2009, we sold a parcel of land to the State of Georgia Department of Transportation for their use as part of a road widening project for net cash proceeds of $1.1 million resulting in a gain on sale of $1.1 million.

     As described in Note 5 to the financial statements, during 2009 the Operating Partnership sold five non-strategic storage facilities for net cash proceeds of $16.3 million resulting in a loss of $1.6 million. During 2008 the Operating Partnership sold one non-strategic storage facility for net cash proceeds of $7.0 million resulting in a gain of $0.7 million. The 2009, 2008, and 2007 operations of these facilities and the loss/gain associated with the disposal are reported in income from discontinued operations for all periods presented.

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

     We recorded rental revenues of $192.5 million for the year ended December 31, 2008, an increase of $8.7 million or 4.7% when compared to 2007 rental revenues of $183.8 million. Of the increase in rental revenue, $1.3 million resulted from a 0.7% increase in rental revenues at the 321 core properties considered in same store sales (those properties included in the consolidated results of operations since January 1, 2007). The increase in same store rental revenues was achieved primarily through rate increases on select units averaging 1.9%, offset by a decrease in square foot occupancy of 150 basis points, which we believe resulted from general economic conditions, in particular the housing sector. The remaining $7.4 million increase in rental revenues resulted from the acquisition of three stores during 2008 and from having the 31 stores acquired in 2007 included for a full year of operations. Other income, which includes merchandise sales, insurance commissions, truck rentals, management fees and acquisition fees, increased in 2008 primarily as a result of $1.1 million of management and acquisition fees generated from our unconsolidated joint venture, Sovran HHF Storage Holdings LLC.

     Property operating and real estate tax expense increased $5.0 million, or 7.3%, in 2008 compared to 2007. Of this increase, $2.7 million were expenses incurred by the facilities acquired in 2008 and from having expenses from the 2007 acquisitions included for a full year of operations. $2.3 million of the increase was due to increased payroll, property taxes, utilities, and maintenance expenses at the 321 core properties considered same stores.

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

     Depreciation and amortization expense increased to $33.9 million in 2008 from $33.4 million in 2007,

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

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

     As described in Note 5 to the financial statements, during 2009, the Operating Partnership sold five non-strategic storage facilities in Massachusetts, North Carolina, and Pennsylvania for net cash proceeds of $16.3 million resulting in a loss of $1.6 million. In 2008, the Operating Partnership sold one non-strategic storage facility located in Michigan for net cash proceeds of $7.0 million resulting in a gain of $0.7 million. The 2008 and 2007 operations of these facilities are reported as discontinued operations.

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

FUNDS FROM OPERATIONS

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

     FFO is defined by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”) as net income computed in accordance with generally accepted accounting principles (“GAAP”), excluding gains or losses on sales of properties, plus depreciation and amortization and after adjustments to record unconsolidated partnerships and joint ventures on the same basis. We believe that to further understand our performance, FFO should be compared with our reported net income and cash flows in accordance with GAAP, as presented in our consolidated financial statements.

     Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, as an alternative to net cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, or as an indicator of our ability to make cash distributions.

Reconciliation of Net Income to Funds From Operations

		For Year Ended December 31,
(dollars in thousands)		2009				2008				2007				2006				2005
Net income attributable to common unitholders		$	20,294			$	38,120			$	38,741			$	35,003			$	31,706
Net income attributable to noncontrolling interests			1,360				1,563				1,848				1,529				490
Depreciation of real estate and amortization of intangible assets exclusive of deferred financing fees			33,385				33,876				33,360				24,653				20,604
Depreciation of real estate included in discontinued operations.			434				591				676				652				618
Depreciation and amortization from unconsolidated joint ventures			820				333				59				168				484

		For Year Ended December 31,
(dollars in thousands)		2009				2008				2007				2006				2005
Casualty gain			—				—				(114	)			—				—
Loss (gain) on sale of real estate			509				(716	)			—				—				—
Funds from operations allocable to noncontrolling interest in consolidated joint ventures			(1,360	)			(1,564	)			(1,848	)			(1,785	)			(1,499	)
Funds from operations available to common unitholders		$	55,442			$	72,203			$	72,722			$	60,220			$	52,403

LIQUIDITY AND CAPITAL RESOURCES

     Our line of credit and term notes require us to meet certain financial covenants measured on a quarterly basis, including prescribed leverage, fixed charge coverage, minimum net worth, limitations on additional indebtedness and limitations on distribution payouts. At December 31, 2009, the Operating Partnership was in compliance with all debt covenants. The most sensitive covenant is the leverage ratio covenant contained in our line of credit and term note agreements. This covenant limits our total consolidated liabilities to 55% of our gross asset value. At December 31, 2009, our leverage ratio as defined in the agreements was approximately 42.8%. The agreements define total consolidated liabilities to include the liabilities of the Operating Partnership plus our share of liabilities of unconsolidated joint ventures. The agreements also define a prescribed formula for determining gross asset value which incorporates the use of a 9.25% capitalization rate applied to annualized earnings before interest, taxes, depreciation and amortization (“EBITDA”) as defined in the agreements. At March 31, 2009, the Operating Partnership had violated the leverage ratio covenant contained in the line of credit and term note agreements. In May 2009, the Operating Partnership obtained a waiver of the violation as of March 31, 2009. The fees paid to obtain the waiver were approximately $0.9 million and are included in interest expense in 2009. In the event that the Operating Partnership violates debt covenants in the future, the amounts due under the agreements could be callable by the lenders.

     On May 6, 2009, we announced a reduction in our quarterly distribution for the remainder of 2009 from $0.64 per unit to $0.45 per unit. In addition to the reduction in the distribution, in the second quarter of 2009 we changed our policy of declaring the distribution from the last week in the quarter to the first week following the quarter end. As a result of this date change, no distribution was declared in the three months ended June 30, 2009. A distribution of $0.45 per common unit was declared on January 4, 2010 and paid on January 26, 2010. The distribution paid amounted to $12.4 million. In 2010, we expect to declare and pay four distributions in the calendar year.

     On October 5, 2009, the Company completed the public offering of 4,025,000 shares of its common stock at $29.75 per share. Net proceeds to the Operating Partnership after deducting underwriting discounts and commissions and estimated offering expenses were approximately $114.0 million. The Operating Partnership used the net proceeds from the offering to repay $100 million of the Operating Partnership’s unsecured term note due June 2012 and to terminate two interest rate swaps relating to the debt repaid at a cost of $8.4 million. The Operating Partnership used the remaining proceeds along with operating cash flows to payoff a maturing mortgage in December 2009 of $26.1 million.

     We believe that the steps the Operating Partnership has taken, including but not limited to the equity raised from the Company’s common stock offering of approximately $114.0 million, the pay down of $100 million of our term notes, and the reduction in the quarterly distribution, will be adequate to avoid future covenant violations under the current terms of our line of credit and term note agreements.

     Our ability to retain cash flow is limited because the Company operates as a REIT. In order to maintain its REIT status, a substantial portion of the Company’s operating cash flow must be used to pay dividends to its shareholders. We believe that our internally generated net cash provided by operating activities and our availability on our line of credit will be sufficient to fund ongoing operations, capital improvements, distributions and debt service requirements through June 2011, at which time our revolving line of credit matures. Future draws on our line of credit may be limited due to covenant restrictions.

     Cash flows from operating activities were $59.1 million, $77.1 million and $85.2 million for the years ended December 31, 2009, 2008, and 2007, respectively. The decrease in operating cash flows from 2008 to 2009

was primarily due to a decrease in net income. The decrease in net income was primarily a result of lower rental income and increased interest expense. The decrease in operating cash from 2007 to 2008 was primarily attributable to a decrease in net income and accounts payable remaining consistent with the prior year.

     Cash used in investing activities was $4.4 million, $82.7 million, and $190.3 million for the years ended December 31, 2009, 2008, and 2007 respectively. The decrease in cash used from 2008 to 2009 was due to (i) reduced acquisition and capital improvement activity in 2009, (ii) an increase in proceeds from the sale of storage facilities, and (iii) a reduction in the funding of our share of the joint venture entered into in 2008. The decrease in cash used from 2007 to 2008 was attributable to reduced acquisition activity in 2008 as many of the properties acquired were acquired through a joint venture of which we are a 20% owner.

     Cash used in financing activities was $48.5 million in 2009, compared to cash provided by financing activities of $6.0 million in 2008 and $61.4 million in 2007. In 2009, we used our operating cash flow and the proceeds from the Company’s common stock offering to paydown $14.0 million of our line of credit, $100 million of term notes, and a $26.1 million mortgage. Our reduced acquisition activity in 2008 was the driver behind the decrease in cash provided from financing activities from 2007 to 2008.

     On June 25, 2008, we entered into agreements relating to new unsecured credit arrangements, and received funds under those arrangements. As part of the agreements, the Operating Partnership entered into a $250 million unsecured term note maturing in June 2012 bearing interest at LIBOR plus 1.625% (based on the Operating Partnership’s December 31, 2009 credit rating). The proceeds from this term note were used to repay the Operating Partnership’s previous line of credit that was to mature in September 2008, the Operating Partnership’s term note that was to mature in September 2009, the term note maturing in July 2008, and to provide for working capital. We repaid $100 million of this term note with the proceeds of the Company’s common stock offering. The agreements also provide for a $125 million (expandable to $175 million) revolving line of credit maturing June 2011 bearing interest at a variable rate equal to LIBOR plus 1.375% (based on the Operating Partnership’s credit rating at December 31, 2009), and requires a 0.25% facility fee. The interest rate at December 31, 2009 on the Operating Partnership’s available line of credit was approximately 1.61% (1.8% at December 31, 2008). At December 31, 2009, there was $125 million available on the unsecured line of credit. We believe that if operating results remain consistent with historical levels and levels of other debt and liabilities remain consistent with amounts outstanding at December 31, 2009, the entire $125 million line of credit could be drawn without violating our debt covenants.

     We also maintain a $80 million term note maturing September 2013 bearing interest at a fixed rate of 6.26%, a $20 million term note maturing September 2013 bearing interest at a variable rate equal to LIBOR plus 1.50%, and a $150 million unsecured term note maturing in April 2016 bearing interest at 6.38% (based on our December 31, 2009 credit ratings).

     Prior to the Company’s October 2009 common stock offering, the line of credit facility and term notes had an investment grade rating from Standard and Poor’s (BBB-). Due to our debt covenant violation and operating trends, Fitch Ratings downgraded the Operating Partnership’s rating on its revolving credit facility and term notes to non-investment grade (BB+) in May 2009. As a result of the Company’s common stock offering in October 2009 and the use of proceeds to repay $100 million of term notes, Fitch Ratings upgraded our rating on our line of credit and term notes again to investment grade (BBB-). Combined, this credit rating upgrade, the repayment of $100 million of term notes and the termination of the interest rate swaps related to these term notes are expected to reduce our annualized interest by approximately $9.8 million.

     In addition to the unsecured financing mentioned above, our consolidated financial statements also include $81.2 million of mortgages payable as detailed below:

*		7.80% mortgage note due December 2011, secured by 11 self-storage facilities (Locke Sovran I) with an aggregate net book value of $42.7 million, principal and interest paid monthly. The outstanding balance at December 31, 2009 on this mortgage was $28.4 million.
*		7.19% mortgage note due March 2012, secured by 27 self-storage facilities (Locke Sovran II) with an aggregate net book value of $80.3 million, principal and interest paid monthly. The outstanding balance at December 31, 2009 on this mortgage was $41.5 million.
*		7.25% mortgage note due December 2011, secured by 1 self-storage facility with an aggregate net book value

		of $5.7 million, principal and interest paid monthly. Estimated market rate at time of acquisition 5.40%. The outstanding balance at December 31, 2008 on this mortgage was $3.4 million.
*		6.76% mortgage note due September 2013, secured by 1 self-storage facility with an aggregate net book value of $2.0 million, principal and interest paid monthly. The outstanding balance at December 31, 2009 on this mortgage was $1.0 million.
*		6.35% mortgage note due March 2014, secured by 1 self-storage facility with an aggregate net book value of $3.7 million, principal and interest paid monthly. The outstanding balance at December 31, 2009 on this mortgage was $1.1 million.
*		7.50% mortgage notes due August 2011, secured by 3 self-storage facilities with an aggregate net book value of $14.0 million, principal and interest paid monthly. Estimated market rate at time of acquisition 6.42%. The outstanding balance at December 31, 2009 on this mortgage was $5.9 million.

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

     During 2009, the Company issued approximately 1.4 million shares via its Dividend Reinvestment and Stock Purchase Plan and Employee Stock Option Plan. We received $32.6 million from the sale of such shares. The Company’s Dividend Reinvestment and Stock Purchase Plan was suspended in November 2009. The Company plans to reinstate its Dividend Reinvestment and Stock Purchase Plan in 2010 and expects to issue shares when its share price and capital needs warrant such issuance.

     During 2009 and 2008, the Company did not acquire any shares of its common stock via the Share Repurchase Program authorized by the Board of Directors. From the inception of the Share Repurchase Program through December 31, 2009, the Company has reacquired a total of 1,171,886 shares pursuant to this program. From time to time, subject to market price and certain loan covenants, the Company may reacquire additional shares.

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

CONTRACTUAL OBLIGATIONS

     The following table summarizes our future contractual obligations:

Contractual

Payments due by period

obligations

Total

2010

2011-2012

2013-2014

2015 and thereafter

Line of credit

—

—

—

—

—

Term notes

$400.0 million

—

$150.0 million

$100.0 million

$150.0 million

Mortgages payable

$81.2 million

$2.2 million

$77.1 million

$1.9 million

—

Interest payments

$99.2 million

$23.8 million

$40.6 million

$22.9 million

$11.9 million

Interest rate swap payments

$11.5 million

$7.0 million

$4.2 million

$0.3 million

—

Land lease

$1.1 million

$0.1 million

$0.1 million

$0.1 million

$0.8 million

Building leases

$0.1 million

$0.1 million

—

—

—

Total

$593.1 million

$33.2 million

$272.0 million

$125.2 million

$162.7 million

     Interest payments include actual interest on fixed rate debt and estimated interest for floating-rate debt based on December 31, 2009 rates. Interest rate swap payments include net settlements of swap liabilities based on

forecasted variable rates.

ACQUISITION OF PROPERTIES

     We acquired no properties in 2009. During 2008, we used operating cash flow, borrowings pursuant to the line of credit, borrowings under the bank term note, and proceeds from the Company’s Dividend Reinvestment and Stock Purchase Plan to acquire three Properties in Mississippi and Ohio comprising 0.2 million square feet from unaffiliated storage operators. During 2007, we used operating cash flow, borrowings pursuant to the line of credit, borrowings under the bank term note, proceeds from the Company’s Dividend Reinvestment and Stock Purchase Plan, and proceeds from the December 2006 common stock offering to acquire 31 Properties in Alabama, Florida, Mississippi, New York, and Texas comprising 2.3 million square feet from unaffiliated storage operators.

FUTURE ACQUISITION AND DEVELOPMENT PLANS

     Our external growth strategy is to increase the number of facilities we own by acquiring suitable facilities in markets in which we already have operations, or to expand in new markets by acquiring several facilities at once in those new markets. No properties were acquired in 2009 and acquisitions in 2010 may be limited due to the fact that, at present, seller’s asking prices remain considerably higher than the Operating Partnership believes market conditions warrant.

     In 2009 we scaled back a planned $550 million program to expand and enhance our existing properties. Instead we spent approximately $18 million to add 175,000 square feet to existing Properties, and to convert 64,000 square feet to premium storage. We also completed construction of a new 78,000 square foot facility in Richmond, Virginia. Although we do not expect to construct any new facilities in 2010, we do plan to expend up to $20 million to expand and enhance existing facilities.

DISPOSITION OF PROPERTIES

     During 2009, we sold five non-strategic storage facilities in Massachusetts, North Carolina, and Pennsylvania for net cash proceeds of $16.3 million resulting in a loss of $1.6 million. During 2008, we sold one non-strategic storage facility located in Michigan for net cash proceeds of $7.0 million resulting in a gain of $0.7 million. No sales took place in 2007.

     We may seek to sell additional Properties to third parties or joint venture programs in 2010.

OFF-BALANCE SHEET ARRANGEMENTS

     We have a 20% ownership interest in Sovran HHF Storage Holdings LLC (“Sovran HHF”), a joint venture that was formed in May 2008 to acquire self-storage properties that are managed by us. The carrying value of our investment at December 31, 2009 was $19.9 million. Twenty five properties were acquired by Sovran HHF as of December 31, 2008 for approximately $171.5 million. We contributed $18.6 million to the joint venture as our share of capital required to fund the acquisitions.

     As manager of Sovran HHF, we earn a management and call center fee of 7% of gross revenues which totaled $1.2 million and $0.5 million for 2009 and 2008, respectively. We also received an acquisition fee of 0.5% or $0.7 million of purchase price for securing purchases for the joint venture in 2008. Our share of Sovran HHF’s income for 2009 and 2008 was $0.2 million and $0.1 million, respectively. At December 31, 2009, Sovran HHF owed us $0.2 million for payments made by us on behalf of the joint venture.

     We also have a 49% ownership interest in Iskalo Office Holdings, LLC, which owns the building that houses the Operating Partnership’s headquarters and other tenants. Our investment includes a capital contribution of $49. The carrying value of our investment is a liability of $0.5 million at December 31, 2009 and 2008, and is included in accounts payable and accrued liabilities in the accompanying consolidated balance sheets. For the years ended December 31, 2009, 2008 and 2007, our share of Iskalo Office Holdings, LLC’s income (loss) was $7,000, ($6,000), and $80,000, respectively. We paid rent to Iskalo Office Holdings, LLC of $608,000, $600,000 and

$561,000 in 2009, 2008, and 2007, respectively. Future minimum lease payments under the lease are $0.6 million per year through 2010.

     A summary of the unconsolidated joint venture’s financial statements as of and for the year ended December 31, 2009 is as follows:

		Sovran HHF
		Storage				Iskalo Office
(dollars in thousands)		Holdings LLC				Holdings, LLC
Balance Sheet Data:
Investment in storage facilities, net		$	168,237			$	—
Investment in office building			—				5,322
Other assets			3,575				688
Total Assets		$	171,812			$	6,010
Due to the Operating Partnership		$	173			$	—
Mortgages payable			78,512				7,037
Other liabilities			2,087				224
Total Liabilities			80,772				7,261
Unaffiliated partners’ equity (deficiency)			72,832				(714	)
Operating Partnership equity (deficiency)			18,208				(537	)
Total Liabilities and Partners’ Equity (deficiency)		$	171,812			$	6,010
Income Statement Data:
Total revenues		$	17,702			$	1,129
Total expenses			16,761				1,115
Net income		$	941			$	14

     We do not expect to have material future cash outlays relating to these joint ventures outside our share of capital for future acquisitions of properties by Sovran HHF. We do not guarantee the debt of Sovran HHF or Iskalo Office Holdings, LLC. A summary of our cash flows arising from the off-balance sheet arrangements with Sovran HHF and Iskalo Office Holdings, LLC for the three years ended December 31, 2009 are as follows:

		Year ended December 31,
(dollars in thousands)		2009				2008				2007
Statement of Operations
Other operating income (management fees and acquisition fee income)		$	1,243			$	1,135			$	—
General and administrative expenses (corporate office rent)			608				600				561
Equity in income of joint ventures			235				104				119
Distributions from unconsolidated joint ventures			686				345				98
Investing activities
Investment in joint ventures			(331	)			(20,287	)			—
Reimbursement of advances to (advances to) joint ventures			163				(336	)			—

DISTRIBUTION REQUIREMENTS OF THE COMPANY AND
IMPACT ON THE OPERATING PARTNERSHIP

     As a REIT, the Company is not required to pay federal income tax on income that it distributes to its shareholders, provided that the amount distributed is equal to at least 90% of its taxable income. These distributions must be made in the year to which they relate, or in the following year if declared before the Company files its federal income tax return, and if it is paid before the first regular dividend of the following year. The first distribution of 2010 may be applied toward the Company’s 2009 distribution requirement. The Company’s source of funds for such distributions is solely and directly from the Operating Partnership.

     As a REIT, the Company must derive at least 95% of its total gross income from income related to real property, interest and dividends. In 2009, the Company’s percentage of revenue from such sources exceeded 98%, thereby passing the 95% test, and no special measures are expected to be required to enable the Company to maintain its REIT designation.

INTEREST RATE RISK

     We have entered into interest rate swap agreements in order to mitigate the effects of fluctuations in interest rates on our variable rate debt. At December 31, 2009, we have three outstanding interest rate swap agreements as summarized below:

Fixed

Floating Rate

Notional Amount

Effective Date

Expiration Date

Rate Paid

Received

$20 Million

9/4/05

9/4/13

4.4350

%

6 month LIBOR

$50 Million

7/1/08

6/25/12

4.2825

%

1 month LIBOR

$100 Million

7/1/08

6/22/12

4.2965

%

1 month LIBOR

     Upon renewal or replacement of the credit facility, our total interest may change dependent on the terms we negotiate with the lenders; however, the LIBOR base rates have been contractually fixed on $170 million of our debt through the interest rate swap termination dates.

     Through June 2012, all of our $400 million of unsecured debt is on a fixed rate basis after taking into account the interest rate swaps noted above. Based on our outstanding unsecured debt of $400 million at December 31, 2009, a 100 basis point increase in interest rates would have no effect on our interest expense.

     The table below summarizes our debt obligations and interest rate derivatives at December 31, 2009. The estimated fair value of financial instruments is subjective in nature and is dependent on a number of important assumptions, including discount rates and relevant comparable market information associated with each financial instrument. The use of different market assumptions and estimation methodologies may have a material effect on the reported estimated fair value amounts. Accordingly, the estimates presented below are not necessarily indicative of the amounts the Operating Partnership would realize in a current market exchange.

		Expected Maturity Date Including Discount
(dollars in thousands)		2010				2011				2012				2013				2014				Thereafter				Total				Fair Value
Line of credit — variable rate LIBOR + 1.375 (1.61% at December 31, 2009)			—				—				—				—				—				—				—				—
Notes Payable:
Term note — variable rate LIBOR+1.625% (1.86% at December 31, 2009)			—				—			$	150,000				—				—				—			$	150,000			$	150,000
Term note — variable rate LIBOR+1.50% (2.23% at December 31, 2009)			—				—				—			$	20,000				—				—			$	20,000			$	20,000
Term note — fixed rate 6.26%			—				—				—			$	80,000				—				—			$	80,000			$	76,958
Term note — fixed rate 6.38%			—				—				—				—				—			$	150,000			$	150,000			$	136,630
Mortgage note — fixed rate 7.80%		$	630			$	27,817				—				—				—				—			$	28,447			$	29,454
Mortgage note — fixed rate 7.19%		$	1,211			$	1,301			$	38,963				—				—				—			$	41,475			$	43,133
Mortgage note — fixed rate 7.25%		$	149			$	3,220				—				—				—				—			$	3,369			$	3,385
Mortgage note — fixed rate 6.76%		$	25			$	27			$	29			$	896				—				—			$	977			$	1,011
Mortgage note — fixed rate 6.35%		$	28			$	30			$	31			$	34			$	949				—			$	1,072			$	1,059
Mortgage notes — fixed rate 7.50%		$	222			$	5,657				—				—				—				—			$	5,879			$	6,003
Interest rate derivatives — liability			—				—				—				—				—				—				—			$	11,524

INFLATION

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

SEASONALITY

     Our revenues typically have been higher in the third and fourth quarters, primarily because we increase rental rates on most of our storage units at the beginning of May and because self-storage facilities tend to experience greater occupancy during the late spring, summer and early fall months due to the greater incidence of residential moves during these periods. However, we believe that our customer mix, diverse geographic locations, rental structure and expense structure provide adequate protection against undue fluctuations in cash flows and net revenues during off-peak seasons. Thus, we do not expect seasonality to affect materially distributions to unitholders.

Item 7A.		Quantitative and Qualitative Disclosures About Market Risk

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

Item 8.		Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Partners of Sovran Acquisition Limited Partnership

     We have audited the accompanying consolidated balance sheets of Sovran Acquisition Limited Partnership as of December 31, 2009 and 2008, and the related consolidated statements of operations, partners’ capital and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2009. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Operating Partnership’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

     In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sovran Acquisition Limited Partnership at December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

     As discussed in Note 2 to the consolidated financial statements, the Operating Partnership retrospectively adjusted the consolidated financial statements as a result of the Operating Partnership’s adoption of Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51” (codified in FASB ASC Topic 810 “Consolidation”) on January 1, 2009.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Sovran Acquisition Limited Partnership’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2010 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Buffalo, New York
February 26, 2010

SOVRAN ACQUISITION LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS

		December 31,
(dollars in thousands, except unit data)		2009				2008
Assets
Investment in storage facilities:
Land		$	237,684			$	236,655
Building, equipment, and construction in progress			1,149,899				1,129,960
			1,387,583				1,366,615
Less: accumulated depreciation			(245,178	)			(212,301	)
Investment in storage facilities, net			1,142,405				1,154,314
Cash and cash equivalents			10,710				4,486
Accounts receivable			2,405				2,934
Receivable from related parties			—				14
Receivable from unconsolidated joint venture			173				336
Investment in unconsolidated joint venture			19,944				20,111
Prepaid expenses			4,250				4,647
Other assets			5,314				7,460
Net assets of discontinued operations			—				18,226
Total Assets		$	1,185,201			$	1,212,528
Liabilities
Line of credit		$	—			$	14,000
Term notes			400,000				500,000
Accounts payable and accrued liabilities			22,339				23,701
Deferred revenue			5,060				5,570
Fair value of interest rate swap agreements			11,524				25,490
Accrued distributions			—				14,359
Mortgages payable			81,219				109,261
Total Liabilities			520,142				692,381
Limited partners’ redeemable capital interest (419,952 units in 2009 and 2008)			15,005				15,118
Partners’ Capital
General partner (219,567 units outstanding in 2009 and 2008)			3,495				3,650
Limited partner (27,327,460 and 21,796,781 units outstanding in 2009 and 2008, respectively)			644,742				513,459
Accumulated other comprehensive income			(11,265	)			(25,162	)
Total Controlling Partners’ Capital			636,972				491,947
Noncontrolling interest- consolidated joint venture			13,082				13,082
Total Partners’ Capital			650,054				505,029
Total Liabilities and Partners’ Capital		$	1,185,201			$	1,212,528

See notes to financial statements.

SOVRAN ACQUISITION LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS

		Year Ended December 31,
(dollars in thousands, except per unit data)		2009				2008				2007
Revenues
Rental income		$	186,892			$	192,474			$	183,802
Other operating income			8,119				7,719				6,211
Total operating revenues			195,011				200,193				190,013
Expenses
Property operations and maintenance			51,955				54,858				51,466
Real estate taxes			19,591				18,706				17,095
General and administrative			18,650				17,279				15,234
Depreciation and amortization			33,384				33,876				33,360
Total operating expenses			123,580				124,719				117,155
Income from operations			71,431				75,474				72,858
Other income (expenses)
Interest expense			(50,050	)			(38,097	)			(33,861	)
Interest income			85				322				954
Casualty (loss) gain			(390	)			—				114
Gain on sale of land			1,127				—				—
Equity in income of joint ventures			235				104				119
Income from continuing operations			22,438				37,803				40,184
(Loss) income from discontinued operations (including loss on disposal of $1,636 in 2009 and gain on disposal of $716 in 2008)			(784	)			1,880				1,661
Net income			21,654				39,683				41,845
Preferred unit distributions			—				—				(1,256	)
Net income attributable to noncontrolling interest			(1,360	)			(1,563	)			(1,848	)
Net income attributable to common unitholders		$	20,294			$	38,120			$	38,741
Earnings per common unit attributable to common unitholders — basic
Continuing operations		$	0.87			$	1.63			$	1.73
Discontinued operations			(0.03	)			0.09				0.08
Earning per unit — basic		$	0.84			$	1.72			$	1.81
Earnings per common unit attributable to common unitholders — diluted
Continuing operations		$	0.87			$	1.63			$	1.73
Discontinued operations			(0.03	)			0.09				0.08
Earning per unit — diluted		$	0.84			$	1.72			$	1.81
Distributions declared per common unit		$	1.54			$	2.54			$	2.50

See notes to consolidated financial statements.

SOVRAN ACQUISITION LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL AND COMPREHENSIVE INCOME

														Accumulated
		Sovran				Sovran Self								Other				Total Controlling
		Holdings, Inc.				Storage Inc.				Preferred C				Comprehensive				Partners’
(Dollars in thousands)		General Partner				Limited Partner				Partners				Income (loss)				Capital
Balance January 1, 2007			3,905				480,467				30,000				2,128				516,500
Proceeds from issuance of Partnership Units			—				12,759				—				—				12,759
Redemption of Partnership Units			—				(117	)			—				—				(117	)
Exercise of stock options			—				425				—				—				425
Earned portion of non-vested stock			—				1,224				—				—				1,224
Stock option expense			—				183				—				—				183
Deferred compensation			—				161				—				—				161
Conversion of Series C Units to partnership units			—				30,000				(30,000	)			—				—
Conversion of partnership units to shares of common stock			—				167				—				—				167
Net income			409				38,805				—				—				39,214
Change in fair value of derivatives			—				—				—				(3,496	)			(3,496	)
Total comprehensive income			—				—				—				—				35,718
Distributions			(563	)			(53,479	)			—				—				(54,042	)
Adjustment to reflect limited partners’ redeemable capital at balance sheet date			72				7,047				—				—				7,119
Balance December 31, 2007			3,823				517,642				—				(1,368	)			520,097
Proceeds from issuance of Partnership Units			—				10,658				—				—				10,658
Redemption of Partnership Units			—				(69	)			—				—				(69	)
Exercise of stock options			—				72				—				—				72
Earned portion of non-vested stock			—				1,444				—				—				1,444
Stock option expense			—				279				—				—				279
Deferred compensation			—				112				—				—				112
Net income			375				37,024				—				—				37,399
Change in fair value of derivatives			—				—				—				(23,794	)			(23,794	)
Total comprehensive income			—				—				—				—				13,605
Distributions			(562	)			(55,128	)			—				—				(55,690	)
Adjustment to reflect limited partners’ redeemable capital at balance sheet date			14				1,425				—				—				1,439
Balance December 31, 2008			3,650				513,459				—				(25,162	)			491,947
Proceeds from issuance of Partnership Units			—				146,534				—				—				146,534
Exercise of stock options			—				62				—				—				62
Earned portion of non-vested stock			—				1,379				—				—				1,379
Stock option expense			—				321				—				—				321
Deferred compensation			—				114				—				—				114
Net income			184				19,732				—				—				19,916
Change in fair value of derivatives			—				—				—				13,897				13,897
Total comprehensive income			—				—				—				—				33,813
Distributions			(338	)			(36,704	)			—				—				(37,042	)
Adjustment to reflect limited partners’ redeemable capital at balance sheet date			(1	)			(155	)			—				—				(156	)
Balance December 31, 2009		$	3,495			$	644,742			$	—			$	(11,265	)		$	636,972

See notes to financial statements.

SOVRAN ACQUISITION LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended December 31,
(dollars in thousands)		2009				2008				2007
Operating Activities
Net income		$	21,654			$	39,683			$	41,845
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			35,656				35,659				34,999
Loss (gain) on sale of storage facilities			1,636				(716	)			—
Gain on sale of land			(1,127	)			—				—
Casualty loss (gain)			390				—				(114	)
Equity in income of joint ventures			(235	)			(104	)			(119	)
Distributions from unconsolidated joint venture			686				345				98
Non-vested stock earned			1,379				1,444				1,224
Stock option expense			321				279				183
Changes in assets and liabilities:
Accounts receivable			509				(171	)			(599	)
Prepaid expenses			413				118				822
Accounts payable and other liabilities			(1,677	)			619				7,082
Deferred revenue			(462	)			(24	)			(246	)
Net cash provided by operating activities			59,143				77,132				85,175
Investing Activities
Acquisition of storage facilities			—				(18,547	)			(138,059	)
Improvements, equipment additions, and construction in progress			(22,261	)			(45,709	)			(52,441	)
Net proceeds from the sale of storage facility			16,309				7,002				—
Net proceeds from the sale of land			1,140				—				—
Casualty insurance proceeds received			518				—				1,692
Investment in unconsolidated joint venture			(331	)			(20,287	)			—
Additional investment in consolidated joint ventures net of cash acquired			—				(6,106	)			—
Reimbursement of advances (advances) to joint ventures			163				(336	)			—
Reimbursement of (payment of) property deposits			—				1,259				(1,469	)
Receipts from related parties			14				13				10
Net cash used in investing activities			(4,448	)			(82,711	)			(190,267	)
Financing Activities
Net proceeds from sale of common stock			146,710				10,842				13,345
Proceeds from line of credit			30,000				14,000				112,000
Repayment of line of credit and term note			(144,000	)			(206,000	)			(12,000	)
Proceeds from term notes			—				250,000				6,000
Financing costs			—				(3,085	)			(316	)
Distributions paid			(53,139	)			(57,889	)			(55,973	)
Redemption of operating partnership units			—				(114	)			(174	)
Mortgage principal and capital lease payments			(28,042	)			(1,699	)			(1,510	)
Net cash (used in) provided by financing activities			(48,471	)			6,055				61,372
Net increase (decrease) in cash			6,224				476				(43,720	)
Cash at beginning of period			4,486				4,010				47,730
Cash at end of period		$	10,710			$	4,486			$	4,010
Supplemental cash flow information
Cash paid for interest, net of interest capitalized		$	49,154			$	37,970			$	32,313
Fair value of net liabilities assumed on the acquisition of storage facilities			—				107				1,580

Distributions declared but unpaid at December 31, 2009, 2008 and 2007 were $0, $14,359, and $13,922, respectively.

See notes to consolidated financial statements.

SOVRAN ACQUISITION LIMITED PARTNERSHIP — DECEMBER 31, 2009
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

     Sovran Acquisition Limited Partnership (the “Operating Partnership”) is the entity through which Sovran Self Storage, Inc. (the “Company”), a self-administered and self-managed real estate investment trust (“REIT”), conducts substantially all of its business and owns substantially all of its assets. On June 26, 1995, the Company commenced operations, through the Operating Partnership, effective with the completion of its initial public offering. At December 31, 2009, we had an ownership interest in and managed 381 self-storage properties in 24 states under the name Uncle Bob’s Self Storage ^®. Among our 381 self-storage properties are 27 properties that we manage for a consolidated joint venture of which we are a majority owner and 25 properties that we manage for an unconsolidated joint venture of which we are a 20% owner. Approximately 42% of the Operating Partnership’s revenue is derived from stores in the states of Texas and Florida.

     As of December 31, 2009, the Company was a 98.5% economic owner of the Operating Partnership and controls it through Sovran Holdings, Inc. (“Holdings”), a wholly owned subsidiary of the Company incorporated in Delaware and the sole general partner of the Operating Partnership (this structure is commonly referred to as an umbrella partnership REIT or “UPREIT”). The board of directors of Holdings, the members of which are also members of the Board of Directors of the Company, manages the affairs of the Operating Partnership by directing the affairs of Holdings. The Company’s limited partner and indirect general partner interests in the Operating Partnership entitle it to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to its ownership interest therein and entitle the Company to vote on all matters requiring a vote of the limited partners.

     The other limited partners of the Operating Partnership are persons who contributed their direct or indirect interests in certain self-storage properties to the Operating Partnership. The Operating Partnership is obligated to redeem each unit of limited partnership (“Unit”) at the request of the holder thereof for cash equal to the fair market value of a share of the Company’s common stock (“Common Shares”) at the time of such redemption, provided that the Company at its option may elect to acquire any Unit presented for redemption for one Common Share or cash. The Company has, in the past, elected to pay cash to acquire Units presented for redemption, but may issue Common Shares in the future for such redemptions. With each such redemption the Company’s percentage ownership interest in the Operating Partnership will increase. In addition, whenever the Company issues Common Shares, the Company is obligated to contribute any net proceeds therefrom to the Operating Partnership and the Operating Partnership is obligated to issue an equivalent number of Units to the Company. Such limited partners’ redemption rights are reflected in “limited partners’ redeemable capital interest” in the accompanying balance sheets at the cash redemption amount at the balance sheet date. Capital activity with regard to such limited partners’ redemption rights is reflected in the accompanying statements of partners’ capital.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

     In June 2008, the Operating Partnership made an additional investment of $6.1 million in Locke Sovran I, LLC that increased the Operating Partnership’s ownership from approximately 70% to 100%.