<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended September 30, 1996
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission File Number: 333-3344
SUSA Partnership, L.P.
(Exact name of registrant as specified in its charter)
Tennessee
(State or other jurisdiction of
incorporation or organization)
62-1554135
(IRS Employer
Identification Number)
10440 Little Patuxent Parkway, #1100, Columbia, MD
(Address of principal executive offices)
21044
(Zip Codes)
Registrant's telephone number, including area code: (410) 730-9500
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. ( X) Yes ( ) NO
<PAGE> 2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
SUSA PARTNERSHIP, LP
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(amounts in thousands, except per unit data)
<TABLE>
<CAPTION>
Three months ended Three months ended Nine months ended Nine months ended
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
-------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
PROPERTY REVENUES:
Rental income $28,806 $18,281 $73,396 $46,276
Management income 113 224 560 808
Other income 516 162 1,170 342
-------------------- ------------------ ------------------ ------------------
Total property revenues 29,435 18,667 75,126 47,426
-------------------- ------------------ ------------------ ------------------
PROPERTY EXPENSES:
Cost of property operations & maintenance 7,816 4,865 19,933 12,854
Taxes 2,419 1,376 6,163 3,356
General & administrative 1,318 697 3,067 1,806
Depreciation & amortization 3,380 2,273 8,813 5,677
-------------------- ------------------ ------------------ ------------------
Total property expenses 14,933 9,211 37,976 23,693
-------------------- ------------------ ------------------ ------------------
INCOME FROM PROPERTY OPERATIONS 14,502 9,456 37,150 23,733
-------------------- ------------------ ------------------ ------------------
OTHER INCOME (EXPENSE):
Interest expense (2,626) (454) (5,848) (1,667)
Interest income 176 21 506 58
-------------------- ------------------ ------------------ ------------------
INCOME BEFORE MINORITY INTEREST
AND GAIN ON INVESTMENT 12,052 9,023 31,808 22,124
Gain on investment 288 0 288 0
-------------------- ------------------ ------------------ ------------------
Income before minority interest 12,340 9,023 32,096 22,124
Minority interest (13) (44) (140) (151)
-------------------- ------------------ ------------------ ------------------
NET INCOME $12,327 $8,979 $31,956 $21,973
==================== ================== ================== ==================
NET INCOME PER UNIT $0.55 $0.49 $1.54 $1.40
==================== ================== ================== ==================
WEIGHTED AVERAGE UNITS OUTSTANDING 22,600 18,220 20,757 15,724
==================== ================== ================== ==================
</TABLE>
See notes to consolidated financial statements .
<PAGE> 3
SUSA PARTNERSHIP, LP
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except unit data)
<TABLE>
<CAPTION>
as of as of
September 30, 1996 December 31, 1995
--------------------- --------------------
(unaudited)
ASSETS
<S> <C> <C>
Investments in storage facilities, at cost:
Land $197,885 $139,603
Buildings and equipment 532,535 369,694
--------------------- --------------------
730,420 509,297
Accumulated depreciation (22,880) (14,561)
--------------------- --------------------
707,540 494,736
Cash & cash equivalents 3,150 2,802
Other assets 8,975 11,987
--------------------- --------------------
TOTAL ASSETS $719,665 $509,525
===================== ====================
LIABILITIES & PARTNERS' CAPITAL
Notes payable $66,138 $107,605
Mortgage notes payable 17,972 6,670
Accounts payable & accrued expenses 7,382 5,910
Dividends payable 11,987 -
Rents received in advance 4,651 3,680
Minority interest 427 524
--------------------- --------------------
TOTAL LIABILITIES 108,557 124,389
--------------------- --------------------
Commitments and contingencies
Partner's capital:
General partnership units 583,116 364,947
24,639,192 and 17,562,363 outstanding
Limited partnership units 1,289,000 and 36,058 26,916
1,025,423 outstanding
Notes receivable - officers (8,066) (6,727)
--------------------- --------------------
TOTAL PARTNERS' CAPITAL 611,108 385,136
--------------------- --------------------
TOTAL LIABILITIES & PARTNERS' CAPITAL $719,665 $509,525
===================== ====================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
SUSA PARTNERSHIP, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 1996 September 30, 1995
--------------------- ---------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $31,956 $21,973
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,813 5,677
Minority interest 140 151
Gain on investment (288) -
Changes in assets and liabilities:
Other assets (2,326) (4,308)
Other liabilities 2,443 2,382
--------------------- ---------------------
Net cash provided by operating activities: 40,738 25,875
===================== =====================
INVESTING ACTIVITIES:
Acquisition and improvements of storage facilities (192,129) (177,638)
Developments placed in service (3,758) -
--------------------- ---------------------
Net cash used in investing activities (195,887) (177,638)
===================== =====================
FINANCING ACTIVITIES:
Net borrowings under lines of credit (41,467) 56,900
Mortgage principal payments (199) (35)
Mortgage principal borrowings 2,542
General partner contributions 219,772 107,776
Distributions to general partner (21,136) (15,682)
Distributions to limited partners (1,238) (543)
Distributions to minority interests (235) (182)
--------------------- ---------------------
Net cash provided by financing activities 155,497 150,776
===================== =====================
Net increase in cash and equivalents 348 (987)
Cash and equivalents, beginning of period 2,802 3,331
--------------------- ---------------------
Cash and equivalents, end of period $3,150 $2,344
===================== =====================
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
General partnership units issued in exchange for notes receivable $1,345 -
Mortgages assumed on storage facilities acquired $11,501 -
Storage facilities acquired in exchange for Operating
Partnership Units $8,605 $14,427
===================== =====================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
Interim consolidated financial statements of SUSA Partnership, L.P.
(the "Operating Partnership") are prepared pursuant to the
requirements for reporting on Form 10-Q. Accordingly, certain
disclosures accompanying annual financial statements prepared in
accordance with generally accepted accounting principles are omitted.
In the opinion of management, all adjustments, consisting solely of
normal recurring adjustments, necessary for the fair presentation of
consolidated financial statements for the interim periods have been
included. The current period's results of operations are not
necessarily indicative of results which ultimately may be achieved for
the year. The interim consolidated financial statements and notes
thereto should be read in conjunction with the financial statements
and notes thereto included in the Operating Partnership's Form 10-K,
as filed with the Securities and Exchange Commission.
2. ORGANIZATION
The Operating Partnership, which commenced operation on March 23,
1994, is engaged in owning, developing, constructing and operating
self-storage facilities throughout the United States. The sole
general partner in the Operating Partnership, Storage USA, Inc. (the
"Company"), a Tennessee corporation, is a self-administered and
self-managed real estate investment trust ("REIT").
On March 23, 1994, the Company contributed substantially all of its
net assets of approximately $109,969 to the Operating Partnership in
exchange for an approximately 98.9% general partnership interest in
the Operating Partnership. In addition, the Operating Partnership
formed SUSA Management, Inc. ("SUSA Management") to provide
self-storage management to third parties and certain ancillary
services. The Operating Partnership owns 99% of the economic interest
of SUSA Management.
In June of 1996, the Company formed Storage USA Trust (the "Trust"), a
Maryland real estate investment trust, of which it is the sole
shareholder, and transferred approximately 99% of the Company's
interest in the Operating Partnership to the Trust. The Company
remains the sole general partner of the Operating Partnership.
1
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 1996
(THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
3. PARTNERSHIP CAPITAL
FORMATION OF STRATEGIC ALLIANCE
On March 1, 1996, the Company entered into a Stock Purchase Agreement
with Security Capital U.S. Realty ("US Realty"), an affiliate of
Security Capital Group. Under the Stock Purchase Agreement, subject
to the terms and conditions thereof, US Realty invested a total of
$220,000 in the Company, placed two of its nominees on the Company's
Board of Directors, and continues to make available to the Company
certain strategic advice, research and related information and
expertise (the "Strategic Alliance"). On March 19, 1996, the Company
executed a Strategic Alliance Agreement and a Registration Rights
Agreement with US Realty. As part of the Strategic Alliance, the
Company agreed to amend the ownership limitations of the Company's
Charter to permit US Realty to acquire up to 37.5% of the Company's
capital stock. The Strategic Alliance, the amendment and certain
related transactions were approved by shareholders at the Company's
1995 annual meeting held June 5, 1996.
U.S. Realty made the following purchases of the Company's common stock
pursuant to the Stock Purchase Agreement during the nine months ended
September 30, 1996:
<TABLE>
<CAPTION>
# of Gross
Date shares Price Proceeds
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
March 19, 1996 1,948,882 $31.30 per share $ 61,000
July 8, 1996 1,916,933 plus an adjustment 60,000
September 30, 1996 3,162,939 for accrued dividends 99,000
----------
$ 220,000
</TABLE>
The Company contributed the proceeds of these offerings to the
Operating Partnership, which used the funds to pay off borrowings
under available credit lines, for the acquisition and development of
self-storage facilities, and for working capital.
In addition to the purchases of common stock from the Company,
according to public filings, U.S. Realty acquired an additional
1,520,790 shares on the open market through October 25, 1996, and owned
a total of 8,549,544 shares, or 34.7%, of the Company's outstanding
common stock on that date. The Company did not receive any proceeds
from these open market purchases.
2
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 1996
(THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
EMPLOYEE STOCK PURCHASE AND LOAN PLAN
In the nine month period ending September 30, 1996, the Company issued
43,000 shares of its common stock under the 1995 Employee Stock
Purchase and Loan Plan. Pursuant to the terms of the plan, the
Company and certain officers entered into stock purchase agreements
whereby the officers purchased common stock at the then current stock
price. The Company provides 100% financing for the purchase of the
shares with interest at 7% per anum payable quarterly. The underlying
notes are secured by the shares and mature in November 2002. At
September 30, 1996, there are 273,000 shares of common stock issued
and outstanding under the plan. The Company contributed the notes
issued under the plan to the partnership in exchange for operating
partnership units.
4. INVESTMENT IN STORAGE FACILITIES
The following summarizes activity in storage facilities during the
period:
<TABLE>
<S> <C>
COST:
Balance on January 1, 1996 $ 509,297
Property acquisitions 195,668
Existing facility expansions 7,975
Developments placed in service 8,600
Land acquisition and
joint venture development 4,369
Improvements and other 4,511
----------
Balance on September 30, 1996 $ 730,420
==========
ACCUMULATED DEPRECIATION:
Balance on January 1, 1996 $ 14,561
Additions during the period 8,319
----------
Balance on September 30, 1996 $ 22,880
==========
</TABLE>
Unaudited pro forma combined results of operations of the Operating
Partnership for the nine months ended September 30, 1996, are
presented below. Such pro forma presentation has been prepared
assuming that the acquisition of the 54 properties acquired during the
nine month period ended September 30, 1996, had been completed as of
January 1, 1996.
3
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 1996
(THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
4. INVESTMENT IN STORAGE FACILITIES - CONTINUED
<TABLE>
<CAPTION>
PRO FORMA FOR
NINE MONTHS ENDED
SEPTEMBER 30, 1996
<S> <C>
Revenues $ 80,053
Net income $ 32,916
Earnings per share $ 1.59
</TABLE>
The unaudited pro forma information is not necessarily indicative of
what actual results of operations of the Operating Partnership would
have been assuming such transactions had been completed as of January
1, 1996, nor does it purport to represent the results of operations
for future periods.
5. INTEREST RATE SWAP AGREEMENT
In anticipation of a debt offering in 1997, the Operating Partnership
entered into an interest rate swap agreement in the third quarter of
1996, with the objective of reducing its exposure to future interest
rate fluctuations. The agreement involved the exchange of a variable
rate for fixed rate interest payment obligation. The agreement had a
notional principle amount of $75,000, an effective date of March 1,
1997, and a maturity date of March 1, 2004.
6. NOTES PAYABLE
Notes payable at September 30, 1996 consist of $51,200 of borrowings
under a $75,000 line of credit with a group of commercial banks and
$14,938 of borrowings under a $30,000 line of credit with a commercial
bank. These lines of credit bear interest at various spreads over
LIBOR. During the quarter ended September 30, 1996, the weighted
average borrowings were $144,651, and the weighted average interest
rate was 6.9%.
4
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 1996
(THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
7. SUBSEQUENT EVENTS
On November 7, 1996, the Operating Partnership completed the issuance
of $100,000 of 7.125% Notes due on November 1, 2003. The net proceeds
from the offering of $99,012 were used to repay borrowings under the
outstanding lines of credit, to finance the acquisition of
self-storage facilities, and for working capital. $2,500 of the net
proceeds were used to settle an interest rate hedge agreement entered
into in the third quarter of 1996.
Subsequent to September 30, 1996, the Operating Partnership has
completed the acquisition of 8 self-storage facilities for
approximately $20,615. These acquisitions were financed through
operating cash flows and borrowings under the available line of
credit.
The Operating Partnership has also entered into various property
acquisition contracts with an aggregate cost of approximately $76,193.
These acquisitions are subject to customary conditions to closing,
including satisfactory due diligence, and should close during the
fourth quarter. Should these contracts be disapproved, the costs
incurred by the Operating Partnership would be immaterial.
5
<PAGE> 10
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 of the Operating Partnership should
be read in conjunction with the Consolidated Financial Statements and
Notes thereto. References to the Operating Partnership include SUSA
Management, Inc., a wholly owned subsidiary. Storage USA, Inc., ("the
Company") a self-managed real estate investment trust ("REIT") is the
sole general partner of the Operating Partnership.
Due to the substantial number of facilities acquired from September 30,
1995 to September 30, 1996, management believes that it is meaningful
and relevant in understanding the present and ongoing operations of the
Operating Partnership to compare certain information using occupancy,
per square foot and pro forma data.
The following are definitions of terms used throughout this discussion
in analyzing the Operating Partnership's business. Physical Occupancy
is defined as the total net rentable square feet rented as of the date
computed divided by the total net rentable square feet available.
Gross Potential Income is defined as the sum of all units available to
rent at a facility multiplied by the market rental rate applicable to
those units as of the date computed. Expected Income is defined as the
sum of the monthly rent being charged for the rented units at a
facility as of the date computed. Economic Occupancy is defined as the
Expected Income divided by the Gross Potential Income. Rent Per Square
Foot is defined as the annualized result of dividing Gross Potential
Income on the date computed by total net rentable square feet
available. Direct Property Operating Cost is defined as the costs
incurred in the operation of a facility, such as utilities, real estate
taxes, and on-site personnel. Indirect Property Operations Cost is
defined as costs incurred in the management of all facilities, such as
accounting personnel and management level operations personnel. Net
Operating Income ("NOI") is defined as total property revenues less
Direct Property Operating Costs.
RESULTS OF OPERATIONS- QUARTER ENDED SEPTEMBER 30, 1996 COMPARED TO
QUARTER ENDED SEPTEMBER 30, 1995.
In the third quarter of 1996, the Operating Partnership reported growth
in revenue, NOI and net income, respectively, of $10.8 million, $6.8
million and $3.3 million over the same quarter of 1995. Since
September 30, 1995, the Operating Partnership has acquired 67
facilities and completed construction of and opened 2 new facilities.
These 69 facilities added 4.7 million square feet, bringing the total
square feet of the 215 facilities owned by the Operating Partnership at
September 30, 1996 to 14.5 million. For the third quarter of 1996,
the 132 facilities owned during the entire third quarter of 1995
provided 64.8% of the Operating Partnership's rental income. These
same facilities' rental income grew 7.1% over 1995 results. The
majority of this growth was provided by an approximate 10.2% rate
increase, which was
6
<PAGE> 11
offset by discounts, and, to a lesser extent, by vacancies. At
September 30, 1996, the physical and economic occupancy and rent per
square foot of the 146 facilities owned at September 30, 1995, was 89%,
83%, and $9.60, respectively, while the figures as of September 30,
1995, were 90%, 84%, and $8.98, respectively. The Operating
Partnership's portfolio of facilities as a whole had an average
occupancy at September 30, 1996, of 89% physical and 83% economic, with
an average rent per square foot of $9.46. Management income for the
quarter ended September 30, 1996 declined due to the acquisition of 15
facilities which were managed by the Operating Partnership in the same
period of 1995. Other income, which reflects primarily sales of lock
and packaging products and truck rentals, increased primarily due to
the increase in the number of properties owned, and to a lesser extent,
rental income on cellular tower and billboard leases, and franchise
seminar fees.
Cost of property operations and maintenance was $7.8 million for the
quarter ended September 30, 1996, representing a $3.0 million increase
over the third quarter of 1995. Cost of property operations and
maintenance was 26.6% of revenues for the quarter ended September 30,
1996, which is consistent with 26.1% of revenues for the quarter ended
September 30, 1995.
Tax expense increased from $1.4 million or 7.4 % of revenues for the
quarter ended September 30, 1995, to $2.4 million or 8.2% of revenue
for the quarter ended September 30, 1996. This growth as a percentage
of revenues reflects both the impact of reassessments on the properties
purchased during 1994 and 1995 and the increased state and franchise
taxes as the Operating Partnership moves into new states and expands in
current states. The majority of the property tax increase is
attributable to reassessments on acquisitions with the remainder
attributable to increased tax rates or reassessments on properties
owned for a full year.
General and administrative expense increased from $0.7 million to $1.3
million for the third quarter of 1996 from the comparable quarter of
1995. As a percentage of revenues this category of expense increased
from 3.7% for the quarter ended September 30, 1995 to 4.5% for the
quarter ended September 30, 1996. The growth in this expense reflects
the Operating Partnership's expansion of its administration,
development and acquisition, management information systems and human
resource departments in connection with its ongoing growth strategy.
Depreciation expense increased to $3.4 million for the quarter ended
September 30, 1996 from $2.3 million for the comparable period in 1995,
reflecting the increase in the number of facilities owned. The
Operating Partnership has acquired or placed in service approximately
$256 million in depreciable assets since October 1, 1995.
Interest expense for the quarter ended September 30, 1996, was $2.63
million as compared to $0.45 million for the comparable period in
1995. The 1996 third quarter interest expense represents weighted
average borrowings of $144.7 million under the Operating Partnership's
lines of credit at a weighted average interest rate of 6.9%.
7
<PAGE> 12
Interest income was $0.2 million for the quarter ended September 30,
1996 as compared to $0.02 million for the quarter ended September 30,
1995. Interest income in 1996 represents earnings on overnight
deposits and amounts outstanding under the 1995 Employee Stock Purchase
and Loan Plan.
The Operating Partnership reported a gain of $0.3 million on the
disposition of its investment in a Jacksonville, Florida storage
facility which was exchanged for cash and two facilities located in
Oklahoma.
RESULTS OF OPERATIONS- NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1995.
In the first nine months of 1996, the Operating Partnership reported
growth in revenue, NOI and net income, respectively, of $27.8 million,
$17.8 million and $10.0 million over the same period of 1995.
Management income for the nine months ended September 30, 1996 declined
due to the acquisition of 15 facilities which were managed by the
Operating Partnership in the same period of 1995. Other income, which
reflects primarily sales of lock and packaging products and truck
rentals, increased primarily due to the increase in the number of
properties owned, and to a lesser extent, rental income on cellular
tower and billboard leases, and franchise seminar fees.
Cost of property operations and maintenance was $19.9 million for the
nine months ended September 30, 1996, representing a $7.1 million
increase over the first nine months of 1995. Cost of property
operations and maintenance was 26.5% of revenues for the nine months
ended September 30, 1996 and 27.1% for the nine months ended September
30, 1995. The higher costs as a percent of revenues during 1995 were as
a result of the Operating Partnership implementing its facility
operating cost structure, along with the addition of area and district
managers. These costs preceded the revenue growth related to the
implementation of the Operating Partnership's marketing and pricing
strategies.
Tax expense increased from $3.4 million or 7.1% of revenues for the
nine months ended September 30, 1995, to $6.2 million or 8.2% of
revenue for the nine months ended September 30, 1996. This growth as a
percentage of revenue reflects both the impact of reassessments on the
properties purchased during 1994 and 1995 and the increased state and
franchise taxes as the Operating Partnership moves into new states and
expands in current states. The majority of the real estate tax
increase is attributable to reassessments on acquisitions with the
remainder attributable to increased tax rates or reassessments on
properties owned for a full year.
General and administrative expense increased from $1.8 million to $3.1
million for the first nine months of 1996 from the comparable nine
months of 1995. As a percentage of revenues, this category of expense
grew from 3.8% for the nine months ended September 30, 1995, to 4.1%
8
<PAGE> 13
for the nine months ended September 30, 1996. The Operating
Partnership expects that the gross expense will grow as the Operating
Partnership expands its administration, development and acquisition,
management information systems and human resource departments in
connection with its ongoing growth strategy.
Depreciation expense increased to $8.8 million for the nine months
ended September 30, 1996 from $5.7 million for the comparable period in
1995, reflecting the increase in the number of facilities owned. The
Operating Partnership has acquired or placed in service approximately
$256 million in depreciable assets since October 1, 1995.
Interest expense for the nine months ended September 30, 1996 was $5.8
million as compared to $1.7 million for the comparable period in 1995.
For the nine months ended September 30, 1996, interest expense
represents weighted average borrowings of $108.1 million under the
Operating Partnership's lines of credit at a weighted average interest
rate of 7.0%.
Interest income was $0.5 million for the nine months ended September
30, 1996, as compared to $0.06 million for the nine months ended
September 30, 1995. Interest income in 1996 represents earnings on
overnight deposits and amounts outstanding under the 1995 Employee
Stock Purchase and Loan Plan.
The Operating Partnership reported a gain of $0.3 million on the
disposition of its investment in a Jacksonville, Florida storage
facility which was exchanged for cash and two facilities located in
Oklahoma.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations grew to $41.0 million for the nine months
ended September 30, 1996 from $26.0 million for the nine months ended
September 30, 1995. This increase is primarily a result of the
Operating Partnership's net income growing $10.0 million or 45.4%, over
the prior nine month period, primarily as a result of the increase in
number of facilities owned, and the improvement of operations at the
facilities acquired.
During the first nine months of 1996, the Operating Partnership
acquired 54 facilities totaling 3,807,000 square feet for a cost of
$195.3 million including the issuance of 215,769 units of limited
partnership interest in the Operating Partnership ("units") valued at
$8.6 million. In addition to its acquisitions during the period, the
Operating Partnership opened a newly constructed 68,000 square foot
facility in Northern Virginia, a 28,000 square foot expansion in
Sarasota, Florida, a 35,000 square foot expansion in Memphis,
Tennessee, and a 30,000 square foot expansion in Albuquerque, New
Mexico. The Operating Partnership currently has plans to develop 21
new facilities, primarily in the Washington, D.C., and Memphis,
Tennessee areas. Of these, 9 projects are under construction or are in
construction planning, with expected costs totaling $30 million and
completion dates anticipated to be in the third quarter of 1997.
9
<PAGE> 14
Expansions are planned for 19 existing facilities, and of these, 13 are
under way with planned completion dates ranging from the first to the
third quarters of 1997. Estimated costs of the 13 expansions under way
are $10.2 million.
On March 1, 1996, the Company entered into a Stock Purchase Agreement
with Security Capital U.S. Realty, an affiliate of Security Capital
Group. Under the Stock Purchase Agreement, and pursuant to the terms
and conditions thereof, US Realty invested a total of $220 million in
the Company, placed two of its nominees on the Company's Board of
Directors, and continues to make available to the Company certain
strategic advice, research and related information and expertise. As
part of the transaction, on March 19, 1996, July 8, 1996, and September
30, 1996, the Company issued to US Realty 1,948,882, 1,916,333, and
5,079,872 shares of Common Stock, respectively, at a price of $31.30
per share, plus a purchase price adjustment for accrued dividends. The
Company has also executed a Strategic Alliance Agreement and a
Registration Rights Agreement with US Realty. The Company contributed
the net proceeds of these sales, to the Operating Partnership, which
used the funds to pay off borrowings under the available lines of
credit, for property acquisitions, and for working capital.
At September 30, 1996, the Operating Partnership had $66.1 million of
borrowings outstanding on its lines of credit, $3.4 million of fixed
rate debt maturing in 2001, $2.3 million of fixed rate debt maturing in
2006, $0.9 million of fixed rate debt maturing in 2000, and $4.4
million of fixed rate debt maturing in 1997. During the first nine
months of 1996, the Operating Partnership assumed two variable rate
mortgages totaling $7.0 million and maturing in 2001. The weighted
average balance and interest rate on these mortgages were $7.0 million
and 9.01%, respectively. The Operating Partnership had $38.9 million
of unused borrowing capacity under its lines of credit at September 30,
1996.
During the period, the Operating Partnership issued approximately
18,000 Units valued at approximately $0.6 million in connection with
the acquisition of facilities. The Operating Partnership's acquisition
of self-storage facilities using Units as consideration may partially
defer the seller's tax liability.
As of September 30, 1996, there were 1,289,000 outstanding Units owned
by third parties. Beginning one year after their issuance, 910,621 of
these Units are redeemable for cash equal to the market value of one
share of Common Stock at the time of redemption or, at the Company's
option, one share of Common Stock per Unit. The remaining 378,379
Units are redeemable for cash or, at the Company's option, a two-year
promissory note. Any shares of Common Stock issued in redemption of
Units are expected to be registered under the Securities Act of 1933,
as amended, and to be freely tradeable.
Subsequent to September 30, 1996, the Company has completed the
acquisition of 8 self-storage facilities for approximately $20,615.
These acquisitions were financed through operating cash flows and
borrowings under the available line of credit.
10
<PAGE> 15
The Operating Partnership has entered into various property acquisition
contracts for facilities with an aggregate cost of approximately $76.2
million. These acquisitions are subject to customary conditions to
closing including satisfactory due diligence and should close during
the fourth quarter. Should these contracts be disapproved, the costs
incurred by the Operating Partnership would be immaterial.
The Operating Partnership has filed a shelf registration statement
relating to $250 million of unsecured non-convertible senior debt
securities. This registration statement was declared effective on
August 1, 1996, and on November 7, 1996, the Operating Partnership
issued $100 million 7.125% Notes due November 1, 2003. The net
proceeds from the offering of $99,012 were used to repay borrowings
under outstanding lines of credit, to finance the acquisition of
self-storage facilities, and for working capital.
FUNDS FROM OPERATIONS ("FFO")
The Operating Partnership believes that FFO should be considered in
conjunction with its net income and cash flows to facilitate a clear
understanding of its results of operations. FFO is defined as net
income, computed in accordance with GAAP, excluding gains (losses) from
debt restructuring and sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and
joint ventures. FFO should not be considered an alternative to net
income as a measure of the Operating Partnership's performance or to
cash flows as a measure of liquidity.
Effective January 1, 1996, the National Association of Real Estate
Investment Trusts amended its definition of FFO. The impact of
conforming to the amended definition was to reduce FFO by approximately
$154,000 and $425,000, and $246,000 and $333,000 for the three and nine
month periods ended September 30, 1996 and September 30, 1995,
respectively. Because of the change in the definition of FFO, FFO for
the Operating Partnership may not be comparable to similarly titled
measures of operating performance disclosed by other companies.
The following table illustrates the components of the Operating
Partnership's FFO for the quarters ended September 30, 1996 and
September 30, 1995.
11
<PAGE> 16
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
1996 1996 1996 1995
=====================================================================================
<S> <C>
Net Income $ 12,327 $ 8,979 $ 31,956 $ 21,973
Depreciation of real property 3,224 1,945 8,235 4,726
Amortization of lease
guarantees 2 22 70 313
Amortization of non-compete 0 63 83 189
-------------------------------------------------------------------------------------
Consolidated FFO 15,553 11,009 40,344 27,701
=====================================================================================
</TABLE>
The Company, in order to qualify as a REIT, is required to distribute a
substantial portion of its net income as dividends to its shareholders.
While the Operating Partnership's goal is to generate and retain
sufficient cash flow to meet its operating, capital, and debt service
needs, its dividend requirements may require the Operating Partnership
to utilize its bank lines of credit to finance property acquisitions
and development and major capital improvements. For the year ended
December 31, 1995, distributions were approximately 85% of the
Operating Partnership's FFO.
The Operating Partnership has incurred approximately $0.75 million for
regularly scheduled maintenance and repairs during the nine months
ended September 30, 1996. For the year, the Operating Partnership
expects to incur approximately $1.2 million for scheduled maintenance
and repairs and approximately $5.9 million to conform facilities
acquired during 1995 and 1994 to Operating Partnership standards.
The Operating Partnership believes that its liquidity and capital
resources are adequate to meet its cash requirements relating to its
existing operations for the next twelve months.
INFLATION
The Operating Partnership does not believe that inflation has had or
will have a direct effect on its operations. Substantially all of the
leases at the facilities allow for monthly rental increases which
provide the Operating Partnership with the opportunity to achieve
increases in rental income as each lease matures.
12
<PAGE> 17
SEASONALITY
The Operating Partnership's revenues typically have been higher in the
third and fourth quarters primarily because the Operating Partnership
increases its rental rates on most of its storage units at the
beginning of May, and to a lesser extent because self-storage
facilities tend to experience greater occupancy during the late spring
and early fall months due to the greater incidence of residential moves
during those periods. The Operating Partnership believes that its
tenant mix, rental structure, and expense structure provide adequate
protection against undue fluctuations in cash flows and net revenues
during off-peak seasons. Thus, the Operating Partnership does not
expect seasonality to materially affect distributions to shareholders.
RECENT ACCOUNTING DEVELOPMENTS
In October of 1995, Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("FAS 123") was issued.
The standard is effective for fiscal years beginning after December 15,
1995. The Company has elected to continue expense recognition under
APB 25, and disclosing pro forma net income, and earnings per share
information based on the FAS 123 fair value methodology.
13
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K - None
14
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 14, 1996
SUSA Partnership, L.P.
By: /s/ Thomas E. Robinson
----------------------
Thomas E. Robinson
President & Chief Financial Officer
(Principal Financial and Accounting
Officer)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's unaudited consolidated financial statements as of September 30,
1996, and the nine months then ended, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,150
<SECURITIES> 0
<RECEIVABLES> 8,975
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,125
<PP&E> 730,420
<DEPRECIATION> 22,880
<TOTAL-ASSETS> 719,665
<CURRENT-LIABILITIES> 24,447
<BONDS> 84,110
0
0
<COMMON> 0
<OTHER-SE> 611,108
<TOTAL-LIABILITY-AND-EQUITY> 719,665
<SALES> 28,806
<TOTAL-REVENUES> 29,435
<CGS> 0
<TOTAL-COSTS> 14,933
<OTHER-EXPENSES> (451)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,626
<INCOME-PRETAX> 12,327
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,327
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,327
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
