Shurgard Considers Restating Earnings

SEATTLE, WA-Shurgard Storage Centers Inc. delayed its third quarter earnings report late last week while it decides whether to recalculate earnings for the past 3.5 years on an auditors’ recommendation to alter the accounting treatment of four joint ventures.

The Seattle-based self-storage REIT says it has “not had the opportunity to fully evaluate the auditors’ recommendation,” only that the proposed change in accounting treatment would require a restatement its financial statements for 1998 through 2000, as well as the first six months of 2001.

In its announcement, the company says that any changes to accounting treatment going forward would pertain to only one of the four joint ventures, the other three being fully-owned by Shurgard as of Oct. 1. The company currently operates 455 storage centers throughout the United States and Europe, a number of which are owned through joint ventures.

At this time, the company says it believes a restatement of the affected earnings “would have no material effect on the Company’s previously reported same store net operating income, revenues, cash flows or dividends, or in the fair value of the joint venture assets.” Shurgard further expressed its belief that the change would have a materially adverse impact on previously reported net income.

It cannot, however, yet assess the extent of any bearing the changes would have upon funds from operations, interest and fixed charge coverage covenants associated with its revolving line of credit, and its credit rating.

Shurgard’s statement also asserts its belief that the proposed changes stem neither from any operational changes in the four joint ventures, nor improper conduct or accounting regularities. It is not anticipating any adjustment to internal controls or personnel changes.

The Company had previously announced a third quarter dividend of 52 cents per share payable on Nov. 21. Following Thursday’s announcement, the company’s stock was downgraded by A.G. Edwards from a Hold to a Sell recommendation—and its shares dipped by 4.9%, or $1.50, from $30.76 to $29.26. On Friday, Shurgard regained a portion of the loss, inching up to $29.78 by the market’s close.

Shurgard says it now plans to make its third quarter earnings announcement on November 15. It will discuss the results and related issues during a rescheduled conference call on November 16, at 10:00 a.m. Pacific Time. The call may be accessed live on the company’s Web site (www.shurgard.com).