<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 June 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. ( ) Yes ( X ) NO
<PAGE> 2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
SUSA PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(amounts in thousands, except per unit data)
<TABLE>
<CAPTION>
Three months ended Three months ended Six months ended
June 30, 1996 June 30, 1995 June 30, 1996
======================= ======================= ====================
<S> <C> <C> <C>
PROPERTY REVENUES:
Rental income $23,770 $15,834 $44,590
Management income 206 199 446
Other income 380 200 654
----------------------- ----------------------- --------------------
Total property revenues 24,356 16,233 45,690
----------------------- ----------------------- --------------------
PROPERTY EXPENSES:
Cost of property operations & maintenance 6,376 4,621 12,113
Taxes 2,051 1,094 3,744
General & administrative 969 597 1,749
Depreciation & amortization 2,762 1,835 5,433
----------------------- ----------------------- --------------------
Total property expenses 12,158 8,147 23,039
----------------------- ----------------------- --------------------
INCOME FROM PROPERTY OPERATIONS 12,198 8,086 22,651
----------------------- ----------------------- --------------------
OTHER INCOME (EXPENSE):
Interest expense (1,558) (1,063) (3,223)
Interest income 175 22 330
----------------------- ----------------------- --------------------
INCOME BEFORE MINORITY INTEREST 10,815 7,045 19,758
Minority interest (66) (53) (127)
----------------------- ----------------------- --------------------
NET INCOME $10,749 $6,992 $19,631
======================= ======================= ====================
NET INCOME PER UNIT $0.52 $0.47 $0.99
======================= ======================= ====================
WEIGHTED AVERAGE UNITS OUTSTANDING 20,719 14,959 19,792
======================= ======================= ====================
<CAPTION>
Six months ended
June 30, 1995
====================
<S> <C>
PROPERTY REVENUES:
Rental income $27,806
Management income 443
Other income 347
====================
Total property revenues 28,596
--------------------
PROPERTY EXPENSES:
Cost of property operations & maintenance 7,911
Taxes 1,900
General & administrative 1,109
Depreciation & amortization 3,404
--------------------
Total property expenses 14,324
--------------------
INCOME FROM PROPERTY OPERATIONS 14,272
--------------------
OTHER INCOME (EXPENSE):
Interest expense (1,220)
Interest income 37
--------------------
INCOME BEFORE MINORITY INTEREST 13,089
Minority interest (107)
--------------------
NET INCOME $12,982
====================
NET INCOME PER UNIT $0.90
====================
WEIGHTED AVERAGE UNITS OUTSTANDING 14,477
====================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 3
SUSA PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except unit data)
<TABLE>
<CAPTION>
as of as of
June 30, 1996 December 31, 1995
================= ===================
(unaudited)
ASSETS
<S> <C> <C>
Investments in storage facilities, at cost:
Land $175,402 $139,603
Buildings and equipment 467,248 369,694
----------------- -------------------
642,650 509,297
Accumulated depreciation (19,637) (14,561)
----------------- -------------------
623,013 494,736
Cash & cash equivalents 3,283 2,802
Other assets 7,745 11,987
----------------- -------------------
TOTAL ASSETS $634,041 $509,525
================= ===================
LIABILITIES & PARTNERS' CAPITAL
Notes payable $147,435 $107,605
Mortgage notes payable 13,604 6,670
Accounts payable & accrued expenses 5,504 5,910
Distributions payable 11,000 -
Rents received in advance 4,302 3,680
Minority interest 427 524
----------------- -------------------
TOTAL LIABILITIES 182,272 124,389
----------------- -------------------
Commitments and contingencies
Partners' capital:
General partnership units, 19,554,759 and 424,310 364,947
17,562,363 outstanding
Limited partnership units, 1,270,718 and
1,025,423 outstanding 35,424 26,916
Notes receivable - officers (7,965) (6,727)
----------------- -------------------
TOTAL PARTNERS' CAPITAL 451,769 385,136
----------------- -------------------
TOTAL LIABILITIES & PARTNERS' CAPITAL $634,041 $509,525
================= ===================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
SUSA PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(amounts in thousands)
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1996 June 30, 1995
=================== =====================
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $19,631 $12,982
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,433 3,404
Minority interest 127 107
Changes in assets and liabilities:
Other assets (2,105) (1,722)
Other liabilities 216 1,117
------------------- ---------------------
Net cash provided by operating activities: 23,302 15,888
=================== =====================
INVESTING ACTIVITIES:
Acquisition and improvements of storage facilities (106,619) (118,620)
Developments placed in service (2,274) -
Other improvements (3,412) -
------------------- ---------------------
Net cash used in investing activities (112,305) (118,620)
=================== =====================
FINANCING ACTIVITIES:
Net borrowings under line of credit 39,830 2,000
Mortgage principal payments (127) (22)
General partner contributions 60,736 107,835
Distributions to general partner (10,149) (6,782)
Distributions to limited partners (584) (207)
Distribution to minority interests (222) (61)
------------------- ---------------------
Net cash provided by financing activities 89,484 102,763
=================== =====================
Net increase in cash and equivalents 481 31
Cash and equivalents, beginning of period 2,802 3,331
------------------- ---------------------
Cash and equivalents, end of period $3,283 $3,362
=================== =====================
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
General partnership units issued in exchange for
notes receivable $1,253 -
Mortgages assumed on storage facilities acquired $7,061 -
Storage facilities acquired in exchange for limited
partnership Units $7,994 $12,881
=================== =====================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 S-3/A,
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 the Company is the
sole shareholder, and the Company transferred approximately 79% of the
Company's interest in the Operating Partnership to the Trust. The
Company remains the sole general partner of the Operating
Partnership.
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 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 will invest a total of
$220,000 in the Company, initially place two of its nominees on the
Company's Board of Directors, and make available to the Company
certain strategic advice, research and related information and
expertise (the "Strategic Alliance"). As part of the transaction, on
March 19, 1996, the Company issued to US Realty 1,948,882 shares of
Common Stock, approximately 10.0% of the outstanding Common Stock, at
a price of $31.30 per share, plus a purchase price adjustment for
accrued dividends, less issuance costs. At the same time, the Company
executed a Strategic Alliance Agreement and a Registration Rights
Agreement with US Realty.
The Company agreed to submit to the shareholders a proposal 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.
On July 8, 1996, the Company issued 1,916,933 shares of common stock
to US Realty at a price of $31.30 per share, plus an adjustment for
accrued dividends, less issuance costs. Prior to December 31, 1996,
the Company will issue to US Realty an additional 3,162,939 shares of
the Company's common stock at the same price for aggregate
consideration of approximately $99,000. The proceeds of these
fundings will be contributed to the Operating Partnership in exchange
for additional Operating Partnership Units and used to support the
acquisition and development of self-storage facilities.
EMPLOYEE STOCK PURCHASE AND LOAN PLAN
In March of 1996, the Company issued 40,000 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 June 30, 1996, there are 270,000 shares issued
and outstanding under the plan. Under the terms of the partnership
agreement, all proceeds from the issuance of common stock under the
plan are contributed are contributed to the Operating Partnership in
exchange for Operating Partnership units.
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 1996
(THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
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 117,735
Land Acquisitions 3,940
Developments placed in service 8,266
Improvements 3,412
---------------------
Balance on June 30, 1996 $ 642,650
=====================
ACCUMULATED DEPRECIATION:
Balance on January 1, 1996 $ 14,561
Additions during the period 5,076
---------------------
Balance on June 30, 1996 $ 19,637
=====================
</TABLE>
Unaudited pro forma combined results of operations of the Operating
Partnership for six months ended June 30, 1996 are presented below.
Such pro forma presentation has been prepared assuming that the
acquisition of the 32 properties acquired during the six month period
ended June 30, 1996, had been completed as of January 1, 1996.
<TABLE>
<CAPTION>
PRO FORMA FOR
SIX MONTHS ENDED
JUNE 30, 1996
<S> <C>
Revenues $ 49,712
Net income $ 20,579
Earnings per unit $ 1.04
</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.
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 1996
(THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
5. NOTES PAYABLE
Notes payable at June 30, 1996 consist of $75,000 of borrowings under
a $75,000 line of credit with a group of commercial banks, $22,435 of
borrowings under a $30,000 line of credit with a commercial bank, and
$50,000 of borrowings under a $50,000 term loan with a commercial
bank. These lines of credit and the term loan bear interest at various
spreads over LIBOR. During the quarter ended June 30, 1996, the
weighted average borrowings were $92,406, and the weighted average
interest rate was 6.8%.
6. SUBSEQUENT EVENTS
Subsequent to June 30, 1996, the Operating Partnership has completed
the acquisition of 15 self-storage facilities for approximately
$53,951. These acquisitions were financed through operating cash
flows, borrowings under the available line of credit, and the
Company's issuance of the 1,916,333 shares of Common Stock to US
Realty, on July 8, 1996, at a price of $31.30 per share, plus an
adjustment for accrued dividends, less issuance costs, the proceeds of
which were contributed to the Operating Partnership in exchange for
Operating Partnership units.
The Operating Partnership has also entered into various property
acquisition contracts with an aggregate cost of approximately $13,980.
These acquisitions are subject to customary conditions to closing
including satisfactory due diligence and should close during the third
quarter. Should these contracts be disapproved, the costs incurred by
the Operating Partnership would be immaterial.
<PAGE> 9
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 June 30,
1995 to June 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 JUNE 30, 1996 COMPARED TO QUARTER
ENDED JUNE 30, 1995.
In the second quarter of 1996, the Operating Partnership reported
growth in revenue, Net Operating Income and net income, respectively,
of $8.1 million, $5.4 million and $3.8 million over the same quarter
of 1995. Since June 30, 1995, the Operating Partnership has acquired
59 facilities and completed construction of and opened 2 new
facilities. These 61 facilities added 4.05 million square feet,
bringing the total square feet of the 206 facilities owned by the
Operating Partnership at June 30, 1996 to 13.9 million. For the
second quarter of 1996, the 98 facilities owned during the entire
second quarter of 1995 provided 55.4% of the Operating Partnership's
rental income. These same facilities' rental income grew 8.0% over
1995 results. The majority of this
<PAGE> 10
growth was provided by an approximate 8.0% rate increase. At June 30,
1996, the physical and economic occupancy and rent per square foot on
the 132 facilities owned at June 30, 1995, was 90%, 84%, and $9.59,
respectively, while the figures as of June 30, 1995 were 90%, 83%, and
$8.91, respectively. The Operating Partnership's portfolio of
facilities as a whole had an average occupancy at June 30, 1996 of 89%
physical and 82% economic, with an average rent per square foot of
$9.48. Management income for the quarter ended June 30, 1996 remained
relatively consistent with 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.
Cost of property operations and maintenance was $6.4 million for the
quarter ended June 30, 1996, representing a $1.75 million increase
over the second quarter of 1995. Cost of property operations and
maintenance was 26.2% of revenues for the quarter ended June 30, 1996
and 28.5% of revenue for the quarter ended June 30, 1995. The higher
costs as a percentage of revenues during the second quarter of 1995
were due to the acquisition of 32 facilities during that quarter.
These costs, along with the cost of area and district managers added
during that quarter, preceded the revenue growth related to the
implementation of the Operating Partnership's marketing and pricing
strategies.
Tax expense increased from $1.1 million or 6.7% of revenues for the
quarter ended June 30, 1995 to $2.05 million or 8.4% of revenue for
the quarter ended June 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 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 $0.58 million to
$0.97 million for the second quarter of 1996 from the comparable
quarter of 1995. As a percentage of revenues the expense increased
from 3.7% for the quarter ended June 30, 1995 to 3.9% for the quarter
ended June 30, 1996. The growth in 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 $2.76 million for the quarter ended
June 30, 1996 from $1.8 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
$342 million in depreciable assets since July 1, 1995.
Interest expense for the quarter ended June 30, 1996, was $1.56
million as compared to $1.1 million for the comparable period in 1995.
The 1996 second quarter interest
<PAGE> 11
expense represents weighted average borrowings of $92.4 million under
the Operating Partnership's lines of credit at a weighted average
interest rate of 6.8%.
Interest income was $0.18 million for the quarter ended June 30, 1996
as compared to $0.02 million for the quarter ended June 30, 1995.
Interest income in 1996 represents earnings on overnight deposits and
amounts outstanding under the 1995 Employee Stock Purchase and Loan
Plan.
Minority interest grew from $0.38 million for the quarter ended June
30, 1995 to $0.67 million for the quarter ended June 30, 1996, as the
Operating Partnership issued approximately 398,000 Operating
Partnership units in connection with the acquisition of certain
facilities from July 1, 1995 to June 30, 1996.
RESULTS OF OPERATIONS-SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX
MONTHS ENDED JUNE 30, 1995.
In the first six months of 1996, the Operating Partnership reported
growth in revenue, Net Operating Income and net income, respectively,
of $17.1 million, $11.0 million and $6.6 million over the same period
of 1995. Management income for the six months ended June 30, 1996
remained relatively consistent with 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.
Cost of property operations and maintenance was $12.1 million for the
six months ended June 30, 1996, representing a $4.2 million increase
over the first six months of 1995. Cost of property operations and
maintenance was 26.5% of revenues for the six months ended June 30,
1996 and 27.7% for the six months ended June 30, 1995. The higher
costs 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 $1.9 million or 6.6% of revenues for the
six months ended June 30, 1995 to $3.7 million or 8.2% of revenue for
the six months ended June 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 $1.1 million to $1.7
million for the first six months of 1996 from the comparable six
months of 1995. As a percentage of revenues, this category of expense
fell from 3.9% for the six months ended June 30,
<PAGE> 12
1995 to 3.8% for the six months ended June 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 $5.4 million for the six months
ended June 30, 1996 from $3.4 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
$342 million in depreciable assets since July 1, 1995.
Interest expense for the six months ended June 30, 1996 was $3.2
million as compared to $1.2 million for the comparable period in 1995.
For the six months ended June 30, 1996, interest expense represents
weighted average borrowings of $99.6 million under the Operating
Partnership's lines of credit at a weighted average interest rate of
6.4%.
Interest income was $0.3 million for the six months ended June 30,
1996 as compared to $0.04 million for the six months ended June 30,
1995. Interest income in 1996 represents earnings on overnight
deposits and amounts outstanding under the 1995 Employee Stock
Purchase and Loan Plan.
Minority interest grew from $0.6 million for the six months ended June
30, 1995 to $1.2 million for the six months ended June 30, 1996, as
the Operating Partnership issued approximately 398,000 operating
partnership units in connection with the acquisition of certain
facilities from July 1, 1995 to June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations grew to $23.2 million for the six months
ended June 30, 1996 from $15.9 million for the six months ended June
30, 1995. This increase is a result of the Operating Partnership's
net income growing $6.6 million or 48.6%, over the prior six 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 six months of 1996, the Operating Partnership
acquired 32 facilities totaling 2,057,000 square feet for a cost of
$114.4, million including the issuance of 246,000 operating
partnership units valued at $8.0 million. In addition to its
acquisitions during the period, the Operating Partnership opened a
newly constructed 68,000 square foot facility in Northern Virginia and
a 28,000 square foot expansion in Sarasota, Florida. The Operating
Partnership currently has plans to develop 19 new facilities,
primarily in the Washington, DC and Memphis, Tennessee areas. Of
these, five projects are under construction or are in construction
planning, with expected costs totaling $14.0 million and completion
dates anticipated to be in the second quarter of 1997. Expansions are
planned for 14 existing facilities, and of these, 10 are under way
with planned completion dates ranging from the fourth quarter of 1996
to
<PAGE> 13
the second quarter of 1997. Estimate costs of the 10 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 ("US Realty"), an affiliate of
Security Capital Group. Under the Stock Purchase Agreement, and
pursuant to the terms and conditions thereof, US Realty will invest a
total of $220 million in the Company by December 31, 1996, initially
place two of its nominees on the Company's Board of Directors, and
make available to the Company certain strategic advice, research and
related information and expertise (the "Strategic Alliance"). As part
of the transaction, on March 19, 1996, the Company issued to US Realty
1,948,882 shares of Common Stock, approximately 10.0% of the
outstanding Common Stock, at a price of $31.30 per share, plus a
purchase price adjustment for accrued dividends. At the same time,
the Company executed a Strategic Alliance Agreement and a Registration
Rights Agreement with US Realty. The Company contributed the proceeds
of the offering to the Operating Partnership, which was used to pay
off $43.4 million of borrowings under the available lines of credit,
for property acquisitions, and for working capital. On July 8, 1996,
the Company issued 1,916,933 shares of Common Stock to US Realty at a
price of $31.30 per share, plus an adjustment for accrued dividends,
less issuance costs. This funding was also contributed by the Company
to the Operating Partnership.
At June 30, 1996, the Operating Partnership had $147.4 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, and $0.9 million of fixed rate debt maturing in 2000. During
the quarter, 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 was $4.6 million
and 9.01%, respectively. The Operating Partnership had $7.6 million
of unused borrowing capacity under its lines of credit at June 30,
1996.
During the period, the Operating Partnership issued approximately
246,000 units of limited partnership interest valued at approximately
$8.0 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.
The Operating Partnership has entered into various property
acquisition contracts for facilities with an aggregate cost of
approximately $13.9 million. These acquisitions are subject to
customary conditions to closing including satisfactory due diligence
and should close during the third quarter. Should these contracts be
disapproved, the costs incurred by the Operating Partnership would be
immaterial.
<PAGE> 14
The Operating Partnership filed a shelf registration statement
relating to $250 million of unsecured non-convertible senior debt
securities. This registration statement was declared effective on
July 30, 1996, and should enable the Operating Partnership to access
the public debt markets efficiently at opportune times.
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 $37,000 and $87,000, and $136,000 and $240,000 for the
three and six month periods ended June 30, 1996 and June 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 June 30, 1996 and June 30,
1995.
<TABLE>
<CAPTION>
Three months Three months ended Six months Six months
ended June 30, 1995 ended ended
June 30, 1996 June 30, 1996 June 30, 1995
==============================================================================
<S> <C> <C> <C> <C>
Net Income $ 10,749 $ 6,992 $ 19,631 $ 12,982
Depreciation of real
property 2,591 1,660 5,036 2,894
Amortization of
lease guarantees 15 76 68 268
Amortization of
non-compete 21 63 83 126
------------------------------------------------------------------------------
Consolidated FFO 13,376 8,791 24,818 16,270
------------------------------------------------------------------------------
</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. It is the intent of the Operating Partnership that cash
distributions will be made for each fiscal year to enable the Company
to meet its distribution requirements for qualification as a REIT.
While
<PAGE> 15
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
Company's FFO
The Operating Partnership has incurred approximately $0.43 million for
regularly scheduled maintenance and repairs during the six months
ended June 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 increases which provide the
Operating Partnership with the opportunity to achieve increases in
rental income as each lease matures.
SEASONALITY
The Operating Partnership's revenues typically have been higher in the
third and fourth quarter 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 Operating Partnership has elected to continue expense
recognition under APB 25, and disclosing pro forma net income, and
earnings per unit information based on the FAS 123 fair value
methodology.
<PAGE> 16
PART II- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K - None
<PAGE> 17
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: August 14, 1996
SUSA Partnership, L.P.
By: /s/ Thomas E. Robinson
-----------------------
Thomas E. Robinson
President & Chief Financial
Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,283
<SECURITIES> 0
<RECEIVABLES> 7,745
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,028
<PP&E> 642,650
<DEPRECIATION> 19,637
<TOTAL-ASSETS> 634,041
<CURRENT-LIABILITIES> 21,233
<BONDS> 161,039
0
0
<COMMON> 0
<OTHER-SE> 451,769
<TOTAL-LIABILITY-AND-EQUITY> 634,041
<SALES> 23,770
<TOTAL-REVENUES> 24,356
<CGS> 0
<TOTAL-COSTS> 12,158
<OTHER-EXPENSES> 109
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,558
<INCOME-PRETAX> 10,749
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,749
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,749
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
