<PAGE>
Information contained herein is subject to completion or amendment.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 23, 1996
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED AUGUST 1, 1996
[LOGO]
$100,000,000
SUSA PARTNERSHIP, L.P.
% NOTES DUE NOVEMBER 15, 2003
-------------
SUSA Partnership, L.P., a Tennessee limited partnership, will issue %
Notes due November 15, 2003 offered hereby in the aggregate principal amount of
$100,000,000. Interest on the Notes is payable on May 15 and November 15 of each
year, commencing May 15, 1997. The Notes mature on November 15, 2003. The Notes
are redeemable at any time at the option of the Partnership, in whole or in
part, at a redemption price equal to the sum of (i) the principal of the Notes
being redeemed plus accrued interest to the redemption date and (ii) the
Make-Whole Amount, if any. See "Description of Notes -- Optional Redemption."
The Notes are not subject to any mandatory sinking fund. The Notes are unsecured
obligations of the Partnership and will rank PARI PASSU with each other and with
all unsecured and unsubordinated indebtedness of the Partnership and will be
effectively subordinate to all secured indebtedness of the Partnership. As of
September 30, 1996, the Partnership had outstanding $66.1 million of unsecured,
unsubordinated indebtedness and $18.0 million of secured indebtedness. On a pro
forma basis, after giving effect to the completion of the Offering and
application of the net proceeds from the Offering as described herein, as of
September 30, 1996, the Partnership would have had outstanding $100.0 million of
unsecured, unsubordinated indebtedness, $18.0 million in secured indebtedness
and $735.6 million in unencumbered assets.
The Notes will be represented by a single Global Note registered in the name
of the nominee of The Depository Trust Company. Beneficial interests in the
Global Note will be shown on, and transfers thereof will be effected only
through records maintained by DTC and its participants. Except as described in
"Description of Notes -- Book-Entry System," Notes in definitive form will not
be issued. The Notes will be issued only in denominations of $1,000 and integral
multiples thereof. See "Description of Notes -- Same-Day Settlement and
Payment." Application has been made to list the Notes on the New York Stock
Exchange under the symbol "SUS 03."
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE (1) DISCOUNTS (2) PARTNERSHIP (1)(3)
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per Note.............................. % % %
Total................................. $ $ $
</TABLE>
- --------------
(1) Plus accrued interest, if any, from November , 1996.
(2) The Partnership has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting."
(3) Before deducting estimated expenses of $170,000 payable by the Partnership.
------------------
The Notes offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the Notes
will be ready for delivery in book-entry form only through the facilities of DTC
in New York, New York, on or about November , 1996, against payment therefor
in immediately available funds.
GOLDMAN, SACHS & CO.
FIRST CHICAGO CAPITAL MARKETS, INC.
J. P. MORGAN & CO.
-------------
The date of this Prospectus Supplement is November , 1996.
<PAGE>
[LOGO]
[MAP]
FACILITY LOCATIONS:
-Shading indicates states where Storage USA-Registered Trademark- facilities
are located.
-Numbers indicate number of facilities in each state.
-All data is as of September 30, 1996.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS OR INCORPORATED HEREIN OR THEREIN BY REFERENCE.
CAPITALIZED TERMS USED IN THIS PROSPECTUS SUPPLEMENT SUMMARY HAVE THE MEANINGS
SET FORTH ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. THE OFFERING OF THE % NOTES DUE NOVEMBER 15, 2003 (THE "NOTES"),
IS HEREIN REFERRED TO AS THE "OFFERING." ALL REFERENCES TO THE "PARTNERSHIP"
INCLUDE SUSA PARTNERSHIP, L.P., THOSE ENTITIES OWNED OR CONTROLLED BY SUSA
PARTNERSHIP, L.P. AND PREDECESSORS OF SUSA PARTNERSHIP, L.P., UNLESS THE CONTEXT
INDICATES OTHERWISE.
THE PARTNERSHIP
The Partnership is engaged in the business of owning, managing, acquiring,
developing and franchising self-storage facilities. At September 30, 1996, the
Partnership owned 215 facilities containing 14.5 million net rentable square
feet in 29 states and the District of Columbia and managed for others 19
facilities containing an additional 1.1 million net rentable square feet, making
it the fourth largest operator of self-storage facilities in the United States.
The facilities are located in or near major metropolitan areas, operate under
the Storage USA-Registered Trademark- name, and offer low-cost, easily
accessible and enclosed storage space for personal and business use. Average
physical and economic occupancy for the facilities owned by the Partnership at
September 30, 1996, were 89% and 83%, respectively. Average weighted annual rent
per square foot for these facilities was $9.46.
The Partnership is a fully integrated organization that has expertise in
acquisition, development, construction and management of self-storage facilities
and has approximately 840 employees. Its sole general partner is Storage USA,
Inc. (the "Company"), which is a publicly-held, self-managed and self-advised
real estate investment trust ("REIT"). The Company conducts all of its
activities through the Partnership and its subsidiaries, and at September 30,
1996, it owned a 95% interest in the Partnership.
The Partnership's primary business objectives are to increase its cash flow
from operations and the value of the Partnership's facilities. The Partnership
plans to achieve these objectives through the strategies discussed below,
including improving the operations of its facilities and selectively expanding
its portfolio of facilities through acquisition and development. The Partnership
believes that it is distinguishable from most of its competitors by its access
to capital markets, the management information systems it has developed, the
skilled personnel it has gathered and trained for managing self-storage
facilities, and its expertise in acquiring and developing self-storage
facilities in diverse locales with potential for increased occupancy and rental
rates.
SELF-STORAGE FACILITIES
The Partnership's self-storage facilities offer customers fully-enclosed
units, which are for their exclusive use and to which they control access by
furnishing their own locks. The facilities generally contain 400 to 1,000 units
varying in size from 25 to 400 square feet. The majority of the Partnership's
tenants are individuals, ranging from high-income homeowners to college
students, who typically store furniture, appliances and other household and
personal items. Commercial users range from sales representatives and
distributors storing inventory to small businesses that typically store
equipment, records and seasonal items. The facilities generally have a diverse
tenant base of 500-600 tenants, with no single tenant occupying more than one to
two percent of the net rentable square feet of a facility.
The Partnership's self-storage facilities are located near major business
and residential areas, and generally are clearly visible and easily accessible
from major traffic arteries. They generally are protected by computer-controlled
access gates, door alarm systems and video cameras. These facilities typically
are constructed of one-story masonry or tilt-up concrete walls, with an
individual roll-up door for each storage space and with removable steel interior
walls to permit reconfiguration and to protect items from damage. Sites have
wide drive aisles to accommodate most vehicles. The Partnership's facilities are
designed to be aesthetically pleasing, are kept clean and in good repair by
friendly, trained managers, and are open for service during hours and on days
convenient to tenants and prospective tenants. At most of the facilities, a
property manager lives in an apartment located on site. Climate-controlled space
S-3
<PAGE>
is offered in many of the facilities for storing items that are sensitive to
extreme humidity or temperature. Some of the facilities provide paved secure
storage areas for recreational vehicles, boats and commercial vehicles. All
facilities offer reception of deliveries for commercial customers.
INTERNAL GROWTH STRATEGY
The Partnership's internal growth strategy is to pursue an active leasing
policy (which includes aggressively marketing available space and renewing
existing leases at higher rents per square foot) and to draw upon management's
industry expertise to satisfy its customers. As a result of its internal growth
strategy, the Partnership has historically received premium rents, while
achieving high occupancy levels and increasing profitability. By implementing
this strategy for the 96 facilities owned by the Partnership since December 31,
1994, the Partnership, for the first six months of 1996, increased revenue and
net operating income by 7.6% and 6.1%, respectively, over revenue and net
operating income achieved by the Partnership in the same period of the prior
year. See "The Partnership -- Internal Growth Strategy."
EXTERNAL GROWTH STRATEGY
The Partnership's external growth strategy is designed to increase the
number of facilities owned by the Partnership either by acquiring suitably
located, under-performing facilities that offer upside potential due to low
occupancy rates or non-premium pricing, or by developing and constructing new
self-storage facilities in favorable markets. In pursuing acquisition
opportunities, the Partnership seeks to add facilities in those metropolitan
areas in which the Partnership operates and selectively to enter new markets
that have desirable characteristics such as a growing population and a
concentration of multifamily dwellings. With respect to its development effort,
the Partnership's current strategy is to develop facilities in those markets in
which it currently operates. The Partnership intends to acquire or develop
facilities that are near residential areas, clearly visible to consumer traffic,
easily accessible for entrance and exit and attractively designed. See "The
Partnership -- External Growth Strategy."
Since the closing of the Company's initial public offering on March 23, 1994
(the "IPO"), the Partnership has purchased 170 self-storage facilities
containing 11.6 million net rentable square feet for an aggregate purchase price
of approximately $563.8 million. The Partnership has also completed construction
of two new facilities and expansions to three facilities, collectively
containing 0.2 million square feet, since the IPO.
CAPITAL STRATEGY
The Partnership and the Company intend to maintain a conservative capital
structure designed to enhance access to capital and to facilitate earnings
growth. Since the IPO, the Company has completed two public follow-on offerings
of its Common Stock raising total net proceeds of $253.4 million. The Company
has most recently completed a private placement of $220.0 million of its Common
Stock with Security Capital U.S. Realty ("USRealty"), an affiliate of Security
Capital Group. This investment was part of a strategic alliance that permits
USRealty to participate in future equity financings by the Company as necessary
to maintain its ownership interest in the Company. See "Recent Developments --
Strategic Alliance with Security Capital U.S. Realty." The Company contributes
the proceeds of sales of its Common Stock to the Partnership in exchange for
additional units of interest in the Partnership ("Units"). In addition, since
the IPO, the Partnership has exchanged 1.2 million Units in consideration for
the acquisition of 23 self-storage facilities valued at $34.5 million.
The Partnership has available $105.0 million in unsecured revolving lines of
credit with a group of commercial banks, under which it had borrowed $66.1
million at September 30, 1996. At September 30, 1996, the Partnership also had
mortgage loans outstanding of $18.0 million that were secured by six properties.
The debt policy of the Company and the Partnership, which is subject to change
at the discretion of the Company's Board of Directors, is to limit total
indebtedness to the lesser of 50% of total assets at cost or that amount that
will sustain a minimum debt service coverage ratio of 3:1. On a pro forma basis,
after giving effect to the completion of the Offering, as of September 30, 1996,
the total indebtedness of the Partnership would have been 15.7% of total assets
at cost and its debt service coverage ratio for the six months ended June 30,
1996, would have been 7.1:1. The Partnership believes
S-4
<PAGE>
that its debt policy, the Company's success in raising equity capital, its
preference for unsecured debt, and its ability to purchase self-storage
facilities in exchange for Units all demonstrate the commitment of the Company
and the Partnership to maintain a conservative but flexible capital structure
that should permit continued access to the capital markets on favorable terms.
RECENT DEVELOPMENTS
STRATEGIC ALLIANCE WITH SECURITY CAPITAL U.S. REALTY
On March 1, 1996, the Company entered into a Stock Purchase Agreement with
USRealty. Under the Stock Purchase Agreement, USRealty invested $60.0 million on
July 8, 1996 and invested $99.0 million on September 30, 1996, to complete its
purchase from the Company of 7,028,754 shares of the Company's Common Stock for
an aggregate direct investment of $220.0 million. USRealty has purchased an
additional 1,239,100 shares of the Company's Common Stock on the open market and
owned a total of 8,267,854 shares, or 33.6%, of the Company's outstanding Common
Stock as of September 30, 1996. The Company's Amended Charter permits USRealty
and its affiliates to own up to 37.5% of the Company's Common Stock. Pursuant to
the terms of a Strategic Alliance Agreement entered into by the Company with
USRealty in connection with the Stock Purchase Agreement, effective November 4,
1996, USRealty will place two of its nominees on the Company's Board of
Directors, William D. Sanders, Chairman of the Board and Chief Executive Officer
of Security Capital Group, and J. Marshall Peck, Managing Director of Security
Capital Investment Research Incorporated. USRealty's investment in the Company
is subject to additional terms and limitations under the Strategic Alliance
Agreement and a Registration Rights Agreement.
The Partnership believes that the alliance with USRealty has provided it
with access to significant additional financial and strategic resources not
otherwise readily available to it, thereby enhancing its short-term and
long-term growth prospects and better positioning it to capitalize on
opportunities as the REIT industry matures. The Partnership also expects that it
will benefit significantly from its affiliation with USRealty and access to
USRealty's market knowledge, operating experience and research capabilities.
OTHER DEVELOPMENTS
In the third quarter of 1996, the Partnership acquired 22 facilities located
in 11 states and containing 1.5 million net rentable square feet for an
aggregate purchase price of approximately $80 million. At September 30, 1996,
the Partnership had contracted to acquire 8 additional facilities totaling 0.5
million net rentable square feet, and has under construction or in development
1.3 million net rentable square feet contained in 15 new facilities and in
expansions to 15 existing facilities.
S-5
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The Partnership's consolidated operating and other data is presented on an
historical basis for the six months ended June 30, 1996 and 1995, for the year
ended December 31, 1995, and for the period from the IPO through December 31,
1994, and on a pro forma basis for the six months ended June 30, 1996, and the
year ended December 31, 1995. The Partnership's consolidated balance sheet data
is presented as of June 30, 1996, and on a pro forma basis as of June 30, 1996.
Pro forma operating and other data is presented as if the following transactions
had been completed on January 1, 1995: (i) the Offering and the application of
the net proceeds therefrom as described in "Use of Proceeds," (ii) the
acquisition of 119 facilities acquired subsequent to January 1, 1995; (iii) the
sale of $220.0 million of Common Stock to USRealty; and (iv) the sale of $107.6
million of Common Stock in a public offering on June 7, 1995. Pro forma balance
sheet data is presented as if the Offering had been completed on June 30, 1996,
and the net proceeds therefrom had been used as described in "Use of Proceeds"
and as if the acquisition of the 22 facilities acquired in the third quarter of
1996 and the sale of $159.0 million of Common Stock to USRealty in the third
quarter of 1996 also had been completed on June 30, 1996.
The summary financial and operating data should be read in conjunction with
the consolidated financial statements of the Partnership, "SUSA Partnership,
L.P. Pro Forma Financial Information" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included herein and included
or incorporated by reference in the accompanying Prospectus.
SUSA PARTNERSHIP, L.P.
SUMMARY FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31, 1995
----------------------------------- --------------------------
PRO FORMA ACTUAL ACTUAL UNAUDITED
1996(1) 1996 1995 PRO FORMA(1) ACTUAL
----------- ---------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Rental income....................................... $ 56,303 $ 44,590 $ 27,806 $ 109,533 $ 66,455
Management income................................... 286 446 443 584 1,072
Other income........................................ 783 654 347 1,407 480
----------- ---------- ---------- -------------- ----------
Total revenues...................................... $ 57,372 $ 45,690 $ 28,596 $ 111,524 $ 68,007
----------- ---------- ---------- -------------- ----------
Property operations and maintenance............... $ 14,820 $ 12,113 $ 7,911 $ 28,299 $ 18,471
Real estate taxes................................. 4,747 3,744 1,900 9,173 4,900
General and administrative........................ 2,149 1,749 1,109 4,346 2,568
Depreciation and amortization..................... 7,057 5,433 3,404 13,281 8,586
----------- ---------- ---------- -------------- ----------
Total expenses...................................... $ 28,773 $ 23,039 $ 14,324 $ 55,099 $ 34,525
----------- ---------- ---------- -------------- ----------
Other Income (Expense)
Interest expense.................................. $ (4,572) $ (3,223) $ (1,220) $ (10,246) $ (3,004)
Interest income................................... 1,248 330 37 2,472 166
----------- ---------- ---------- -------------- ----------
Income before minority interest................... $ 25,275 $ 19,758 $ 13,089 $ 48,651 $ 30,644
Minority interest................................. (41) (127) (107) (52) (224)
----------- ---------- ---------- -------------- ----------
Net income........................................ $ 25,234 $ 19,631 $ 12,982 $ 48,599 $ 30,420
----------- ---------- ---------- -------------- ----------
----------- ---------- ---------- -------------- ----------
<CAPTION>
MARCH 24, 1994
TO DECEMBER 31,
1994
-----------------
<S> <C>
OPERATING DATA:
Rental income....................................... $ 24,667
Management income................................... 707
Other income........................................ 460
--------
Total revenues...................................... $ 25,834
--------
Property operations and maintenance............... $ 6,851
Real estate taxes................................. 1,686
General and administrative........................ 1,374
Depreciation and amortization..................... 2,882
--------
Total expenses...................................... $ 12,793
--------
Other Income (Expense)
Interest expense.................................. $ (1,404)
Interest income................................... 658
--------
Income before minority interest................... $ 12,295
Minority interest................................. (158)
--------
Net income........................................ $ 12,137
--------
--------
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
AS OF JUNE 30, 1996
---------------------------
PRO FORMA(1) ACTUAL
-------------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Investment in storage facilities, at cost........................................................... $ 727,949 $ 642,650
Total assets........................................................................................ 752,870 634,041
Total liabilities................................................................................... 139,277 182,272
Partners' capital................................................................................... 613,593 451,769
</TABLE>
S-6
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31, 1995
---------------------------------------- ----------------------------
PRO FORMA ACTUAL ACTUAL UNAUDITED
1996(1) 1996 1995 PRO FORMA(1) ACTUAL
------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
FFO(2)...................................... $ 32,045 $ 24,818 $ 16,270 $ 60,987 $ 39,006
Cash flow provided by (used in)(3):
Operating activities...................... 28,819 23,302 15,888 60,477 37,775
Investing activities...................... (190,340) (112,305) (118,620) (407,505) (217,168)
Financing activities...................... 201,049 89,484 102,763 391,312 178,917
EBIDA(4).................................... 36,904 28,414 17,713 72,178 42,234
Ratio of earnings to fixed charges(5)....... 5.76 5.97 9.84 5.04 7.73
Ratio of funds from operations before fixed
charges to fixed charges(6)................ 7.04 7.28 12.09 6.01 9.46
Number of facilities at end of period....... 215 193 132 215 159
Occupancy rate at end of period............. 89% 90% 88%
<CAPTION>
MARCH 24, 1994
TO DECEMBER 31,
1994
-----------------
<S> <C>
OTHER DATA:
FFO(2)...................................... $ 15,019
Cash flow provided by (used in)(3):
Operating activities...................... 17,828
Investing activities...................... (264,888)
Financing activities...................... 250,338
EBIDA(4).................................... 16,581
Ratio of earnings to fixed charges(5)....... 9.16
Ratio of funds from operations before fixed
charges to fixed charges(6)................ 11.33
Number of facilities at end of period....... 96
Occupancy rate at end of period............. 87%
</TABLE>
- ----------------
(1) See "SUSA Partnership, L.P. Pro Forma Financial Information."
(2) Funds from Operations ("FFO") means net income, computed in accordance with
generally accepted accounting principles ("GAAP"), excluding gains (losses)
from debt restructuring and sales of property, plus depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. Management generally considers FFO to be a useful financial
performance measurement of an equity REIT because, together with net income
and cash flows, FFO provides investors with an additional basis to evaluate
the ability of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. FFO does not represent net income or cash flows
from operating, investing or financing activities as defined by GAAP. It
should not be considered as an alternative to net income as an indicator of
the Partnership's operating performance or to cash flows as a measure of
liquidity. FFO does not measure whether cash flow is sufficient to fund all
cash needs including principal amortization, capital improvements and
distributions to shareholders. Further, funds from operations statistics as
disclosed by other REITs may not be comparable to the Partnership's
calculation of FFO.
(3) Reflects the Partnership's cash flows and pro forma cash flows from
operating, investing and financing activities. Pro forma cash flows from
operating activities represents net income plus income allocable to minority
interest, depreciation of self-storage facilities and amortization of
deferred expenses, line of credit fees and the cost of an interest rate
"lock." There are no pro forma adjustments for changes in working capital
items. Pro forma cash used in investing activities reflects the acquisition
of the 119 facilities acquired during 1995 and 1996 for an aggregate
purchase price of $423 million. Pro forma cash used in financing activities
includes the receipt of $220 million in proceeds from USRealty's purchase of
7,028,754 shares of Common Stock of the Company, the receipt of $107.6
million in proceeds from the public offering of Common Stock completed on
June 7, 1995, and the repayment of $147 million outstanding under the
Partnership's credit facilities. This unaudited pro forma cash flow data is
not necessarily indicative of what actual cash flows would have been
assuming the transactions had been completed as of the beginning of each of
the periods presented, nor does it purport to represent cash flows from
operating, investing and financing activities for future periods.
(4) EBIDA means earnings before interest expense, depreciation, amortization and
minority interest. EBIDA is computed as income from operations before
minority interest and extraordinary items plus interest expense,
depreciation and amortization. The Partnership believes that in addition to
cash flows and net income, EBIDA is a useful financial performance
measurement for assessing the operating performance of an equity REIT
because, together with net income and cash flows, EBIDA provides investors
with an additional basis to evaluate the ability of a REIT to incur and
service debt and to fund acquisitions and other capital expenditures. To
evaluate EBIDA and the trends it depicts, the components of EBIDA, such as
rental revenues, rental expenses, real estate taxes and general and
administrative expenses, should be considered. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
herein and included or incorporated by reference in the accompanying
Prospectus. Excluded from EBIDA are financing costs such as interest as well
as depreciation and amortization, each of which can significantly affect a
REIT's results of operations and liquidity and should be considered in
evaluating a REIT's operating performance. Further, EBIDA does not represent
net income or cash flows from operating, financing and investing activities
as defined by GAAP and does not necessarily indicate that cash flows will be
sufficient to fund cash needs. It should not be considered as an alternative
to net income as an indicator of the Partnership's operating performance or
to cash flows as a measure of liquidity.
(5) The ratio of earnings to fixed charges is computed as income from operations
before extraordinary items plus fixed charges (excluding capitalized
interest) divided by fixed charges. Fixed charges consist of interest costs
including amortization of debt discount and deferred financing fees, whether
capitalized or expensed and the interest component of rental expense.
(6) The ratio of FFO before fixed charges to fixed charges is calculated as FFO
plus fixed charges (consisting primarily of interest expense), excluding
amortization of debt discount and deferred financing fees divided by fixed
charges. The Partnership believes that in addition to the ratio of earnings
to fixed charges, this ratio provides a useful measure of a REIT's ability
to service its debt because of the exclusion of non-cash items such as
depreciation and amortization from the definition of FFO. This ratio differs
from a GAAP-based ratio of earnings to fixed charges and should not be
considered as an alternative to that ratio. Further, funds from operations
statistics as disclosed by other REITs may not be comparable to the
Partnership's calculation of FFO.
S-7
<PAGE>
THE OFFERING
FOR A MORE COMPLETE DESCRIPTION OF THE TERMS OF THE NOTES SPECIFIED IN THE
FOLLOWING SUMMARY, INCLUDING DEFINITIONS OF CAPITALIZED TERMS NOT OTHERWISE
FOUND, SEE "DESCRIPTION OF NOTES" IN THIS PROSPECTUS SUPPLEMENT AND "DESCRIPTION
OF DEBT SECURITIES" IN THE ACCOMPANYING PROSPECTUS.
<TABLE>
<S> <C>
SECURITIES OFFERED........... $100,000,000 aggregate principal amount of Notes.
MATURITY..................... The Notes mature on November 15, 2003.
INTEREST PAYMENT DATES....... Interest on the Notes is payable semi-annually on May 15 and
November 15 of each year, commencing May 15, 1997.
OPTIONAL REDEMPTION.......... The Notes are redeemable at any time at the option of the
Partnership, in whole or in part, at a redemption price
equal to the sum of (i) the principal amount of the Notes
being redeemed plus accrued interest to the redemption date
and (ii) the Make-Whole Amount, if any. See "Description of
Notes -- Optional Redemption."
RANKING...................... The Notes are unsecured obligations of the Partnership and
will rank PARI PASSU with each other and with all other
unsecured and unsubordinated indebtedness of the Partnership
and will be effectively subordinated to all secured debt of
the Partnership. As of September 30, 1996, the Partnership
had outstanding $66.1 million of unsecured, unsubordinated
indebtedness and $18.0 million of secured indebtedness. On a
pro forma basis as of September 30, 1996, after giving
effect to the completion of the Offering and application of
the net proceeds from the Offering as described in "Use of
Proceeds," the Partnership would have had outstanding $100.0
million of unsecured, unsubordinated indebtedness, $18.0
million of secured indebtedness and $735.6 million in
unencumbered assets.
USE OF PROCEEDS.............. The net proceeds to the Partnership from the Offering will
be used to repay outstanding debt incurred in connection
with the acquisition of self-storage facilities and for
general corporate purposes. See "Use of Proceeds."
LIMITATIONS ON INCURRENCE OF
INDEBTEDNESS................ The Notes contain various covenants, including the
following:
(1) The Partnership will not incur any Indebtedness, if,
after giving effect thereto, the aggregate principal amount
of all outstanding Indebtedness of the Partnership is
greater than 60% of the sum of (i) Total Assets as of the
end of the Partnership's fiscal quarter ended immediately
prior to the incurrence of such Indebtedness and (ii) the
increase in Total Assets since the end of such quarter,
including any increase in Total Assets resulting from the
incurrence of such additional Indebtedness (such increase,
together with the Total Assets, is referred to as "Adjusted
Total Assets"). On a pro forma basis, after giving effect to
the application of the net proceeds from the Offering, as
described in "Use of Proceeds," such percentage would have
been 15.7% of Adjusted Total Assets as of September 30,
1996.
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
(2) The Partnership will not incur any Secured Indebtedness
if, after giving effect thereto, the aggregate amount of all
outstanding Secured Indebtedness is greater than 40% of the
Partnership's Adusted Total Assets. On a pro forma basis,
after giving effect to the application of the net proceeds
from the Offering as described in "Use of Proceeds," such
percentage would have been 2.4% of Adjusted Total Assets as
of September 30, 1996.
(3) The Partnership will not incur any Indebtedness if the
Consolidated Income Available for Debt Service for the four
consecutive fiscal quarters most recently ended prior to the
date of the incurrence of such Indebtedness, on a pro forma
basis, would be less than 1.5 times the Annual Service
Charge on all Indebtedness outstanding immediately after the
incurrence of such additional Indebtedness.
(4) The Partnership will maintain Total Unencumbered Assets
of not less than 150% of the aggregate outstanding principal
amount of Unsecured Indebtedness. After giving effect to the
application of the net proceeds from the Offering as
described in "Use of Proceeds," Total Unencumbered Assets
would have been 735.5% of the aggregate outstanding
principal amount of Unsecured Indebtedness as of September
30, 1996.
NYSE LISTING................. Application has been made to list the Notes on the New York
Stock Exchange under the symbol "SUS 03." See
"Underwriting."
</TABLE>
S-9
<PAGE>
THE PARTNERSHIP
The Partnership is engaged in the business of owning, managing, acquiring,
developing and franchising self-storage facilities. At September 30, 1996, the
Partnership owned 215 facilities containing 14.5 million net rentable square
feet in 29 states and the District of Columbia and managed for others 19
facilities containing an additional 1.1 million net rentable square feet, making
it the fourth largest operator of self-storage facilities in the United States.
The facilities are located in or near major metropolitan areas, operate under
the Storage USA-Registered Trademark- name, and offer low-cost, easily
accessible and enclosed storage space for personal and business use. Average
physical and economic occupancy for the facilities owned by the Partnership at
September 30, 1996, were 89% and 83%, respectively. Physical occupancy is
computed by dividing the total net rentable square feet occupied as of the date
computed by the total net rentable square feet for the facilities in a
particular location. Economic occupancy is computed by dividing the expected
income by the gross potential income. Gross potential income is defined as the
sum of all units available to rent multiplied by the market rental rate
applicable to those units as of the date computed. Expected income is defined as
the sum of all units rented as of the date computed, multiplied by the rental
rate per the existing leases applicable to those units as of the date computed.
Rent per square foot for the facilities owned by the Partnership at September
30, 1996, was $9.46. Rent per square foot is the annualized result obtained by
dividing gross potential income by total net rentable square feet available on a
given date.
The Partnership is a fully integrated organization that has expertise in
acquisition, development, construction and management of self-storage facilities
and has approximately 840 employees. Its sole general partner is Storage USA,
Inc. (the "Company"), which is a publicly-held, self-managed and self-advised
real estate investment trust ("REIT"). The Company conducts all of its
activities through the Partnership and its subsidiaries, and at September 30,
1996, it owned a 95% interest in the Partnership.
The Partnership's primary business objectives are to increase its cash flow
from operations and the value of the Partnership's facilities. The Partnership
plans to achieve these objectives through the strategies discussed below,
including improving the operations of its facilities and selectively expanding
its portfolio of facilities through acquisition and development. The Partnership
believes that it is distinguishable from most of its competitors by its access
to capital markets, the management information systems it has developed, the
skilled personnel it has gathered and trained for managing self-storage
facilities, and its expertise in acquiring and developing self-storage
facilities in diverse locales with potential for increased occupancy and rental
rates.
SELF-STORAGE FACILITIES
The Partnership's self-storage facilities offer customers fully-enclosed
units, which are for their exclusive use and to which they control access by
furnishing their own locks. The facilities generally contain 400 to 1,000 units
varying in size from 25 to 400 square feet. The majority of the Partnership's
tenants are individuals, ranging from high-income homeowners to college
students, who typically store furniture, appliances and other household and
personal items. Commercial users range from sales representatives and
distributors storing inventory to small businesses that typically store
equipment, records and seasonal items. The facilities generally have a diverse
tenant base of 500-600 tenants, with no single tenant occupying more than one to
two percent of the net rentable square feet of a facility.
The Partnership's self-storage facilities are located near major business
and residential areas, and generally are clearly visible and easily accessible
from major traffic arteries. They are generally protected by computer-controlled
access gates, door alarm systems and video cameras. These facilities are
typically constructed of one-story masonry or tilt-up concrete walls, with an
individual roll-up door for each storage space and with removable steel interior
walls to permit reconfiguration and to protect items from damage. Sites have
wide drive aisles to accommodate most vehicles. The Partnership's facilities are
designed to be aesthetically pleasing, are kept clean and in good repair by
friendly, trained managers, and are open for service during hours and on days
convenient to tenants and prospective tenants. At most of the facilities, a
property manager lives in an apartment located on site. Climate-controlled
S-10
<PAGE>
space is offered in many of the facilities for storing items that are sensitive
to extreme humidity or temperature. Some of the facilities provide paved secure
storage areas for recreational vehicles, boats and commercial vehicles. All
facilities offer reception of deliveries for commercial customers.
The following table sets forth the location, total rentable square footage
and the physical and economic occupancy rates of the Partnership's self-storage
facilities as of September 30, 1996.
<TABLE>
<CAPTION>
RENTABLE
NUMBER OF RENTABLE SQUARE PHYSICAL RENT PER ECONOMIC
MARKET FACILITIES UNITS FEET OCCUPANCY SQUARE FOOT OCCUPANCY
- ----------------------------------------- --------------- --------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alabama, Birmingham...................... 1 614 74,262 93.68% $ 7.81 90.90%
Atlanta area............................. 6 3,321 377,912 91.99 7.82 86.69
Arizona.................................. 10 5,833 549,068 91.61 8.65 85.73
Baltimore/Washington D.C. area........... 17 12,736 1,156,264 88.21 14.30 79.93
California, Northern..................... 15 10,166 909,883 96.49 11.29 90.96
California, Southern..................... 35 26,338 2,653,132 83.75 8.74 77.31
Chicago.................................. 3 2,293 235,910 95.85 9.86 95.99
Dallas/Ft. Worth area.................... 10 7,568 861,243 90.40 7.23 84.19
Detroit.................................. 2 1,008 110,000 98.68 8.52 97.47
Florida, Central......................... 6 3,771 447,146 89.13 8.99 82.69
Florida, Southern........................ 21 18,987 1,641,573 87.04 11.73 80.84
Kansas City area......................... 6 2,653 305,675 95.38 7.76 90.52
Louisiana................................ 1 669 68,622 94.78 10.21 89.83
Las Vegas................................ 7 4,166 492,001 88.88 8.05 81.18
New England.............................. 19 11,145 1,310,044 91.30 9.24 86.00
New Mexico, Albuquerque.................. 10 5,128 503,142 79.27 8.14 69.39
North Carolina........................... 3 1,952 193,516 95.78 7.52 90.28
Oklahoma, Oklahoma City.................. 9 4,272 495,945 91.68 5.22 85.97
Oklahoma, Tulsa.......................... 5 2,721 301,926 84.38 6.55 78.91
Philadelphia area........................ 12 6,909 711,371 93.45 10.86 89.11
Portland area............................ 4 2,756 265,415 94.71 9.10 89.90
South Carolina........................... 2 1,143 121,549 91.73 6.45 80.77
Salt Lake City........................... 3 1,581 196,585 84.69 7.01 78.37
Tennessee................................ 8 4,961 548,205 90.40 8.91 81.67
--- --------- -------------
--- --------- -------------
Total/Average........................ 215 142,691 14,530,389 89.15% $ 9.46 82.94%
--- --------- -------------
--- --------- -------------
</TABLE>
INTERNAL GROWTH STRATEGY
The Partnership's internal growth strategy is to pursue an active leasing
policy (which includes aggressively marketing available space and renewing
existing leases at higher rents per square foot) and to draw upon management's
industry expertise to satisfy its customers. As a result of its internal growth
strategy, the Partnership has historically received premium rents, while
achieving high occupancy levels and increasing profitability. By implementing
this strategy for the 96 facilities owned by the Partnership since December 31,
1994, the Partnership, for the first six months of 1996, increased revenue and
net operating income by 7.6% and 6.1%, respectively, over revenue and net
operating income achieved by the Partnership in the same period of the prior
year.
-AGGRESSIVE LEASING -- The Partnership seeks to increase its revenues by
increasing and maintaining the occupancy in its facilities through the use
of sales and marketing programs that are customized for each location by
facility managers who have substantial authority and effective incentives.
The facility managers are trained to market both phone-in and walk-in
prospective tenants. Emphasis is placed on conversion from the initial
telephone call to an on-site visit and from the on-site visit to a rental.
S-11
<PAGE>
-REGULARLY SCHEDULED RENT INCREASES -- The Partnership has historically
increased rents in all of its facilities at least once a year regardless of
the occupancy level. As a facility nears 100% occupancy, the Partnership
typically increases rents more frequently.
-GUARANTEED CUSTOMER SATISFACTION -- The Partnership requires its employees
to be customer satisfaction-oriented. In the Partnership's "Total Storage
Satisfaction Guaranteed" program, the facility managers have authority to
resolve most customer problems through rent rebates or cash reimbursements
without obtaining prior approval from Partnership management.
-TRAINED FACILITY MANAGERS -- The Partnership carefully selects and
thoroughly trains managers of its self-storage facilities. To hire
outgoing, personable, sales-oriented people capable of implementing these
programs, the Partnership uses personality profiles and personal interviews
to screen applicants during the recruiting process. Training programs
feature facility operations and marketing manuals, sales and marketing
programs, telephone communication, and computer and daily facility
operations (unit rental, retail sales, facility maintenance, security
systems and financial duties). The Partnership's formal training programs
are followed by on-the-job training (supervised by a regional manager) and
a three-step, self-administered certification program. The Partnership
conducts monthly telephone surveys in which "mystery shoppers" hired by the
Partnership call each facility posing as prospective customers. These
telephone calls are recorded and graded by management for policy compliance
and sales skills.
-INTEGRATED MANAGEMENT INFORMATION SYSTEMS -- To maintain appropriate
controls and enhance operational efficiencies, the Partnership has
installed at each facility computer systems with comprehensive facilities
management software. Weekly operating results are transmitted
electronically from each of these facilities to the Partnership's
headquarters. These systems allow the Partnership to monitor closely
manager performance and market response to the Partnership's rental
structure.
EXTERNAL GROWTH STRATEGY
The Partnership's external growth strategy is designed to increase the
number of facilities owned by the Partnership either by acquiring suitably
located, under-performing facilities that offer upside potential due to low
occupancy rates or non-premium pricing, or by developing and constructing new
self-storage facilities in favorable markets. In pursuing acquisition
opportunities, the Partnership seeks to add facilities in those metropolitan
areas in which the Partnership operates and selectively to enter new markets
that have desirable characteristics such as a growing population and a
concentration of multifamily dwellings. With respect to its development effort,
the Partnership's current strategy is to develop facilities in those markets in
which it currently operates. The Partnership intends to acquire or develop
facilities that are near residential areas, clearly visible to consumer traffic,
easily accessible for entrance and exit and attractively designed.
ACQUISITIONS
Since the IPO, the Partnership has purchased 170 self-storage facilities
containing 11.6 million net rentable square feet for an aggregate purchase price
of approximately $563.8 million. Management believes that there are several
factors that favor its acquisition policy:
-FRAGMENTED INDUSTRY OWNERSHIP -- The Partnership believes that there are
approximately 25,000 self-storage facilities in the United States with
approximately 906 million net rentable square feet. At September 30, 1996,
the 10 largest operators of self-storage facilities managed approximately
2,900 or 12% of all facilities. Management believes this fragmented
ownership offers opportunities for acquisitions, including opportunities
resulting from the necessity of sale by some smaller operators who cannot
obtain refinancing, the desire of some smaller operators to sell their
facilities to obtain retirement funds or to seek alternative investments,
and the inability of other smaller operators to obtain funds with which to
compete for acquisitions as timely and inexpensively as the Partnership.
S-12
<PAGE>
-OPERATING EFFICIENCIES -- The Partnership believes that a significant
percentage of self-storage properties are owned by smaller operators which
historically have been operated less efficiently than the Partnership's
facilities. Management believes it has developed an expertise in improving
the performance of such properties.
-DEMAND FOR TAX DEFERRAL -- In several of its acquisitions, the Partnership
has financed a portion of the sales price through the issuance of Units,
permitting the sellers to at least partially defer taxation of capital
gains. The Partnership believes that its ability to offer Units as a form
of consideration is a key element in its ability to successfully negotiate
with sellers of self-storage facilities. Since the IPO, the Partnership has
exchanged 1.2 million Units valued at $34.5 million in consideration for
the acquisition of 23 self-storage facilities.
-PROPERTY ASSIMILATION -- The Partnership's integrated management
information systems allow it to quickly and efficiently assimilate its
acquisition targets. All of the Partnership's facilities are electronically
linked to a central computer system, which allows management to control an
increased number of facilities with minimal additional human resources.
Management expects the data systems, together with its track record of
managing or developing facilities in new areas of the country, to assist in
integrating future facilities into the Partnership. Commonly, the
Partnership is able to retrain existing managers of acquired facilities and
rapidly realize operating improvements.
DEVELOPMENT
Management believes that there are factors that favor its facilities
development strategy. These factors include:
-DEVELOPMENT EXPERTISE -- The Partnership has recently taken advantage of
its in-house development capability to selectively develop new facilities
in areas where suitable acquisitions may not be available. The development
activities consist primarily of additions to existing facilities and
construction of new facilities. Since 1985, the Partnership and predecessor
organizations have developed and constructed 21 facilities, 15 of which the
Partnership owns. At September 30, 1996, the Partnership had under
construction or in development approximately 1.3 million net rentable
square feet contained in 15 new facilities and in expansions to 15 existing
facilities.
-DEVELOPMENT CAPITAL -- The Partnership has a proven ability to access
various forms of capital that differentiates it from most competitors,
particularly since capital for the construction of new self-storage
facilities (traditionally funded by savings and loan associations) has been
less available in recent years.
CAPITAL STRATEGY
The Partnership and the Company intend to maintain a conservative capital
structure designed to enhance access to capital and to facilitate earnings
growth. Since the IPO, the Company has completed two public follow-on offerings
of its Common Stock raising total net proceeds of $253.4 million. The Company
has most recently completed a private placement of $220.0 million of its Common
Stock with USRealty, an affiliate of Security Capital Group. This investment was
part of a strategic alliance that permits USRealty to participate in future
equity financings by the Company as necessary to maintain its ownership interest
in the Company. The Company contributes the proceeds of sales of its Common
Stock to the Partnership in exchange for additional Units. In addition, since
the IPO, the Partnership has exchanged 1.2 million Units in consideration for
the acquisition of 23 self-storage facilities valued at $34.5 million.
The Partnership has available $105.0 million in unsecured revolving lines of
credit with a group of commercial banks, under which it had borrowed $66.1
million as of September 30, 1996. At September 30, 1996, the Partnership also
had mortgage loans outstanding of $18.0 million that were secured by six
properties. The policy of the Company and the Partnership, which is subject to
change at the discretion of the Company's Board of Directors, is to limit total
indebtedness to the lesser of 50% of total assets at cost or that amount that
will sustain a minimum debt service coverage ratio of 3:1. On a pro
S-13
<PAGE>
forma basis, after giving effect to the completion of the Offering, as of
September 30, 1996, the total indebtedness of the Partnership would have been
15.7% of total assets at cost and its debt service coverage ratio for the six
months ended June 30, 1996, would have been 7.1:1. The Partnership believes that
this policy, the Company's success in raising equity capital, its preference for
unsecured debt and its ability to purchase self-storage facilities in exchange
for Units all demonstrate the commitment of the Partnership to maintain a
conservative but flexible capital structure that will permit continued access to
the capital markets on favorable terms.
STRATEGIC ALLIANCE WITH SECURITY CAPITAL U.S. REALTY
On March 1, 1996, the Company entered into a Stock Purchase Agreement with
USRealty. Under the Stock Purchase Agreement, USRealty invested $60.0 million on
July 8, 1996 and invested $99.0 million on September 30, 1996, to complete its
purchase from the Company of 7,028,754 shares of the Company's Common Stock for
an aggregate direct investment of $220.0 million. USRealty has purchased an
additional 1,239,100 shares of the Company's Common Stock on the open market and
owned a total of 8,267,854 shares, or 33.6%, of the Company's outstanding Common
Stock as of September 30, 1996. The Company's Amended Charter permits USRealty
and its affiliates to own up to 37.5% of the Company's Common Stock. Pursuant to
the terms of a Strategic Alliance Agreement entered into by the Company with
USRealty in connection with the Stock Purchase Agreement, effective November 4,
1996, USRealty will place two of its nominees on the Company's Board of
Directors, William D. Sanders, Chairman of the Board and Chief Executive Officer
of Security Capital Group, and J. Marshall Peck, Managing Director of Security
Capital Investment Research Incorporated. USRealty's investment in the Company
is subject to additional limitations and terms under the Strategic Alliance
Agreement and a Registration Rights Agreement.
The Partnership believes that the alliance with USRealty has provided it
with access to significant additional financial and strategic resources not
otherwise readily available to it, thereby enhancing its short-term and
long-term growth prospects and better positioning it to capitalize on
opportunities as the REIT industry matures. The Partnership also expects that it
will benefit significantly from its affiliation with USRealty and access to
USRealty's market knowledge, operating experience and research capabilities.
OTHER DEVELOPMENTS
In June 1996, the Partnership formed Storage USA Franchise Corp. ("Franchise
Corp."), in which the Partnership has a 97.5% interest. Franchise Corp. offers
the Partnership's systems, expertise and a registered trademark to third parties
under a franchise program that the Partnership believes to be unique in the
self-storage industry. The Partnership formed Franchise Corp. to be a
non-capital intensive revenue source and does not anticipate that the franchise
program will have a material impact on its operating results in the near term.
S-14
<PAGE>
MANAGEMENT
The Partnership is managed by its sole general partner, the Company. The
Company's Board of Directors consists of seven members, five of whom are
independent directors. Certain information regarding the directors and executive
officers of the Company and Franchise Corp. is set forth below.
<TABLE>
<CAPTION>
TERM
NAME AGE POSITIONS AND OFFICES HELD EXPIRES
- ------------------------------------- --- ------------------------------------- -----------
<S> <C> <C> <C>
Dean Jernigan........................ 51 Chairman of the Board of Directors 1997
and Chief Executive Officer
Thomas E. Robinson................... 49 President, Chief Financial Officer 1999
and Director
Douglas Chamberlain.................. 49 Executive Vice President, --
Construction
Karl Haas............................ 45 Executive Vice President, Management --
Morris J. Kriger..................... 58 Executive Vice President, --
Acquisitions
Jesse B. Morgan...................... 47 Executive Vice President, Development --
Carol Shipley........................ 39 Senior Vice President, Management --
Richard B. Stern..................... 45 Senior Vice President, Development --
Christopher P. Marr.................. 31 Vice President, Financial Reporting, --
Controller
David M. Levenfeld................... 39 Vice President, Development --
James G. Williams.................... 31 Vice President, Acquisitions --
John R. Erickson..................... 36 President, Storage USA Franchise --
Corp.
Howard P. Colhoun.................... 60 Director (1): General Partner, 1998
Emerging Growth Partners
Mark Jorgensen....................... 55 Director (1): Consultant to pension 1999
fund industry
John P. McCann....................... 50 Director (1): President, Chief 1997
Executive Officer and Director,
United Dominion Realty Trust, Inc.
Dennis A. Reeve...................... 47 Director (1): President, Sparks 1998
Capital Corporation
Harry J. Thie........................ 53 Director (1): Senior Researcher, Rand 1999
Corporation
</TABLE>
- --------------
(1) Independent director.
As part of the strategic alliance with USRealty, the Company's Board of
Directors will elect William D. Sanders, Chairman of the Board and Chief
Executive Officer of Security Capital Group, and J. Marshall Peck, Managing
Director of Security Capital Investment Research Incorporated, to the Board of
Directors at the Board's meeting scheduled for November 4, 1996. Following their
election, the Board of Directors will consist of nine members, five of whom will
be independent directors.
S-15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Partnership from the sale of the Notes offered
hereby are expected to be approximately $ million. The Partnership will use
$66.5 million of the net proceeds from the Offering to retire debt incurred to
finance the acquisition of self-storage facilities under certain revolving
credit facilities with a current weighted average effective annual interest rate
of 6.8%. The remaining $
million will be used for general corporate purposes. Pending such uses, the net
proceeds will be invested in short-term marketable securities. An affiliate of
First Chicago Capital Markets, Inc., one of the Underwriters, is lender and
agent under the $75 million line of credit and will receive a portion of the
proceeds from the sale of the Notes offered hereby. See "Underwriting."
CAPITALIZATION
The following table sets forth the capitalization of the Partnership as of
June 30, 1996, and as adjusted to give effect to the Offering and application of
the net proceeds therefrom as described in "Use of Proceeds," the sale of $159.0
million of Common Stock to USRealty in the third quarter of 1996 and the
application of the proceeds therefrom to retire $85.0 million of indebtedness
under the Partnership's revolving and term credit facilities and certain other
adjustments. The capitalization table should be read in conjunction with the
consolidated financial statements of the Partnership included or incorporated by
reference in the accompanying Prospectus.
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1996
-----------------------
ACTUAL AS ADJUSTED
--------- ------------
<S> <C> <C>
(IN THOUSANDS)
Debt:
$75 million line of credit....................................... $ 75,000 $ --
$30 million line of credit....................................... 22,435 --
Term note(1)..................................................... 50,000 --
Mortgage notes payable........................................... 13,604 18,044
% Notes due 2003.............................................. -- 100,000
--------- ------------
Total debt................................................... $ 161,039 $ 118,044
--------- ------------
Minority interest.................................................. $ 427 $ 427
Partners' equity................................................... 451,769 613,593
--------- ------------
Total capitalization......................................... $ 613,235 $ 732,064
--------- ------------
--------- ------------
</TABLE>
- --------------
(1) The term note was repaid in full on September 30, 1996, with a portion of
the proceeds from the $99 million USRealty investment on the same date.
S-16
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The Partnership's consolidated operating and other data is presented for the
six months ended June 30, 1996 and 1995, for the year ended December 31, 1995,
and for the period from March 24, 1994, through December 31, 1994, and on a pro
forma basis for the six months ended June 30, 1996, and the year ended December
31, 1995. The Partnership's consolidated balance sheet data is presented on an
historical basis as of June 30, 1996, and on a pro forma basis as of June 30,
1996. Pro forma operating and other data is presented as if the following
transactions had been completed on January 1, 1995: (i) the Offering and the
application of the net proceeds therefrom as described in "Use of Proceeds;"
(ii) the acquisition of 119 facilities acquired subsequent to January 1, 1995;
(iii) the sale of $220.0 million of Common Stock to USRealty; and (iv) the sale
of $107.6 million of Common Stock in a public offering on June 7, 1995. Pro
forma balance sheet data is presented as if the Offering had been completed on
June 30, 1996, and the net proceeds therefrom had been used as described in "Use
of Proceeds" and as if the acquisition of the 22 facilities acquired in the
third quarter and the sale of $159.0 million of Common Stock to USRealty during
the third quarter of 1996 also had been completed on June 30, 1996.
The summary financial and operating data should be read in conjunction with
the consolidated financial statements of the Partnership and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included herein and included or incorporated by reference in the accompanying
Prospectus.
SUSA PARTNERSHIP, L.P.
SUMMARY FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31, 1995
----------------------------------- -------------------------
PRO FORMA ACTUAL ACTUAL UNAUDITED
1996(1) 1996 1995 PRO FORMA(1) ACTUAL
----------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Rental income......................................... $ 56,303 $ 44,590 $ 27,806 $ 109,533 $ 66,455
Management income..................................... 286 446 443 584 1,072
Other income.......................................... 783 654 347 1,407 480
----------- ---------- ---------- ------------- ----------
Total revenues........................................ $ 57,372 $ 45,690 $ 28,596 $ 111,524 $ 68,007
----------- ---------- ---------- ------------- ----------
Property operations and maintenance................. $ 14,820 $ 12,113 $ 7,911 $ 28,299 $ 18,471
Real estate taxes................................... 4,747 3,744 1,900 9,173 4,900
General and administrative.......................... 2,149 1,749 1,109 4,346 2,568
Depreciation and amortization....................... 7,057 5,433 3,404 13,281 8,586
----------- ---------- ---------- ------------- ----------
Total expenses........................................ $ 28,773 $ 23,039 $ 14,324 $ 55,099 $ 34,525
----------- ---------- ---------- ------------- ----------
Other Income (Expense)
Interest expense.................................... $ (4,572) $ (3,223) $ (1,220) $ (10,246) $ (3,004)
Interest income..................................... 1,248 330 37 2,472 166
----------- ---------- ---------- ------------- ----------
Income before minority interest..................... $ 25,275 $ 19,758 $ 13,089 $ 48,651 $ 30,644
Minority interest................................... (41) (127) (107) (52) (224)
----------- ---------- ---------- ------------- ----------
Net income.......................................... $ 25,234 $ 19,631 $ 12,982 $ 48,599 $ 30,420
----------- ---------- ---------- ------------- ----------
----------- ---------- ---------- ------------- ----------
<CAPTION>
MARCH 24, 1994
TO DECEMBER 31,
1994
----------------
<S> <C>
OPERATING DATA:
Rental income......................................... $ 24,667
Management income..................................... 707
Other income.......................................... 460
--------
Total revenues........................................ $ 25,834
--------
Property operations and maintenance................. $ 6,851
Real estate taxes................................... 1,686
General and administrative.......................... 1,374
Depreciation and amortization....................... 2,882
--------
Total expenses........................................ $ 12,793
--------
Other Income (Expense)
Interest expense.................................... $ (1,404)
Interest income..................................... 658
--------
Income before minority interest..................... $ 12,295
Minority interest................................... (158)
--------
Net income.......................................... $ 12,137
--------
--------
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
--------------------------
<S> <C> <C>
UNAUDITED
PRO FORMA(1) ACTUAL
------------- -----------
BALANCE SHEET DATA:
Investment in storage facilities, at cost............................................................ $ 727,949 $ 642,650
Total assets......................................................................................... 752,870 634,041
Total liabilities.................................................................................... 139,277 182,272
Partners' capital.................................................................................... 613,593 451,769
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31, 1995
---------------------------------------- ---------------------------
PRO FORMA ACTUAL ACTUAL UNAUDITED
1996(1) 1996 1995 PRO FORMA(1) ACTUAL
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
FFO(2).......................................... $ 32,045 $ 24,818 $ 16,270 $ 60,987 $ 39,006
Cash flow provided by (used in)(3):
Operating activities.......................... 28,819 23,302 15,888 60,477 37,775
Investing activities.......................... (190,340) (112,305) (118,620) (407,508) (217,168)
Financing activities.......................... 201,049 89,484 102,763 391,312 178,917
EBIDA(4)........................................ 36,904 28,414 17,713 72,178 42,234
Ratio of earnings to fixed
charges(5)..................................... 5.76 5.97 9.84 5.04 7.73
Ratio of funds from operations before fixed
charges to fixed charges(6).................... 7.04 7.28 12.09 6.01 9.46
Number of facilities at end of period........... 215 193 132 215 159
Occupancy rate at end of period................. 89% 90% 88%
<CAPTION>
MARCH 24, 1994
TO DECEMBER 31,
1994
----------------
<S> <C>
OTHER DATA:
FFO(2).......................................... $ 15,019
Cash flow provided by (used in)(3):
Operating activities.......................... 17,828
Investing activities.......................... (264,888)
Financing activities.......................... 250,338
EBIDA(4)........................................ 16,581
Ratio of earnings to fixed
charges(5)..................................... 9.16
Ratio of funds from operations before fixed
charges to fixed charges(6).................... 11.33
Number of facilities at end of period........... 96
Occupancy rate at end of period................. 87%
</TABLE>
S-17
<PAGE>
- ----------------
(1) See "SUSA Partnership, L.P. Pro Forma Financial Information."
(2) FFO means 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. Management generally considers FFO to be a useful financial
performance measurement of an equity REIT because, together with net income
and cash flows, FFO provides investors with an additional basis to evaluate
the ability of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. FFO does not represent net income or cash flows
from operating, investing or financing activities as defined by GAAP. It
should not be considered as an alternative to net income as an indicator of
the Partnership's operating performance or to cash flows as a measure of
liquidity. FFO does not measure whether cash flow is sufficient to fund all
cash needs including principal amortization, capital improvements and
distributions to shareholders. Further, funds from operations statistics as
disclosed by other REITs may not be comparable to the Partnership's
calculation of FFO.
(3) Reflects the Partnership's cash flows and pro forma cash flows from
operating, investing and financing activities. Pro forma cash flows from
operating activities represents net income plus income allocable to minority
interest, depreciation of self-storage facilities and amortization of
deferred expenses, line of credit fees and the cost of an interest rate
"lock." There are no pro forma adjustments for changes in working capital
items. Pro forma cash used in investing activities reflects the acquisition
of the 119 facilities acquired during 1995 and 1996 for an aggregate
purchase price of $423 million. Pro forma cash used in financing activities
includes the receipt of $220 million in proceeds from USRealty's purchase of
7,028,754 shares of Common Stock of the Company, the receipt of $107.6
million in proceeds from the public offering of Common Stock completed on
June 7, 1995, and the repayment of $147 million outstanding under the
Partnership's credit facilities. This unaudited pro forma cash flow data is
not necessarily indicative of what actual cash flows would have been
assuming the transactions had been completed as of the beginning of each of
the periods presented, nor does it purport to represent cash flows from
operating, investing and financing activities for future periods.
(4) EBIDA means earnings before interest expense, depreciation, amortization and
minority interest. EBIDA is computed as income from operations before
minority interest and extraordinary items plus interest expense,
depreciation and amortization. The Partnership believes that in addition to
cash flows and net income, EBIDA is a useful financial performance
measurement for assessing the operating performance of an equity REIT
because, together with net income and cash flows, EBIDA provides investors
with an additional basis to evaluate the ability of a REIT to incur and
service debt and to fund acquisitions and other capital expenditures. To
evaluate EBIDA and the trends it depicts, the components of EBIDA, such as
rental revenues, rental expenses, real estate taxes and general and
administrative expenses, should be considered. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
herein and included or incorporated by reference in the accompanying
Prospectus. Excluded from EBIDA are financing costs such as interest as well
as depreciation and amortization, each of which can significantly affect a
REIT's results of operations and liquidity and should be considered in
evaluating a REIT's operating performance. Further, EBIDA does not represent
net income or cash flows from operating, financing and investing activities
as defined by GAAP and does not necessarily indicate that cash flows will be
sufficient to fund cash needs. It should not be considered as an alternative
to net income as an indicator of the Partnership's operating performance or
to cash flows as a measure of liquidity.
(5) The ratio of earnings to fixed charges is computed as income from operations
before extraordinary items plus fixed charges (excluding capitalized
interest) divided by fixed charges. Fixed charges consist of interest costs
including amortization of debt discount and deferred financing fees, whether
capitalized or expensed and the interest component of rental expense.
(6) The ratio of FFO before fixed charges to fixed charges is calculated as FFO
plus fixed charges (consisting primarily of interest expense), excluding
amortization of debt discount and deferred financing fees divided by fixed
charges. The Partnership believes that in addition to the ratio of earnings
to fixed charges, this ratio provides a useful measure of a REIT's ability
to service its debt because of the exclusion of non-cash items such as
depreciation and amortization from the definition of FFO. This ratio differs
from a GAAP-based ratio of earnings to fixed charges and should not be
considered as an alternative to that ratio. Further, funds from operations
statistics as disclosed by other REITs may not be comparable to the
Partnership's calculation of FFO.
S-18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996
The following discussion and analysis of the consolidated financial
condition and results of operations of the Partnership for the six months ended
June 30, 1996, should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included or incorporated by
reference in the Prospectus.
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 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 Partnership's business. "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" is defined as total property revenues less Direct Property Operating
Costs.
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 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% of revenues for the
six months ended June 30, 1995. The higher costs during 1995 were as a result of
the 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 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 revenues, for the six
months ended June 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 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, 1995, to 3.8% for the six months ended June 30, 1996. The
Partnership expects that the gross expense will grow as the 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 Partnership has acquired or
placed in service approximately $168.0 million in depreciable assets since July
1, 1995.
S-19
<PAGE>
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 Partnership's credit facilities 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations grew to $23.3 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 Partnership's net income growing $6.6 million, or
51.2%, 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 Partnership acquired 32 facilities
totaling 2,057,000 square feet for a purchase price of $114.4 million, including
the issuance of 246,000 Units valued at $8.0 million. In addition to its
acquisitions during the period, the Partnership opened a newly constructed
68,000 square foot facility in Northern Virginia and a 28,000 square foot
expansion to a facility in Sarasota, Florida. The Partnership currently has
plans to develop 19 new facilities, primarily in the Washington, D.C., 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 the second quarter
of 1997. Estimated costs of the 10 expansions under way are $10.2 million.
At June 30, 1996, the Partnership had $147.4 million of borrowings
outstanding under its credit facilities, $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 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 Partnership had $7.6 million of unused
borrowing capacity under its lines of credit at June 30, 1996.
During the period, the Partnership issued approximately 246,000 Units valued
at approximately $8.0 million in connection with the acquisition of facilities.
During the period, the Company issued 1,948,882 shares of Common Stock to
USRealty for net proceeds of $61.0 million. The net proceeds were contributed to
the Partnership in exchange for Units and used to repay borrowings under the
Partnership's revolving lines of credit.
FUNDS FROM OPERATIONS
The 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 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 on the Partnership
of conforming to the amended definition was to reduce FFO by approximately
$136,000 and $240,000 for the six month periods ended June 30, 1996 and June 30,
1995, respectively. Because of the change in the definition of FFO, FFO for the
Partnership may not be comparable to similarly titled measures of operating
performance disclosed by other companies.
S-20
<PAGE>
The following table illustrates the components of the Partnership's FFO for
the quarters ended June 30, 1996 and June 30, 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- --------------------------------
JUNE 30, 1996 JUNE 30, 1995 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 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 the 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 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 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 Partnership expects to incur approximately $1.2 million for
scheduled maintenance and repairs and approximately $5.9 million to conform
facilities acquired to Partnership standards.
The 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.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus Supplement and the accompanying Prospectus, including
documents incorporated by reference herein and therein, contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These statements are identified by words such as "expect," "anticipate,"
"should" and words of similar import. Forward-looking statements are inherently
subject to risks and uncertainties, many of which cannot be predicted with
accuracy and some of which might not even be anticipated. Future events and
actual results, financial and otherwise, may differ materially from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in this section and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" included or incorporated by reference in the Prospectus.
S-21
<PAGE>
SUSA PARTNERSHIP, L.P. PRO FORMA FINANCIAL INFORMATION
The accompanying unaudited Pro Forma Condensed Consolidated Statements of
Operations for the six months ended June 30, 1996, and the year ended December
31, 1995, have been prepared to reflect (i) the completion of the Offering and
the application of the net proceeds therefrom as described in "Use of Proceeds;"
(ii) the incremental effect of the acquisition of 119 facilities during 1995 and
1996; (iii) the sale of $220.0 million of Common Stock to USRealty; and (iv) the
sale of $107.6 million of Common Stock in a public offering on June 7, 1995, as
if such transactions had occurred on January 1, 1995. The accompanying unaudited
Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1996, has been
prepared to reflect (i) the completion of the Offering and the application of
the net proceeds therefrom as described in "Use of Proceeds", (ii) the
acquisition of the 22 facilities acquired in the third quarter of 1996 and (iii)
the sale of $159.0 million of Common Stock to USRealty in the third quarter of
1996, as if such transactions had occurred on June 30, 1996. These unaudited
statements should be read in conjunction with the respective financial
statements and notes thereto of the Partnership and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included herein and
included or incorporated by reference in the accompanying Prospectus. In the
opinion of management, the pro forma condensed consolidated financial
information provides all adjustments necessary to reflect the effects of the
Offering, the facility acquisitions and the USRealty investment.
The pro forma condensed consolidated financial information is unaudited and
is not necessarily indicative of the consolidated results which would have
occurred if the transactions had been consummated in the periods presented, or
on any particular date in the future, nor does it purport to represent the
financial position, results of operations or changes in cash flows for future
periods.
S-22
<PAGE>
SUSA PARTNERSHIP, L.P.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
FACILITY USREALTY
HISTORICAL(1) ACQUISITIONS(2) INVESTMENT(3) OFFERING(4) PRO FORMA
------------ --------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in storage
facilities, at cost
Land...................... $ 175,402 $ 23,031 $ 198,433
Buildings................. 467,248 62,268 529,516
------------ --------------- -----------
642,650 85,299 727,949
Accumulated depreciation.... (19,637) (19,637)
Cash and cash equivalents... 3,283 $ 33,530 36,813
Other assets................ 7,745 7,745
------------ --------------- -------------- ----------- -----------
Total assets............ $ 634,041 $ 85,299 $ -- $ 33,530 $ 752,870
------------ --------------- -------------- ----------- -----------
------------ --------------- -------------- ----------- -----------
LIABILITIES
Notes payable............... $ 147,435 $ 78,035 $ (159,000) $ (66,470) $ --
% Notes due 2003...... 100,000 100,000
Mortgage notes payable...... 13,604 4,440 18,044
Accounts payable and accrued
expenses................... 5,504 5,504
Distribution payable........ 11,000 11,000
Rent received in advance.... 4,302 4,302
Minority interest........... 427 427
------------ --------------- -------------- ----------- -----------
Total liabilities....... 182,272 82,475 (159,000) 33,530 139,277
------------ --------------- -------------- ----------- -----------
PARTNERS' CAPITAL
General Partner............. 424,310 159,000 583,310
Limited Partners............ 35,424 2,824 38,248
Notes receivable --
officers................... (7,965) (7,965)
------------ --------------- -------------- ----------- -----------
Total partners'
capital................ 451,769 2,824 159,000 -- 613,593
------------ --------------- -------------- ----------- -----------
Total liabilities and
partners' capital...... $ 634,041 $ 85,299 $ -- $ 33,530 $ 752,870
------------ --------------- -------------- ----------- -----------
------------ --------------- -------------- ----------- -----------
</TABLE>
See Notes and Adjustments to Pro Forma Condensed Consolidated Balance Sheet.
S-23
<PAGE>
SUSA PARTNERSHIP, L.P.
NOTES AND ADJUSTMENTS TO PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(UNAUDITED, IN THOUSANDS)
(1) Reflects the historical consolidated balance sheet of the Partnership as of
June 30, 1996.
(2) Reflects the acquisition of the 22 facilities during the period from June
30, 1996 to September 30, 1996 at an aggregate cost of approximately
$85,299. The acquisitions were funded with borrowings on the Partnership's
line of credit of approximately $78,035, the issuance of approximately
$4,440 of secured debt and $159,000 invested by USRealty during the period.
(3) Reflects the purchase of 1,916,933 shares of common stock of the Company on
July 8, 1996, and the purchase of 3,162,939 shares of common stock of the
Company on September 30, 1996, both purchases at $31.30 per share for net
proceeds of $159.0 million by USRealty pursuant to the Strategic Alliance
Agreement. The proceeds were contributed by the Company to the Partnership
in exchange for Partnership Units.
(4) Reflects the Offering of the Notes by the Partnership and the repayment of
approximately $66,470 of the Partnership's lines of credit and the
unallocated proceeds of approximately $33,530.
S-24
<PAGE>
SUSA PARTNERSHIP, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED, IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
FACILITY USREALTY
HISTORICAL(1) ACQUISITIONS(3) INVESTMENT(4) OFFERING(5) PRO FORMA
------------- --------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental Income....... $ 44,590 $ 11,713 $ 56,303
Management Income... 446 (160) 286
Other Income........ 654 129 783
------------- --------------- -----------
Total revenue... 45,690 11,682 57,372
------------- --------------- -----------
OPERATING EXPENSES
Cost of property
operations and
maintenance........ 12,113 2,707 14,820
Real estate taxes... 3,744 1,003 4,747
General and
administrative..... 1,749 400 2,149
Depreciation and
amortization....... 5,433 1,624 7,057
------------- --------------- -----------
Total operating
expenses....... 23,039 5,734 28,773
Income from property
operations......... 22,651 5,948 28,599
------------- --------------- ------- ----------- -----------
OTHER INCOME
(EXPENSE)
Interest expense.... (3,223) (5,365) 6,017 (2,001) (4,572)
Interest income..... 330 -- -- 918 1,248
------------- --------------- ------- ----------- -----------
Income before
minority
interest........... 19,758 583 6,017 (1,083) 25,275
Minority interest... (127) 86 (41)
------------- --------------- ------- ----------- -----------
Net income.......... $ 19,631 $ 669 $ 6,017 $ (1,083) $ 25,234
------------- --------------- ------- ----------- -----------
------------- --------------- ------- ----------- -----------
Net income per Unit $ 0.97
-----------
-----------
Weighted average
Units outstanding 25,928
-----------
-----------
</TABLE>
See Notes to Pro Forma Condensed Consolidated Statements of Operations.
S-25
<PAGE>
SUSA PARTNERSHIP, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
INITIAL FACILITY USREALTY
PRO FORMA(2) ACQUISITIONS(3) INVESTMENT(4) OFFERING(5) PRO FORMA
------------- --------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES
Rental income...... $ 81,875 $ 27,658 $ 109,533
Management
income............ 1,072 (488) 584
Other income....... 1,037 370 1,407
------------- --------------- -----------
Total
revenues...... 83,984 27,540 111,524
------------- --------------- -----------
OPERATING EXPENSES
Cost of property
operations and
maintenance....... 22,385 5,914 28,299
Real estate
taxes............. 6,171 3,002 9,173
General and
administrative.... 3,046 1,300 4,346
Depreciation and
amortization...... 9,579 3,702 13,281
------------- --------------- -----------
Total operating
expenses...... 41,181 13,918 55,099
------------- --------------- -----------
Income from
property
operations........ 42,803 13,622 56,425
------------- --------------- -----------
OTHER INCOME
(EXPENSE)
Interest expense... (7,679) (11,985) 13,420 (4,002) (10,246)
Interest income.... 637 -- -- 1,835 2,472
------------- --------------- -------------- ----------- -----------
Income before
minority
interest.......... 35,761 1,637 13,420 (2,167) 48,651
Minority
interest.......... (224) 172 (52)
------------- --------------- -------------- ----------- -----------
Net income......... $ 35,537 $ 1,809 $ 13,420 $ (2,167) $ 48,599
------------- --------------- -------------- ----------- -----------
------------- --------------- -------------- ----------- -----------
Net income per
Unit.............. $ 1.87
-----------
-----------
Weighted average
Units outstanding 25,928
-----------
-----------
</TABLE>
See Notes to Pro Forma Condensed Consolidated Statement of Operations.
S-26
<PAGE>
SUSA PARTNERSHIP, L.P.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED, IN THOUSANDS)
(1) Reflects the historical consolidated statements of operations of the
Partnership for the six months ended June 30, 1996.
(2) The Initial Pro Forma Statement of Operations for the year ended December
31, 1995, is presented as if the Company's public offering of 4,025,000
shares of Common Stock at $28.375 per share on June 7, 1995, and the
corresponding contribution of the net proceeds therefrom to the capital of
the Partnership in exchange for Units, and the acquisition of 63 facilities
during 1995 had occurred on January 1, 1995.
(3) Reflects the incremental effect of the acquisition of 56 facilities during
1996 and 63 Properties during 1995 as if such acquisitions had occurred as
of the beginning of the period presented. Also reflects estimated cost of
property, general and administrative, operations and maintenance, interest
expense and depreciation and amortization for periods prior to acquisition.
Estimated interest has been based upon actual borrowings used to acquire the
properties at the interest rates in effect for such borrowings.
(4) Reflects the reduction of interest expense on debt repaid with the proceeds
of USRealty's $220.0 million purchase of Common Stock as if such repayment
had occurred as of the beginning of the period presented.
(5) Reflects estimated interest expense on the Notes for the six months ended
June 30, 1996, and the year ended December 31, 1995, at an effective annual
interest rate of 8.5% (which includes cash interest, and amortization of
approximately $500 of deferred offering costs), less interest on debt repaid
with the proceeds of the Offering.
S-27
<PAGE>
DESCRIPTION OF NOTES
THE FOLLOWING SUMMARY SETS FORTH CERTAIN TERMS AND PROVISIONS OF THE NOTES
AND THE INDENTURE (AS DEFINED BELOW) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE TERMS AND PROVISIONS OF THE NOTES AND THE INDENTURE, WHICH ARE
INCORPORATED HEREIN BY REFERENCE. CAPITALIZED TERMS NOT OTHERWISE DEFINED HEREIN
SHALL HAVE THE MEANINGS GIVEN TO THEM IN THE NOTES AND IN THE INDENTURE. THE
FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE NOTES OFFERED HEREBY (WHICH
ARE INCLUDED IN THE "DEBT SECURITIES" DESCRIBED IN THE ACCOMPANYING PROSPECTUS)
SUPPLEMENTS, AND, TO THE EXTENT INCONSISTENT THEREWITH, REPLACES THE DESCRIPTION
OF THE GENERAL TERMS AND PROVISIONS OF THE DEBT SECURITIES SET FORTH IN THE
PROSPECTUS.
GENERAL
The Notes are to be issued pursuant to an Indenture, to be dated as of
November 1, 1996 (the "Indenture"), among the Partnership and The First National
Bank of Chicago, as Trustee (the "Trustee"). The Notes will be limited to
$100,000,000 in aggregate principal amount. The terms of the Notes include those
provisions contained in the Notes and the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA"). The Notes are subject to all such terms, and holders of Notes are
referred to the Notes and the Indenture and the TIA for a statement thereof.
Copies of the Indenture and the form of the Notes are available for inspection
at the office of the Trustee located at One First National Plaza -- Suite 0126,
Chicago, Illinois 60670 (the "Corporate Trust Office").
The Notes will be direct, unsecured and unsubordinated obligations of the
Partnership and will rank PARI PASSU with each other and all other unsecured and
unsubordinated indebtedness of the Partnership from time to time outstanding.
However, the Notes will be effectively subordinated to mortgages and other
secured indebtedness of the Partnership. As of September 30, 1996, the
Partnership had outstanding $66.1 million of unsecured, unsubordinated debt and
$18.0 million of secured debt. On a pro forma basis, after giving effect to the
completion of the Offering, as of September 30, 1996, the Partnership would have
outstanding $100.0 million of unsecured, unsubordinated indebtedness, $18.0
million in secured indebtedness and $735.6 million in unencumbered assets.
Subject to certain limitations set forth in the Notes and the Indenture
described in the Prospectus under the caption "Description of Debt Securities --
Certain Covenants," the Indenture will permit the Partnership to incur
additional indebtedness and additional secured indebtedness.
The Notes will be issued only in fully registered, book-entry form, in
denominations of $1,000 and integral multiples thereof, except under the limited
circumstances described below under "-- Book-Entry System."
PAYMENT OF PRINCIPAL AND INTEREST ON THE NOTES
Interest on the Notes will accrue at the rates set forth on the cover page
of this Prospectus Supplement from November , 1996, or the most recent Interest
Payment Date (as defined below) to which interest has been paid or provided for,
and will be payable in U.S. Dollars semi-annually in arrears on May 15 and
November 15 of each year (each, an "Interest Payment Date"), commencing May 15,
1997. The interest so payable will be paid to the person (the "Holder") in whose
name the applicable Note is registered at the close of business on the date
(whether or not a Business Day, as defined below) fifteen calendar days
preceding the applicable Interest Payment Date (each, a "Regular Record Date").
The principal of each Note payable on the Maturity Date will be paid against
presentation and surrender thereof at the Corporate Trust Office of the Trustee,
in U.S. Dollars. Interest on the Notes will be computed on the basis of a
360-day year consisting of twelve 30-day months.
MATURITY
The Notes will mature on November 15, 2003. The Notes may be redeemed at the
option of the Partnership at any time. See "-- Optional Redemption." The Notes
will not be entitled to the benefit of any sinking fund.
S-28
<PAGE>
OPTIONAL REDEMPTION
The Notes may be redeemed at any time at the option of the Partnership, in
whole or from time to time in part, at a redemption price equal to the sum of
(i) the principal amount of the Notes (or portion thereof) being redeemed plus
accrued interest thereon to the redemption date and (ii) the Make-Whole Amount
(as defined below), if any, with respect to such Notes (or portion thereof) (the
"Redemption Price").
If notice has been given as provided in the Indenture and funds for the
redemption of any Notes (or any portion thereof) called for redemption shall
have been made available on the redemption date referred to in such notice, such
Notes (or any portion thereof) will cease to bear interest on the date fixed for
such redemption specified in such notice and the only right of the Holders of
such Notes will be to receive payment of the Redemption Price.
Notice of any optional redemption of any Notes (or any portion thereof) will
be given to Holders at their addresses, as shown in the security register for
such Notes, not more than 60 nor less than 30 days prior to the date fixed for
redemption. The notice of redemption will specify, among other items, the
Redemption Price and the principal amount of the Notes held by such Holder to be
redeemed.
The Partnership will notify the Trustee at least 60 days prior to giving
notice of redemption (or such shorter period as is satisfactory to the Trustee)
of the aggregate principal amount of such Notes to be redeemed and their
redemption date. If less than all of the Notes having the same Maturity Date are
to be redeemed at the option of the Partnership, the Trustee shall select, in
such manner as it shall deem fair and appropriate, such Notes to be redeemed in
whole or in part.
As used herein:
"MAKE-WHOLE AMOUNT" means, in connection with any optional redemption or
accelerated payment of any Notes, the excess, if any, of (i) the aggregate
present value as of the date of such redemption or accelerated payment of each
dollar of principal being redeemed or paid and the amount of interest (exclusive
of interest accrued to the date of redemption or accelerated payment) that would
have been payable in respect of each such dollar if such redemption or
accelerated payment had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the Reinvestment Rate
(determined on the third Business Day preceding the date such notice of
redemption is given or declaration of acceleration is made) from the respective
dates on which such principal and interest would have been payable if such
redemption or accelerated payment had not been made, over (ii) the aggregate
principal amount of the Notes being redeemed or paid.
"REINVESTMENT RATE" means % plus the arithmetic mean of the yields under
the respective heading "Week Ending" published in the most recent Statistical
Release under the caption "Treasury Constant Maturities" for the maturity
(rounded to the nearest month) corresponding to the remaining life to maturity,
as of the payment date of the principal being redeemed or paid. If no maturity
exactly corresponds to such maturity, yields for the two published maturities
most closely corresponding to such maturity shall be calculated pursuant to the
immediately preceding sentence and the Reinvestment Rate shall be interpolated
or extrapolated from such yields on a straight-line basis, rounding in each of
such relevant periods to the nearest month. For the purpose of calculating the
Reinvestment Rate, the most recent Statistical Release published prior to the
date of determination of the Make-Whole Amount shall be used.
"STATISTICAL RELEASE" means the statistical release designated "H.15 (519)"
or any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable index which shall be designated by the Partnership.
S-29
<PAGE>
ADDITIONAL COVENANT
In addition to the limitations on the incurrence of Indebtedness described
in the Prospectus under the caption "Description of Debt Securities -- Certain
Covenants -- Limitations on Incurrence of Indebtedness," for so long as there
are any Outstanding Debt Securities (other than Debt Securities not entitled, by
their terms, to the benefit of this covenant), the Partnership will not, and
will not permit any Subsidiary to, incur any Secured Indebtedness of the
Partnership or any Subsidiary if, immediately after giving effect to the
incurrence of such additional Secured Indebtedness, the aggregate principal
amount of all outstanding Secured Indebtedness of the Partnership and its
Subsidiaries on a consolidated basis would be greater than 40% of Adjusted Total
Assets.
As used herein, "Secured Indebtedness" means Indebtedness secured by any
mortgage, trust deed, deed of trust, deed to secure debt, security agreement,
pledge, conditional sale or other title retention agreement, capitalized lease,
or other like agreement granting or conveying security title to or a security
interest in real property or other tangible assets.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will, under certain circumstances, upon the Partnership's
request cease to be of further effect with respect to the Notes, and the Trustee
will execute proper instruments acknowledging satisfaction and discharge of its
Indenture as to the Notes. See "Description of Debt Securities -- Discharge,
Defeasance and Covenant Defeasance" in the accompanying Prospectus.
BOOK-ENTRY SYSTEM
The Notes will be issued in the form of a single fully-registered Note in
book-entry form (the "Global Note") which will be deposited with, or on behalf
of, The Depository Trust Company ("DTC") and registered in the name of DTC's
nominee. Except as set forth below, the Global Note may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any such nominee to a successor of DTC or a
nominee of such successor.
So long as DTC or its nominee is the registered owner of the Global Note,
DTC or its nominee, as the case may be, will be considered the sole Holder of
the Notes represented by the Global Note for all purposes under the Indenture
and the beneficial owners of the Notes will be entitled only to those rights and
benefits afforded to them in accordance with DTC's regular operating procedures.
Upon specified written instructions of a Participant (defined below), DTC will
have its nominee assist Participants in the exercise of certain Holders' rights,
such as a demand for acceleration or an instruction to the Trustee. Except as
provided below, owners of beneficial interests in the Global Note will not be
entitled to have Notes registered in their names, will not receive or be
entitled to receive physical delivery of Notes in certificated form and will not
be considered the registered owners or Holders thereof under the Indenture.
If (i) DTC is at any time unwilling or unable to continue as depository or
if any time DTC ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and a successor
depository is not appointed by the Partnership within 90 days, (ii) an Event of
Default under the Indenture has occurred and is continuing and the beneficial
owners representing a majority in principal amount of the Notes advise DTC to
cease acting as depository or (iii) the Partnership, in its sole discretion,
determines at any time that the Notes shall no longer be represented by the
Global Note, the Partnership will issue individual Notes of the applicable
amount and in certificated form in exchange for the Global Note. In any such
instance, an owner of a beneficial interest in the Global Note will be entitled
to physical delivery of individual Notes in certificated form of like tenor,
equal in principal amount to such beneficial interest and to have such Notes in
certificated form registered in its name. Notes so issued in certificated form
will be issued in denominations of $1,000 or any integral multiple thereof, and
will be issued in registered form only, without coupons.
S-30
<PAGE>
The following is based on information furnished by DTC:
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and
a "clearing agency" registered pursuant to the provisions of Section 17A of
the Exchange Act. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement
of securities certificates. Direct Participants include securities brokers
and dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, Inc., the American
Stock Exchange, Inc. and the National Association of Securities Dealers,
Inc. Access to the DTC system is also available to others such as securities
brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly
or indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
Purchases of Notes under the DTC system must be made by or though Direct
Participants, which will receive a credit for the Notes on DTC's records.
The ownership interest of each actual purchaser of each Note ("Beneficial
Owner") is in turn recorded on the Direct and Indirect Participant's
records. A Beneficial Owner does not receive written confirmation from DTC
of its purchase, but such Beneficial Owner is expected to receive a written
confirmation providing details of the transaction, as well as periodic
statements of its holdings, from the Direct or Indirect Participant through
which such Beneficial Owner entered into the transaction. Transfers of
ownership interests in Notes are accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners do
not receive certificates representing their ownership interests in the
Notes, except in the event that use of the book-entry system for the Notes
is discontinued.
To facilitate subsequent transfers, the Global Note is registered in the
name of DTC's partnership nominee, Cede & Co. The deposit of the Global Note
with DTC and its registration in the name of Cede & Co. effects no change in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of
the Notes; DTC records reflect only the identity of the Direct Participants to
whose accounts the Notes are credited, which may or may not be the Beneficial
Owners. The Participants remain responsible for keeping account of their
holdings on behalf of their customers.
Delivery of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct Participants and
Indirect Participants to Beneficial Owners are governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the Notes.
Under its usual procedures, DTC mails a proxy (an "Omnibus Proxy") to the issuer
as soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose accounts
the Notes are credited on the record date (identified on a list attached to the
Omnibus Proxy).
Principal and interest payments on the Notes will be made by the Partnership
to the Trustee and from the Trustee to DTC. DTC's practice is to credit Direct
Participant's accounts on the payable date in accordance with their respective
holdings as shown on DTC's records unless DTC has reason to believe that it will
not receive payment on the payable date. Payments by Participants to Beneficial
Owners will be governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such Participant
and not of DTC, the Trustee or the Partnership subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal and interest to DTC is the
S-31
<PAGE>
responsibility of the Partnership or the Trustee, disbursement of such payments
to Direct Participants is the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners is the responsibility of Direct and Indirect
Participants.
DTC may discontinue providing its services as securities depository with
respect to the Notes at any time by giving reasonable notice to the Partnership
or the Trustee. Under such circumstances, in the event that a successor
securities depository is not appointed, Note certificates are required to be
printed and delivered.
The Partnership may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Note certificates will be printed and delivered.
None of the Partnership, the Underwriters or the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial interests in the Global Note, or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
SAME-DATE SETTLEMENT AND PAYMENT
Settlement for the Notes will be made in immediately available funds. All
payments of principal and interest in respect of the Notes will be made by the
Partnership in immediately available funds.
Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the Notes
will trade in DTC's Same-Day Funds Settlement System until maturity, or until
the Notes are issued in certificated form, and secondary market trading activity
in the Notes will therefore be required by DTC to settle in immediately
available funds. No assurance can be given as to the effect, if any, of
settlement in immediately available funds on trading activity in the Notes.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement and the
Pricing Agreement, the Partnership has agreed to sell to each of the
Underwriters named below, and each of such Underwriters has severally agreed to
purchase, the principal amount of the Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
- ------------------------------------------------------------- -------------
<S> <C>
Goldman, Sachs & Co.......................................... $
First Chicago Capital Markets, Inc...........................
J.P. Morgan Securities Inc...................................
-------------
Total.................................................... $ 100,000,000
-------------
-------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement and the Pricing
Agreement, the Underwriters are committed to take all of the Notes, if any are
taken.
The Underwriters propose to offer the Notes in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus Supplement and in part to certain securities dealers at such price
less a concession of % of the principal amount of the Notes. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of % of
the principal amount of the Notes to certain brokers and dealers. After the
Notes are released for sale to the public, the offering price and other selling
terms may from time to time be varied by the Underwriters.
The Notes are a new issue of securities with no established trading market.
Application has been made to list the Notes on the NYSE under the symbol "SUS
03." The Underwriters have advised the Partnership that the Underwriters intend
to make a market in the Notes but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
S-32
<PAGE>
Settlement for the Notes will be made in immediately available funds and all
secondary trading in the Notes will settle in immediately available funds. See
"Description of Notes -- Same-Day Settlement and Payment."
In the ordinary course of their respective businesses, the Underwriters
provide investment banking, advisory and other financial services to the
Partnership and its affiliates for which they receive customary fees. The First
National Bank of Chicago, an affiliate of First Chicago Capital Markets, Inc.,
is lender and agent under the Partnership's $75 million revolving credit
facility, for which it has received customary fees. In addition, the Partnership
intends to use more than 10% of the net proceeds from the sale of the Notes to
repay indebtedness owed by it to The First National Bank of Chicago.
Accordingly, the Offering is being made in compliance with the requirements of
Rule 2710(c)(8) of the National Association of Securities Dealers, Inc. First
Chicago Capital Markets, Inc. is participating in the Offering on the same terms
as the other Underwriters and will not receive any benefit in connection with
the Offering other than customary managing, underwriting and selling fees.
The Partnership has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
VALIDITY OF NOTES
The validity of the Notes offered hereby will be passed upon for the
Partnership by Hunton & Williams, Richmond, Virginia, and for the Underwriters
by Sullivan & Cromwell, New York, New York, who will rely on the opinion of
Hunton & Williams as to matters of Tennessee law.
S-33
<PAGE>
PROSPECTUS
$250,000,000
SUSA PARTNERSHIP, L.P.
DEBT SECURITIES
-----------
SUSA Partnership, L.P. (the "Partnership"), may from time to time offer in
one or more series unsecured, non-convertible debt securities ("Debt
Securities") having an aggregate initial public offering price not to exceed
$250,000,000, on terms to be determined at the time of offering. The Debt
Securities may be offered by the Partnership in separate series, in amounts, at
prices and on terms to be determined at the time of sale and to be set forth in
a supplement to this Prospectus (a "Prospectus Supplement"). At least one
nationally recognized statistical rating organization will have assigned an
investment grade rating to the Debt Securities at the time of sale.
The Debt Securities will be effectively subordinated to any secured
indebtedness of the Partnership. At March 31, 1996, the Partnership had $6.6
million in secured indebtedness outstanding. The Debt Securities will rank in
PARI PASSU with all other unsecured and unsubordinated indebtedness of the
Partnership. Subject to certain limitations set forth in the indenture regarding
the Debt Securities, the Partnership may incur additional secured or unsecured
indebtedness. See "Description of Debt Securities -- Certain Covenants --
Limitations on Incurrence of Indebtedness." Except as described under
"Description of Debt Securities -- Merger, Consolidation or Sale" or
"Description of Debt Securities -- Certain Covenants" or as may be set forth in
any Prospectus Supplement, the applicable indenture will not contain any
provisions that would limit the ability of the Partnership to incur indebtedness
or that would afford holders of the Debt Securities protection in the event of a
significant transaction involving the Partnership that may adversely affect the
holders of the Debt Securities.
The specific terms of the Debt Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include the specific title, aggregate principal amount, form
(which may be certificated or global), authorized denominations, maturity, rate
(or manner of calculation thereof) and time of payment of interest, terms for
redemption at the option of the Partnership or repayment at the option of the
holder, terms for sinking fund payments, covenants, and any initial public
offering price. The applicable Prospectus Supplement will also contain
information, where applicable, concerning material United States federal income
tax considerations relating to, and any listing on a securities exchange of, the
Debt Securities covered thereby.
The Debt Securities may be offered directly, through agents designated from
time to time by the Partnership, or to or through underwriters or dealers. If
any designated agents or any underwriters are involved in the sale of Debt
Securities, they will be identified and their compensation will be described in
the applicable Prospectus Supplement. See "Plan of Distribution." No Debt
Securities may be sold without delivery of the applicable Prospectus Supplement
describing such Debt Securities and the method and terms of the offering
thereof.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------
The date of this Prospectus is August 1, 1996.
<PAGE>
AVAILABLE INFORMATION
The Partnership and its general partner, Storage USA, Inc. (the "Company"),
are subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, in accordance therewith, the
Partnership will file reports and other information with the Securities and
Exchange Commission (the "Commission") and the Company files reports, proxy
statements and other information with the Commission. Information for the
Partnership is substantially identical to that for the Company. The reports,
proxy statements and other information filed by the Partnership and the Company
with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its Regional Offices at Suite 1400, Northwestern
Atrium Center, 500 West Madison Street, Chicago, Illinois 60661 and Suite 1300,
7 World Trade Center, New York, New York 10048, and can also be inspected and
copied at the offices of the New York Stock Exchange, 20 Broad Street, New York,
New York 10005. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the prescribed fees. In the case of the Company, such
materials can also be inspected at the office of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
This Prospectus is part of a registration statement on Form S-3 (together
with all amendments and exhibits thereto, the "Registration Statement") filed
with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules of the Commission. For further information, reference
is made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company (File No. 001-12910) with the
Commission pursuant to the Exchange Act are incorporated herein by reference:
(i) Annual Report on Form 10-K, for the year ended December 31, 1995,
as amended by the Annual Report on Form 10-K/A-1, filed on June 27, 1996;
(ii) Quarterly Report on Form 10-Q, for the quarter ended March 31,
1996, as amended by the Quarterly Report on Form 10-Q/A, filed on June 27,
1996;
(iii) Current Reports on Form 8-K filed on March 7, April 1 and April 5
and the Current Report on Form 8-K filed on June 21, 1996, as amended by the
Current Report on Form 8-K/A filed on July 17, 1996; and
(iv) the 1996 Annual Meeting Proxy Statement filed on April 5, 1996
(excluding information under the headings "Report of the Compensation
Committee on Executive Compensation" and "Performance Graph".
All documents filed by the Partnership and the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
the termination of the offering of all of the Debt Securities shall be deemed to
be incorporated by reference herein.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
in any accompanying Prospectus Supplement relating to a specific offering of
Debt Securities or in any other subsequently filed document, as the case may be,
which also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus or any accompanying Prospectus Supplement.
The Partnership will provide on request and without charge to each person to
whom this Prospectus is delivered a copy (without exhibits) of any or all
documents incorporated by reference into this Prospectus. Requests for such
copies should be directed to SUSA Partnership, L.P., 10440 Little Patuxent
Parkway, Suite 1100, Columbia, Maryland 21044, Attention: Storage USA, Inc.,
Secretary (telephone (410) 730-9500).
2
<PAGE>
THE PARTNERSHIP
The Partnership is managed by its general partner, Storage USA, Inc. The
Company is a self-managed, self-advised real estate investment trust ("REIT")
engaged in the business of owning, managing, acquiring and developing
self-storage facilities. The Company operates through the Partnership, in which
it owns approximately a 95% interest and through SUSA Management, Inc., which
provides self-storage management and ancillary services to the Partnership and
in which the Partnership owns a 99% economic interest. The description of
business, property information, policies with respect to certain activities and
management information for the Partnership are substantially identical to that
of the Company. Such information may be found in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, as amended, and in the Company's
1996 Annual Meeting Proxy Statement filed April 5, 1996. At March 31, 1996, the
Partnership owned 166 facilities containing 11.1 million net rentable square
feet in 24 states and the District of Columbia and managed for others 29
facilities containing an additional 1.8 million net rentable square feet.
Average physical and economic occupancy for the facilities owned by the
Partnership at March 31, 1996, were 88% and 81%, respectively. Average weighted
annual rent per square foot for these facilities was $9.40.
The Partnership is a Tennessee limited partnership and the Company is a
Tennessee corporation. Their executive offices are located at 10440 Little
Patuxent Parkway, Suite 1100, Columbia, Maryland 21044 and their telephone
number is (410) 730-9500.
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, the net
proceeds from the sale of any Debt Securities will be used by the Partnership
for general partnership purposes, which may include repayment of indebtedness,
making improvements to properties and the acquisition and development of
additional properties.
RATIOS OF EARNINGS TO FIXED CHARGES
The Partnership's ratio of earnings to fixed charges for the quarter ended
March 31, 1996 was 5.43 and for the year ended December 31, 1995, was 7.73. For
the period January 1, 1994, through March 23, 1994, fixed charges exceeded
earnings by $165,000. The Partnership's ratio of earnings to fixed charges for
the period March 24, 1994, to December 31, 1994 was 9.16 and the Partnership's
pro forma ratio of earnings to fixed charges for the year ended December 31,
1994, was 8.63. The pro forma results of operations from which the ratio of
earnings to fixed charges for 1994 is calculated reflect the Partnership's
annual results of operations and assume that the Company's initial public
offering and related transactions, including the contribution of the net
proceeds from such offering to the Partnership, were completed on January 1,
1994. The Partnership's ratio of earnings to fixed charges for the years ended
December 31, 1993 was 1.10. For the years ended December 31, 1992 and 1991,
respectively, fixed charges exceeded earnings by $3.0 and $4.2 million.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For purposes of computing these ratios, earnings consist of
income before extraordinary items plus fixed charges other than capitalized
interest, and fixed charges consist of interest on borrowed funds (including
capitalized interest) and amortization of debt discount and expense. To date,
the Partnership has not issued any preferred interests in the Partnership;
therefore, the ratios of earnings to combined fixed charges and preferred share
dividends are identical.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the Debt Securities being offered and the extent to which
such general provisions may apply will be described in a Prospectus Supplement
relating to such Debt Securities.
3
<PAGE>
The Debt Securities will be issued under an indenture to be dated as of
November 1, 1996, as amended or supplemented from time to time (the
"Indenture"), between the Partnership and The First National Bank of Chicago, as
trustee (the "Trustee"). The Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part and is available for
inspection at the corporate trust services office of the Trustee at One First
National Plaza -- Suite 0126, Chicago, Illinois 60670 or as described above
under "Available Information." The Indenture is subject to, and governed by, the
Trust Indenture Act of 1939, as amended (the "TIA"). The statements made
hereunder relating to the Indenture and the Debt Securities to be issued
thereunder are summaries of certain provisions thereof and do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the Indenture and such Debt Securities. Capitalized terms
used but not defined herein shall have the respective meanings set forth in the
Indenture.
Wherever particular Sections or defined terms of the Indenture are referred
to herein or in a Prospectus Supplement, such Sections or defined terms are
incorporated by reference herein or therein, as the case may be.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Partnership
and will rank in PARI PASSU with all other unsecured and unsubordinated
indebtedness of the Partnership. The Debt Securities are non-convertible and
will be effectively subordinated to any secured indebtedness of the Partnership.
At least one nationally recognized statistical rating organization will have
assigned an investment grade rating to the Debt Securities at the time of sale.
At March 31, 1996, the Partnership had $6.6 million in secured indebtedness
outstanding. The Debt Securities may be issued without limit as to aggregate
principal amount, in one or more series, in each case as established from time
to time in or pursuant to authority granted by a resolution of the Board of
Directors of the Company as sole general partner of the Partnership or as
established in the Indenture in one or more indentures supplemental to the
Indenture. All Debt Securities of one series need not be issued at the same time
and, unless otherwise provided, a series may be reopened, without the consent of
the holders of the Debt Securities of such series, for issuances of additional
Debt Securities of such series (Section 301).
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect to
such series (Section 610). In the event that two or more persons are acting as
Trustee with respect to different series of Debt Securities, each such trustee
shall be a Trustee of a trust under the applicable Indenture separate and apart
from the trust administered by any other Trustee (Section 609), and, except as
otherwise indicated herein, any action described herein to be taken by a Trustee
may be taken by each such Trustee with respect to, and only with respect to, the
one or more series of Debt Securities for which it is Trustee under the
applicable Indenture.
The applicable Prospectus Supplement will set forth the price or prices at
which the Debt Securities to be offered will be issued and will describe the
following terms of such Debt Securities: (1) the title of such Debt Securities;
(2) any limit on the aggregate principal amount of such Debt Securities or the
series of which they are a part; (3) the Person to whom any interest on a Debt
Security shall be payable, if other than the Person in whose name the Debt
Security is registered; (4) the date or dates on which the principal of any of
such Debt Securities will be payable; (5) the rate or rates at which any of such
Debt Securities will bear interest, if any, the date or dates from which any
such interest will accrue, the Interest Payment Dates on which any such interest
will be payable and the Regular Record Date for any such interest payable on any
Interest Payment Date; (6) the place or places where the principal of and any
premium and interest on any of such Debt Securities will be payable; (7) the
period or periods within which, the price or prices at which and the terms and
conditions on which any of such Debt Securities may be redeemed, in whole or in
part, at the option of the Partnership; (8) the obligation, if any, of the
Partnership to redeem or purchase any of such Debt Securities pursuant to any
sinking fund or analogous provision or at the option of the Holder thereof, and
the period or periods within which, the price or prices at which, and the terms
and conditions on which any of such Debt Securities will be
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redeemed or purchased, in whole or in part, pursuant to any such obligation; (9)
the denominations in which any of such Debt Securities will be issuable, if
other than denominations of $1,000 and any integral multiple thereof; (10) if
the amount of principal of or any premium or interest on any of such Debt
Securities may be determined with reference to an index or pursuant to a
formula, the manner in which such amounts will be determined; (11) if other than
the entire principal amount thereof, the portion of the principal amount of any
of such Debt Securities which will be payable upon declaration of acceleration
of the Maturity thereof; (12) if the principal amount payable at the Stated
Maturity of any of such Debt Securities will not be determinable as of any one
or more dates prior to the Stated Maturity, the amount which will be deemed to
be such principal amount as of any such date for any purpose, including the
principal amount thereof which will be due and payable upon any Maturity other
than the Stated Maturity or which will be deemed to be Outstanding as of any
such date (or, in any such case, the manner in which such deemed principal
amount is to be determined); (13) if applicable, that such Debt Securities, in
whole or any specified part, are defeasible pursuant to the provisions of the
Indenture described under "-- Defeasance and Covenant Defeasance -- Defeasance
and Discharge" or "-- Defeasance and Covenant Defeasance -- Covenant
Defeasance", or under both such captions; (14) whether any of such Debt
Securities will be issuable in whole or in part in the form of one or more
Global Debt Securities and, if so, the respective Depositaries for such Global
Debt Securities, the form of any legend or legends to be borne by any such
Global Debt Security in addition to or in lieu of the legend referred to under
"-- Form, Exchange and Transfer -- Global Debt Securities" and, if different
from those described under such caption, any circumstances under which any such
Global Debt Security may be exchanged in whole or in part for Debt Securities
registered, and any transfer of such Global Debt Security in whole or in part
may be registered, in the names of Persons other than the Depositary for such
Global Debt Security or its nominee; (15) any addition to or change in the
Events of Default applicable to any of such Debt Securities and any change in
the right of the Trustee or the Holders thereof to declare the principal amount
of any of such Debt Securities due and payable; (16) any addition to or change
in the covenants in the Indenture described under "-- Certain Covenants"
applicable to any of such Debt Securities; and (17) any other terms of such Debt
Securities not inconsistent with the provisions of the Indenture. (Section 301)
Debt Securities, including Original Issue Discount Debt Securities, may be
sold at a substantial discount below their principal amount. Certain special
United States federal income tax considerations (if any) applicable to Debt
Securities sold at an original issue discount may be described in the applicable
Prospectus Supplement.
Except as described under "-- Merger, Consolidation or Sale" or "-- Certain
Covenants" or as may be set forth in any Prospectus Supplement, the Indenture
does not contain any provisions that would limit the ability of the Partnership
to incur indebtedness or that would afford holders of the Debt Securities
protection in the event of (i) a highly leveraged or similar transaction
involving the Partnership, the management of the Partnership, or any affiliate
of any such party, (ii) a change of control or (iii) a reorganization,
restructuring, merger or similar transaction involving the Partnership that may
adversely affect the holders of the Debt Securities. In addition, subject to the
limitations set forth under "-- Merger, Consolidation or Sale," the Partnership
may, in the future, enter into certain transactions, such as the sale of all or
substantially all of its assets or the merger or consolidation of the
Partnership, that would increase the amount of the Partnership's indebtedness or
substantially reduce or eliminate the Partnership's assets, which may have an
adverse effect on the Partnership's ability to service its indebtedness,
including the Debt Securities. However, restrictions on ownership and transfers
of the Company's Common Stock designed to preserve its status as a REIT may act
to prevent or hinder a change of control. Reference is made to the applicable
Prospectus Supplement for information with respect to any deletions from,
modifications of or additions to the events of default or covenants that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
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DENOMINATIONS, REGISTRATION AND TRANSFER
The Debt Securities of each series will be issuable only in fully registered
form, without coupons, and, unless otherwise specified in the applicable
Prospectus Supplement, only in denominations of $1,000 and integral multiples
thereof. (Section 302)
At the option of the Holder, subject to the terms of the Indenture and the
limitations applicable to Global Debt Securities, Debt Securities of each series
will be exchangeable for other Debt Securities of the same series of any
authorized denomination and of a like tenor and aggregate principal amount.
(Section 305)
Subject to the terms of the Indenture and the limitations applicable to
Global Debt Securities, Debt Securities may be presented for exchange as
provided above or for registration of transfer (duly endorsed or with the form
of transfer endorsed thereon duly executed) at the office of the Security
Registrar or at the office of any transfer agent designated by the Partnership
for such purpose. No service charge will be made for any registration of
transfer or exchange of Debt Securities, but the Partnership may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith. Such transfer or exchange will be effected upon the
Security Registrar or such transfer agent, as the case may be, being satisfied
with the documents of title and identity of the person making the request. The
Partnership has appointed the Trustee as Security Registrar. Any transfer agent
(in addition to the Security Registrar) initially designated by the Partnership
for any Debt Securities will be named in the applicable Prospectus Supplement.
(Section 305) The Partnership may at any time designate additional transfer
agents or rescind the designation of any transfer agent or approve a change in
the office through which any transfer agent acts, except that the Partnership
will be required to maintain a transfer agent in each Place of Payment for the
Debt Securities of each series. (Section 1002)
If the Debt Securities of any series (or of any series and specified terms)
are to be redeemed in part, the Partnership will not be required (i) to issue,
register the transfer of or exchange any Debt Security of that series (or of
that series and specified terms, as the case may be) during a period beginning
at the opening of business 15 days before the day of mailing of a notice of
redemption of any such Debt Security that may be selected for redemption and
ending at the close of business on the day of such mailing, (ii) to register the
transfer of or exchange any Debt Security so selected for redemption, in whole
or in part, except the unredeemed portion of any such Debt Security being
redeemed in part or (iii) to issue, register the transfer of or exchange any
Debt Security that has been surrendered for payment at the option of the Holder,
except the portion, if any, of such Debt Security not to be so repaid. (Section
305)
GLOBAL DEBT SECURITIES
Some or all of the Debt Securities of any series may be represented, in
whole or in part, by one or more Global Debt Securities which will have an
aggregate principal amount equal to that of the Debt Securities represented
thereby. Each Global Debt Security will be registered in the name of a
Depositary or a nominee thereof identified in the applicable Prospectus
Supplement, will be deposited with such Depositary or nominee or a custodian
therefor and will bear a legend regarding the restrictions on exchanges and
registration of transfer thereof referred to below and any such other matters as
may be provided for pursuant to the Indenture. (Section 305)
Notwithstanding any provision of the Indenture or any Debt Security
described herein, no Global Debt Security may be exchanged in whole or in part
for Debt Securities registered, and no transfer of a Global Debt Security in
whole or in part may be registered, in the name of any Person other than the
Depositary for such Global Debt Security or any nominee of such Depositary
unless (i) the Depositary has notified the Partnership that it is unwilling or
unable to continue as Depositary for such Global Debt Security or has ceased to
be qualified to act as such as required by the Indenture, (ii) there shall have
occurred and be continuing an Event of Default with respect to the Debt
Securities represented by such Global Debt Security or (iii) there shall exist
such circumstances, if any, in addition to or in lieu of those
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described above as may be described in the applicable Prospectus Supplement
(Section 305). All securities issued in exchange for a Global Debt Security or
any portion thereof will be registered in such names as the Depositary may
direct. (Sections 204 and 305)
As long as the Depositary, or its nominee, is the registered Holder of a
Global Debt Security, the Depositary or such nominee, as the case may be, will
be considered the sole owner and Holder of such Global Debt Security and the
Debt Securities represented thereby for all purposes under the Debt Securities
and the Indenture (Section 308). Except in the limited circumstances referred to
above, owners of beneficial interests in a Global Debt Security will not be
entitled to have such Global Debt Security or any Debt Securities represented
thereby registered in their names, will not receive or be entitled to receive
physical delivery of certificated Debt Securities in exchange therefor and will
not be considered to be the owners or Holders of such Global Debt Security or
any Debt Securities represented thereby for any purpose under the Debt
Securities or the Indenture. All payments of principal of and any premium and
interest on a Global Debt Security will be made to the Depositary or its
nominee, as the case may be, as the Holder thereof. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. These laws may impair the
ability to transfer beneficial interests in a Global Debt Security.
Ownership of beneficial interests in a Global Debt Security will be limited
to institutions that have accounts with the Depositary or its nominee
("participants") and to persons that may hold beneficial interests through
participants. In connection with the issuance of any Global Debt Security, the
Depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of Debt Securities represented by the Global Debt
Security to the accounts of its participants. Ownership of beneficial interests
in a Global Debt Security will be shown only on, and the transfer of those
ownership interests will be effected only through, records maintained by the
Depositary (with respect to participants' interests) or any such participant
(with respect to interests of persons held by such participants on their
behalf). Payments, transfers, exchanges and others matters relating to
beneficial interests in a Global Debt Security may be subject to various
policies and procedures adopted by the Depositary from time to time. None of the
Partnership, the Trustee or any agent of the Partnership or the Trustee will
have any responsibility or liability for any aspect of the Depositary's or any
participant's records relating to, or for payments made on account of,
beneficial interests in a Global Debt Security, or for maintaining, supervising
or reviewing any records relating to such beneficial interests.
Secondary trading in notes and debentures of corporate issuers is generally
settled in clearing-house or next-day funds. In contrast, beneficial interests
in a Global Debt Security, in some cases, may trade in the Depositary's same-day
funds settlement system, in which secondary market trading activity in those
beneficial interests would be required by the Depositary to settle in
immediately available funds. The Partnership cannot predict the effect, if any,
that settlement in immediately available funds would have on trading activity in
such beneficial interests. Also, settlement for purchases of beneficial
interests in a Global Debt Security upon the original issuance thereof may be
required to be made in immediately available funds.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of interest on a Debt Security on any Interest Payment Date will be made to the
Person in whose name such Debt Security (or one or more Predecessor Debt
Securities) is registered at the close of business on the Regular Record Date
for such interest. (Section 307)
Unless otherwise indicated in the applicable Prospectus Supplement,
principal of and any premium and interest on the Debt Securities of a particular
series will be payable at the office of such Paying Agent or Paying Agents as
the Partnership may designate for such purpose from time to time, except that at
the option of the Partnership payment of any interest may be made by check
mailed to the address of the Person entitled thereto as such address appears in
the Security Register. Unless otherwise indicated in the applicable Prospectus
Supplement, the corporate trust office of the Trustee in the City of New York
will be designated as the Partnership's sole Paying Agent for payments with
respect to Debt Securities of
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each series. Any other Paying Agents initially designated by the Partnership for
the Debt Securities of a particular series will be named in the applicable
Prospectus Supplement. The Partnership may at any time designate additional
Paying Agents or rescind the designation of any Paying Agent or approve a change
in the office through which any Paying Agent acts, except that the Partnership
will be required to maintain a Paying Agent in each Place of Payment for the
Debt Securities of a particular series. (Section 1002)
All moneys paid by the Partnership to a Paying Agent for the payment of the
principal of, or any premium or interest on, any Debt Security that remain
unclaimed at the end of two years after such principal, premium or interest has
become due and payable will be repaid to the Partnership, and the Holder of such
Debt Security thereafter may look only to the Partnership for payment thereof.
(Section 1003)
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the holder on the applicable regular record
date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof SHALL be given to the holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the applicable
supplement (Section 307).
MERGER, CONSOLIDATION OR SALE
The Partnership may not consolidate with or merge into, or convey, transfer
or lease its properties and assets substantially as an entirety to, any Person
(a "successor Person"), and may not permit any Person to merge into, or convey,
transfer or lease its properties and assets substantially as an entirety to, the
Partnership, UNLESS (i) the successor Person (if any) is a corporation,
partnership or trust organized and validly existing under the laws of any
domestic jurisdiction and assumes, by a supplemental indenture, the
Partnership's obligations on the Debt Securities and under the Indenture, (ii)
immediately after giving effect to the transaction, and treating any
indebtedness which becomes an obligation of the Partnership or any Subsidiary as
a result of the transaction as having been incurred by it at the time of the
transaction, no Event of Default, and no event which, after notice or lapse of
time or both, would become an Event of Default, shall have occurred and be
continuing and (iii) certain other conditions are met. (Section 801)
CERTAIN COVENANTS
EXISTENCE. Except as permitted under "-- Merger, Consolidation or Sale,"
the Partnership will be required to do or cause to be done all things necessary
to preserve and keep in full force and effect its existence, rights and
franchises; provided, however, that the Partnership shall not be required to
preserve any right or franchise if it determines that the preservation thereof
is no longer desirable in the conduct of its business and that the loss thereof
is not disadvantageous in any material respect to the holders of the Debt
Securities (Section 1005).
MAINTENANCE OF PROPERTIES. The Partnership will be required to cause all
properties used or useful in the conduct of its business or the business of any
subsidiary to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and to cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Partnership may be necessary so that the business carried on
in connection therewith may be properly and advantageously conducted at all
times; provided, however, that the Partnership shall not be prevented from
discontinuing the operation or maintenance of any of its properties if such
discontinuance is, in the judgment of the Partnership, desirable in the conduct
of its business or the business of any Subsidiary and not disadvantageous in any
material respect to the Holders. (Section 1006).
INSURANCE. The Partnership will be required to, and to cause each of its
subsidiaries to, keep all of its insurable properties insured against loss or
damage with insurers of recognized responsibility in commercially reasonable
amounts and types (Section 1008).
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PAYMENT OF TAXES AND OTHER CLAIMS. The Partnership will be required to pay
or discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon the Partnership or any subsidiary or upon the income, profits or
property of the Partnership or any subsidiary, and (ii) all lawful claims for
labor, materials and supplies which, if unpaid, might by law become a lien upon
the property of the Partnership or any subsidiary; provided, however, that the
Partnership shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith by appropriate proceedings.
(Section 1007).
PROVISION OF FINANCIAL INFORMATION. Whether or not the Partnership is
subject to Section 13 or Section 15(d) of the Exchange Act and for so long as
any Debt Securities are outstanding, the Partnership will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Partnership would have been
required to file with the Commission pursuant to such Section 13 or Section
15(d) (the "Financial Statements") if the Partnership were so subject, such
documents to be filed with the Commission on or prior to the respective dates
(the "Required Filing Dates") by which the Partnership would have been required
so to file such documents if the Partnership were so subject. The Partnership
will also in any event (x) within 15 days of each Required Filing Date (i)
transmit by mail to all holders of Debt Securities whose names appear in the
security register for such Debt Securities (the "Holders"), as their names and
addresses appear in the security register for such Debt Securities, without cost
to such Holders, copies of the annual reports and quarterly reports which the
Partnership would have been required to file with the Commission pursuant to
Section 13 or Section 15(d) of the Exchange Act if the Partnership were subject
to such Sections and (ii) file with any Trustee copies of the annual reports,
quarterly reports and other documents which the Partnership would have been
required to file with the Commission pursuant to Section 13 or Section 15(d) of
the Exchange Act if the Partnership were subject to such Sections and (y) if
filing such documents by the Partnership with the Commission is not permitted
under the Exchange Act, promptly upon written request and payment of the
reasonable cost of duplication and delivery, supply copies of such documents to
any prospective Holder. (Section 1010).
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS. The Partnership will not, and
will not permit any Subsidiary to, incur any Indebtedness (as defined below),
other than inter-company debt representing Indebtedness to which the only
parties are the Company, the Partnership and any of their Subsidiaries (but only
so long as such Indebtedness is held solely by any of the Company, the
Partnership and any Subsidiary) that is subordinate in right of payment to
Outstanding Debt Securities if, immediately after giving effect to the
incurrence of such additional Indebtedness, the aggregate principal amount of
all outstanding Indebtedness of the Partnership and its Subsidiaries on a
consolidated basis is greater than 60% of the sum of (i) Total Assets (as
defined below) as of the end of the calendar quarter covered in the
Partnership's Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as
the case may be, most recently filed with the Trustee (or such reports of the
Company if filed by the Partnership with the Trustee in lieu of filing its own
reports) prior to the incurrence of such additional Indebtedness and (ii) the
increase in Total Assets from the end of such quarter including, without
limitation, any increase in Total Assets resulting from the incurrence of such
additional Indebtedness (such increase, together with the Total Assets, is
referred to as "Adjusted Total Assets"). (Section 1009)
In addition to the foregoing limitation on the incurrence of Indebtedness,
the Partnership will not, and will not permit any Subsidiary to, incur any
Indebtedness if the ratio of Consolidated Income Available for Debt Service to
the Annual Service Charge (in each case as defined below) for the four
consecutive fiscal quarters most recently ended prior to the date on which such
additional Indebtedness is to be incurred shall have been less than 1.5 to 1, on
a pro forma basis, after giving effect to the incurrence of such Indebtedness
and to the application of the proceeds therefrom and calculated on the
assumption that (i) such Indebtedness and any other Indebtedness incurred by the
Partnership or its Subsidiaries since the first day of such four-quarter period
and the application of the proceeds therefrom, including to refinance other
Indebtedness, had occurred at the beginning of such period, (ii) the repayment
or retirement of any other Indebtedness by the Partnership or its Subsidiaries
since the first day of such four-quarter period and had been incurred, repaid or
retired at the beginning of such period
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(except that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based upon the average daily balance
of such Indebtedness during such period), (iii) the income earned on any
increase in Adjusted Total Assets since the end of such four-quarter period had
been earned on an annualized basis, during such period, and (iv) in the case of
any acquisition or disposition by the Partnership or any Subsidiary of any asset
or group of assets since the first day of such four-quarter period, including,
without limitation, by merger, stock purchase or sale, or asset purchase or
sale, such acquisition or disposition or any related repayment Indebtedness had
occurred as of the first day of such period with appropriate adjustments with
respect to such acquisition or disposition being included in such pro forma
calculation. (Section 1009)
For purposes of the foregoing provisions regarding the limitation on the
incurrence of Indebtedness, Indebtedness shall be deemed to be "incurred" by the
Partnership or a Subsidiary whenever the Partnership and its Subsidiary shall
create, assume, guarantee or otherwise become liable in respect thereof.
(Section 1009)
MAINTENANCE OF TOTAL UNENCUMBERED ASSETS. For so long as there are
Outstanding any Debt Securities (other than Debt Securities that are not, by
their terms, entitled to the benefit of this covenant), the Partnership is
required to maintain Total Unencumbered Assets of not less than 150% of the
aggregate outstanding principal amount of all outstanding Unsecured
Indebtedness. (Section 1009)
As used herein:
"ANNUAL SERVICE CHARGE" as of any date means the maximum amount which is
payable in any 12-month period from such date for interest and required
amortization (including amounts payable to sinking funds or similar
arrangements for the retirement of debt which matures serially, but
excluding principal payable at final maturity of such debt) on Indebtedness
of the Partnership and its Subsidiaries.
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means
Consolidated Net Income plus amounts which have been deducted for (a)
interest on Indebtedness of the Partnership and its Subsidiaries, (b)
provision for taxes of the Partnership and its Subsidiaries based on income,
(c) amortization of Indebtedness discount, (d) provisions for gains and
losses on properties, (e) depreciation and amortization, (f) the effect of
any noncash charge resulting from a change in accounting principles in
determining Consolidated Net Income for such period, (g) amortization of
deferred charges and (h) the effect of net income (or loss) of joint
ventures in which the Partnership or any Subsidiary owns an interest to the
extent not providing a source of, or requiring a use of, cash, respectively.
"CONSOLIDATED NET INCOME" for any period means the amount of
consolidated net income (or loss) of the Partnership and its Subsidiaries
for such period determined on a consolidated basis in accordance with
generally accepted accounting principles.
"INDEBTEDNESS" of the Partnership or any Subsidiary means any
indebtedness of the Partnership or such Subsidiary, as applicable, whether
or not contingent, in respect of (i) borrowed money evidenced by bonds,
notes, debentures or similar instruments, (ii) indebtedness secured by a
mortgage, pledge, lien, charge, encumbrance of any security interest
existing on property owned by the Partnership or such Subsidiary, (iii) the
reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the balance that
constitutes an accrued expense or trade payable or (iv) any lease of
property by the Partnership or such Subsidiary as lessee which is reflected
in the Partnership's consolidated balance sheet as a capitalized lease in
accordance with generally accepted accounting principles, in the case of
items of indebtedness under (i) through (iii) above to the extent that any
such items (other than letters of credit) would appear as a liability on the
Partnership's consolidated balance sheet in accordance with generally
accepted accounting principles, and also includes, to the extent not
otherwise included, any obligation by the Partnership or such Subsidiary to
be liable for, or to pay, as obligor, guarantor or otherwise (other than for
purposes of collection in the ordinary course of business), indebtedness of
another person (other than the Partnership or any Subsidiary).
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"SUBSIDIARY" means a corporation, partnership or limited liability
company more than 50% of the outstanding voting stock, partnership interests
or membership interests, as the case may be, of which is owned or
controlled, directly or indirectly, by the Partnership or by one or more
other Subsidiaries, or by the Partnership and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means
stock which ordinarily has voting power for the election of directors,
whether at all times or only so long as no senior class of stock has such
voting power by reason of any contingency.
"TOTAL ASSETS" as of any date means the sum of (i) Undepreciated Real
Estate Assets and (ii) all other assets of the Partnership and its
Subsidiaries on a consolidated basis determined in accordance with generally
accepted accounting principles (but excluding intangibles and accounts
receivable).
"TOTAL UNENCUMBERED ASSETS" means the sum of (i) those Undepreciated
Real Estate Assets which have not been pledged, mortgaged or otherwise
encumbered by the owner thereof to secure Indebtedness, excluding
infrastructure assessment bonds and (ii) all other assets of the Partnership
and its Subsidiaries determined in accordance with generally accepted
accounting principles (but excluding intangibles and accounts receivable)
which have not been pledged, mortgaged or otherwise encumbered by the owner
thereof to secure Indebtedness.
"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the cost
(original cost plus capital improvements) of real estate assets of the
Partnership and its Subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with
generally accepted accounting principles.
"UNSECURED INDEBTEDNESS" means Indebtedness which is (i) not
subordinated to any other Indebtedness and (ii) not secured by any mortgage,
lien, charge, pledge, encumbrance or security interest of any kind upon any
of the properties of the Partnership or any Subsidiary.
ADDITIONAL COVENANTS. Any additional or different covenants of the
Partnership with respect to any series of Debt Securities will be set forth in
the applicable Prospectus Supplement.
EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the
Indenture with respect to Debt Securities of any series: (a) failure to pay any
interest on any Debt Securities of that series when due, that has continued for
30 days; (b) failure to pay principal of or any premium on any Debt Security of
that series when due; (c) failure to deposit any sinking fund payment, when due,
in respect of any Debt Security of that series; (d) failure to perform any other
covenant of the Partnership in the Indenture (other than a covenant included in
the Indenture solely for the benefit of a series other than that series), that
has continued for 60 days after written notice has been given by the Trustee, or
the Holders of at least 25% in aggregate principal amount of the Outstanding
Debt Securities of that series, as provided in the Indenture; (e) failure to pay
when due (subject to any applicable grace period) the principal of, or
acceleration of, any indebtedness for money borrowed by the Partnership, if, in
the case of any such failure, such indebtedness has not been discharged or, in
the case of any such acceleration, such indebtedness has not been discharged or
such acceleration has not been rescinded or annulled, in each case within 10
days after written notice has been given by the Trustee, or the Holders of at
least 25% in aggregate principal amount of the Outstanding Debt Securities of
that series, as provided in the Indenture, if the aggregate outstanding
principal amount of indebtedness under the instrument with respect to which such
default or acceleration has occurred exceeds $10 million; (f) certain events of
bankruptcy, insolvency or reorganization of the Partnership or any Significant
Subsidiary or any of their respective property; and (g) any other event of
default provided with respect to a particular series of Debt Securities.
(Section 501)
If an Event of Default (other than an Event of Default described in clause
(f) above) with respect to the Debt Securities of any series at the time
Outstanding shall occur and be continuing, either the Trustee or the Holders of
at least 25% in aggregate principal amount of the Outstanding Debt Securities
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of that series by notice as provided in the Indenture may declare the principal
amount of the Debt Securities of that series (or, in the case of any Debt
Security that is an Original Issue Discount Debt Security or the principal
amount of which is not then determinable, such portion of the principal amount
of such Debt Security, or such other amount in lieu of such principal amount, as
may be specified in the terms of such Debt Security) to be due and payable
immediately. If an Event of Default described in clause (f) above with respect
to the Debt Securities of any series at the time Outstanding shall occur, the
principal amount of all the Debt Securities of that series (or, in the case of
any such Original Issue Discount Debt Security or other Debt Security, such
specified amount) will automatically, and without any action by the Trustee or
any Holder, become immediately due and payable. After any such acceleration, but
before a judgment or decree based on acceleration, the Holders of a majority in
aggregate principal amount of the Outstanding Debt Securities of that series
may, under certain circumstances, rescind and annul such acceleration if all
Events of Default, other than the non-payment of accelerated principal (or other
specified amount), have been cured or waived as provided in the Indenture.
(Section 502) For information as to waiver of defaults, see "-- Modification and
Waiver".
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders, unless such Holders
shall have offered to the Trustee reasonable indemnity. (Section 603) Subject to
such provisions for the indemnification of the Trustee, the Holders of a
majority in aggregate principal amount of the Outstanding Debt Securities of any
series will have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee with respect to the Debt Securities of that
series. (Section 512)
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indenture, or for the appointment of a
receiver or a trustee, or for any other remedy thereunder, unless (i) such
Holder has previously given to the Trustee written notice of a continuing Event
of Default with respect to the Debt Securities of that series, (ii) the Holders
of at least 25% in aggregate principal amount of the Outstanding Debt Securities
of that series have made written request, and such Holder or Holders have
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee and (iii) the Trustee has failed to institute such proceeding, and has
not received from the Holders of a majority in aggregate principal amount of the
Outstanding Debt Securities of that series a direction inconsistent with such
request, within 60 days after such notice, request and offer. (Section 507)
However, such limitations do not apply to a suit instituted by a Holder of a
Debt Security for the enforcement of payment of the principal of or any premium
or interest on such Debt Security on or after the applicable due date specified
in such Debt Security. (Section 508)
Within 120 days after the close of each fiscal year, the Partnership will be
required to furnish to the Trustee a statement by certain of the Company's
officers as to whether the Partnership, to their knowledge, is in default in the
performance or observance of any of the terms, provisions and conditions of the
Indenture and, if so, specifying all such known defaults. (Section 1004)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Partnership
and the Trustee with the consent of the Holders of a majority in principal
amount of the Outstanding Debt Securities of each series affected by such
modification or amendment; PROVIDED, HOWEVER, that no such modification or
amendment may, without the consent of the Holder of each Outstanding Debt
Security affected thereby, (a) change the Stated Maturity of the principal of,
or any installment of principal of or interest on, any Debt Security, (b) reduce
the principal amount of, or any premium or interest on, any Debt Security, (c)
reduce the amount of principal of an Original Issue Discount Debt Security or
any other Debt Security payable upon acceleration of the Maturity thereof, (d)
change the place or currency of payment of principal of, or any premium or
interest on, any Debt Security, (e) impair the right to institute suit for the
enforcement of any payment on or with respect to any Debt Security, (f) reduce
the percentage in principal amount of Outstanding Debt Securities of any series,
the consent of whose Holders is required for modification or amendment of the
Indenture, (g) reduce the percentage in principal amount of
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<PAGE>
Outstanding Debt Securities of any series necessary for waiver of compliance
with certain provisions of the Indenture or for waiver of certain defaults or
(h) modify such provisions with respect to modification and waiver. (Section
902)
The Holders of a majority in principal amount of the Outstanding Debt
Securities of any series may waive compliance by the Partnership with certain
restrictive provisions of the Indenture. (Section 1011) The Holders of a
majority in principal amount of the Outstanding Debt Securities of any series
may waive any past default under the Indenture, except a default in the payment
of principal, premium or interest and certain covenants and provisions of the
Indenture that cannot be amended without the consent of the Holder of each
Outstanding Debt Security of such series affected. (Section 513)
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the Outstanding Debt Securities have given or
taken any direction, notice, consent, waiver or other action under the Indenture
as of any date (i) the principal amount of an Original Issue Discount Debt
Security that will be deemed to be Outstanding will be the amount of the
principal thereof that would be due and payable as of such date upon
acceleration of the Maturity thereof to such date and (ii) if, as of such date,
the principal amount payable at the Stated Maturity of a Debt Security is not
determinable (for example, because it is based on an index), the principal
amount of such Debt Security deemed to be Outstanding as of such date will be an
amount determined in the manner prescribed for such Debt Security. Certain Debt
Securities, including those for whose payment or redemption money has been
deposited or set aside in trust for the Holders and those that have been fully
defeased pursuant to Section 1302, will not be deemed to be Outstanding.
(Section 101)
Except in certain limited circumstances, the Partnership will be entitled to
set any day as a record date for the purpose of determining the Holders of
Outstanding Debt Securities of any series entitled to give or take any
direction, notice, consent, waiver or other action under the Indenture, in the
manner and subject to the limitations provided in the Indenture. In certain
limited circumstances, the Trustee will be entitled to set a record date for
action by Holders. If a record date is set for any action to be taken by Holders
of a particular series, such action may be taken only by persons who are Holders
of Outstanding Debt Securities of that series on the record date. To be
effective, such action must be taken by Holders of the requisite principal
amount of such Debt Securities within a specified period following the record
date. For any particular record date, this period will be 180 days or such
shorter period as may be specified by the Partnership (or the Trustee, if it set
the record date), and may be shortened or lengthened (but not beyond 180 days)
from time to time. (Section 104)
Modifications and amendments of the Indenture may be made by the Partnership
and the Trustee without the consent of any holders of Debt Securities for any of
the following purposes: (i) to evidence the succession of another person to the
Partnership and the assumption by such successor of the covenants of the
Partnership in the Indenture and the Debt Securities; (ii) to add to the
covenants of the Partnership for the benefit of the holders of all or any series
of Debt Securities or to surrender any right or power conferred upon the
Partnership in the Indenture; (iii) to add events of default for the benefit of
the holders of all or any series of Debt Securities; (iv) to add to or change
any provisions of the Indenture as necessary to permit or facilitate the
issuance of Debt Securities in uncertificated form; (v) to add to, change or
eliminate any of the provisions of the Indenture with respect to one or more
series of Debt Securities, so long as the changes (A) do not (1) apply to any
Debt Securities of any series created prior to such modification or amendment
and entitled to the benefit of such provision or (2) modify the rights of the
holder of any such Debt Security with respect to such provision, or (B) will
only become effective when there is no such Debt Security Outstanding; (vi) to
secure the Debt Securities; (vii) to establish the form or terms of Debt
Securities of any series as permitted in the Indenture; or (viii) to provide for
the acceptance of appointment by a successor Trustee. (Section 901)
13
<PAGE>
DEFEASANCE AND COVENANT DEFEASANCE
If and to the extent indicated in the applicable Prospectus Supplement, the
Partnership may elect, at its option at any time, to have the provisions of
Section 1302 of the Indenture, relating to defeasance and discharge of
indebtedness, or Section 1303, relating to defeasance of certain restrictive
covenants in the Indenture, applied to the Debt Securities of any series, or to
any specified part of a series. (Section 1301)
DEFEASANCE AND DISCHARGE. The Indenture provides that, upon the
Partnership's exercise of its option (if any) to have Section 1302 applied to
any Debt Securities, the Partnership will be discharged from all its obligations
with respect to such Debt Securities (except for certain obligations to exchange
or register the transfer of Debt Securities, to replace stolen, lost or
mutilated Debt Securities, to maintain paying agencies and to hold moneys for
payment in trust) upon the deposit in trust for the benefit of the Holders of
such Debt Securities of money or U.S. Government Obligations, or both, which,
through the payment of principal and interest in respect thereof in accordance
with their terms, will provide money in an amount sufficient to pay the
principal of and any premium and interest on such Debt Securities on the
respective Stated Maturities in accordance with the terms of the Indenture and
such Debt Securities. Such defeasance or discharge may occur only if, among
other things, the Partnership has delivered to the Trustee an Opinion of Counsel
to the effect that the Partnership has received from, or there has been
published by, the United States Internal Revenue Service a ruling, or there has
been a change in tax law, in either case to the effect that Holders of such Debt
Securities will not recognize gain or loss for federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to federal
income tax on the same amount, in the same manner and at the same times as would
have been the case if such deposit, defeasance and discharge were not to occur.
(Sections 1302 and 1304)
DEFEASANCE OF CERTAIN COVENANTS. The Indenture provides that, upon the
Partnership's exercise of its option (if any) to have Section 1303 applied to
any Debt Securities, the Partnership may omit to comply with certain restrictive
covenants, including those described under "Certain Covenants," in the last
sentence under "Merger, Consolidation or Sale" and any that may be described in
the applicable Prospectus Supplement, and the occurrence of certain Events of
Default, which are described above in clause (d) (with respect to such
restrictive covenants) and clauses (e) and (g) under "Events of Default" and any
that may be described in the applicable Prospectus Supplement, will be deemed
not to be or result in an Event of Default, in each case with respect to such
Debt Securities. The Partnership, in order to exercise such option, will be
required to deposit, in trust for the benefit of the Holders of such Debt
Securities, money or U.S. Government Obligations, or both, which, through the
payment of principal and interest in respect thereof in accordance with their
terms, will provide money in an amount sufficient to pay the principal of and
any premium and interest on such Debt Securities on the respective Stated
Maturities in accordance with the terms of the Indenture and such Debt
Securities. The Partnership will also be required, among other things, to
deliver to the Trustee an Opinion of Counsel to the effect that Holders of such
Debt Securities will not recognize gain or loss for federal income tax purposes
as a result of such deposit and defeasance of certain obligations and will be
subject to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit and defeasance were not
to occur. In the event the Partnership exercised this option with respect to any
Debt Securities and such Debt Securities were declared due and payable because
of the occurrence of any Event of Default, the amount of money and U.S.
Government Obligations so deposited in trust would be sufficient to pay amounts
due on such Debt Securities at the time of their respective Stated Maturities
but may not be sufficient to pay amounts due on such Debt Securities upon any
acceleration resulting from such Event of Default. In such case, the Partnership
would remain liable for such payments. (Sections 1303 and 1304) "U.S. Government
Obligations" means securities which are (i) direct obligations of the United
States of America for the payment of which its full faith and credit is pledged
or (ii) obligations of a person controlled or supervised by and acting as a
agency or instrumentality of the United States of America, the payment of which
is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or redeemable
at the option of the issuer thereof, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment of interest on or principal of any
such U.S. Government Obligation held by such custodian of the account of
14
<PAGE>
the holder of a depository receipt, provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of interest on or principal of the U.S. Government Obligation evidenced by such
depository receipt. (Section 1304)
NOTICES
Notices to Holders of Debt Securities will be given by mail to the addresses
of such Holders as they may appear in the Security Register. (Sections 101 and
106)
TITLE
The Partnership, the Trustee and any agent of the Partnership or the Trustee
may treat the Person in whose name a Debt Security is registered as the absolute
owner thereof (whether or not such Debt Security may be overdue) for the purpose
of making payment and for all other purposes. (Section 308)
NO CONVERSION RIGHTS
The Debt Securities will not be convertible into or exchangeable for any
capital stock of the Company or equity interest in the Partnership.
PLAN OF DISTRIBUTION
The Partnership may sell Debt Securities to or through underwriters and also
may sell Debt Securities directly to other purchasers or through agents.
The distribution of the Debt Securities may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Debt Securities, underwriters may receive
compensation from the Partnership or from purchasers of Debt Securities for whom
they may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell Debt Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agents. Underwriters, dealers and agents that participate in the
distribution of Debt Securities may be deemed to be underwriters, and any
discounts or commissions received by them from the Partnership and any profit on
the resale of Debt Securities by them may be deemed to be underwriting discounts
and commissions, under the Securities Act of 1933 (the "Act"). Any such
underwriter or agent will be identified, and any such compensation received from
the Partnership will be described, in the Prospectus Supplement.
Under agreements which may be entered into by the Partnership, underwriters
and agents who participate in the distribution of Debt Securities may be
entitled to indemnification by the Partnership against certain liabilities,
including liabilities under the Act.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with, and perform services for, the Company and the Partnership
in the ordinary course of business.
VALIDITY OF DEBT SECURITIES
The validity of the Debt Securities will be passed upon for the Partnership
by Hunton & Williams, Richmond, Virginia.
EXPERTS
The consolidated financial statements of the Partnership as of December 31,
1995 and 1994, and for the year ended December 31, 1995, and for the period from
March 23, 1994 (inception) to December 31, 1994, and the combined results of
Storage USA, Inc. (the "Predecessor") for the period from January 1, 1994
through March 23, 1994 and for the year ended December 31, 1993, appearing in
this Prospectus
15
<PAGE>
and Registration Statement have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as set forth in their report thereon included therein.
Such financial statements are included herein in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of the Company incorporated by
reference in its Annual Report on Form 10-K for the year ended December 31,
1995, and Historical Summaries of Combined Gross Revenue and Direct Operating
Expenses for the year ended December 31, 1994 included in the Company's Current
Report on Form 8-K filed on April 5, 1996, have been audited by Coopers &
Lybrand L.L.P., independent accountants, as set forth in their reports thereon
included therein and incorporated herein by reference. Such financial statements
are incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
16
<PAGE>
SUSA PARTNERSHIP, L.P.
INDEX TO FINANCIAL INFORMATION
<TABLE>
<C> <S> <C>
I. For the Quarter Ended March 31, 1996 (Unaudited)
Management's Discussion and Analysis of Financial Condition F-3
and Results of Operations.......................................................
Consolidated Balance Sheets....................................................... F-7
Consolidated Statements of Operations............................................. F-8
Consolidated Statements of Cash Flows (unaudited)................................. F-9
Notes to Consolidated Financial Statements........................................ F-10
II. For the Year Ended December 31, 1995
Management's Discussion and Analysis of Financial Condition F-14
and Results of Operations.......................................................
Consolidated Balance Sheets....................................................... F-25
Consolidated Statements of Operations............................................. F-26
Consolidated Statements of Cash Flows............................................. F-27
Consolidated Statement of Partners' Capital....................................... F-28
Consolidated Statements of Shareholders' Equity................................... F-29
Notes to Consolidated Financial Statements........................................ F-30
Report of Independent Accountants................................................. F-40
III. Selected Financial Data........................................................... F-41
IV. Schedule of Real Estate and Accumulated Depreciation.............................. F-42
Report of Independent Accountants................................................. F-47
</TABLE>
F-1
<PAGE>
SUSA PARTNERSHIP, L.P.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 1996
(UNAUDITED)
F-2
<PAGE>
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 SUSA Partnership, L.P. (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 March 31, 1995 to
March 31, 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 MARCH 31, 1996 COMPARED TO QUARTER ENDED
MARCH 31, 1995
In the first quarter of 1996, the Operating Partnership reported growth in
revenue, income from property operations and net income, respectively, of $9
million, $5.7 million and $2.9 million over the same quarter of 1995. Since
March 31,1995, the Operating Partnership has acquired 67 facilities and
completed construction and opened one new facility. These 68 facilities added
47,620 units, and 4.7 million square feet, bringing the total square feet and
units of the 166 facilities owned by the Operating Partnership at March 31, 1996
to 11.1 million square feet and 110,010 units, respectively. For the first
quarter of 1996, the 98 facilities owned during the first quarter of 1995,
provided 59% of the Operating Partnership's rental income. These same
facilities' rental income grew 7.2% over 1995 results. Most of this growth was
provided by rate increases. At March 31, 1996, the physical and economic
occupancy and rent per square foot on these facilities were 88%, 81%, and $9.61,
respectively, while the figures for the same period ended in 1995 were 87%, 79%,
and $8.93, respectively. The Operating Partnership's portfolio as a whole had
average occupancy at March 31, 1996 of 88% physical and 81% economic, with an
average rent per square foot of $9.40. Management income for the quarter ended
March 31, 1996 remained relatively consistent with the comparable period in
1995. Other income, which reflects primarily sales of lock and packaging
products and truck rentals, increased primarily due to property acquisitions.
Cost of property operations and maintenance was $5.7 million for the quarter
ended March 31, 1996, representing a $2.4 million increase over the first
quarter of 1995. Cost of property operations and maintenance was 27% of revenues
for both the quarter ended March 31, 1996 and for the quarter ended March 31,
1995.
Real estate tax expense increased from $.8 million or 6.5 % of revenues for
the quarter ended March 31, 1995 to $1.7 million or 7.9% of revenue for the
quarter ended March 31, 1996. This growth as a percentage of revenue reflects
the impact of reassessments on the properties purchased during 1994
F-3
<PAGE>
and 1995. The majority of the increase is attributable to reassessments on
acquisitions with the remainder attributable to increased tax rates or
reassessments on properties owned for a full year. The Operating Partnership
expects real estate tax expense as a percentage of revenues for the remainder of
1996 to remain consistent with the first quarter.
General and administrative expense increased $0.3 million to $0.8 million
for the first quarter of 1996 from the comparable quarter of 1995. As a
percentage of revenues the expense fell from 4.2% for the quarter ended March
31, 1995 to 3.6% for the quarter ended March 31, 1996. The Operating Partnership
expects that the expense will decline further as a percentage of revenue in
1996, while the gross expense will grow as the Operating Partnership expands its
accounting, management information systems, and human resource departments, in
connection with its ongoing growth strategy.
Depreciation expense increased to $2.7 million for the quarter ended March
31, 1996 from $1.6 million for the comparable period in 1995, reflecting the
increase in the number of facilities owned. The Operating Partnership has
acquired approximately $179 million in depreciable assets since April 1, 1995.
Interest expense for the quarter ended March 31, 1996 was $1.7 million as
compared to $0.2 million for the comparable period in 1995. 1996 interest
expense represents weighted average borrowings of $105 million under the
Operating Partnership's lines of credit at a weighted average interest rate of
6.1%.
Interest income was $0.15 million for the quarter ended March 31, 1996 as
compared to $0.01 million for the quarter ended March 31, 1995. 1996 interest
income represents earnings on overnight deposits and amounts contributed by the
Company from earnings under the Company's 1995 Employee Stock Purchase and Loan
Plan.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations grew to $10.9 million for the three months
ended March 31, 1996 from $5.9 million for the three months ended March 31,
1995. This increase is a result of the Operating Partnership's net income
growing $2.9 million or 48% primarily as a result of the increase in number of
facilities owned, and the improvement of operations at the facilities acquired
plus depreciation and amortization of $2.7 million.
The Operating Partnership's first quarter investing activities consisted of
six facility acquisitions for approximately $22 million. In addition, the
Operating Partnership acquired three parcels of land for $2.2 million to permit
expansion of two facilities and the construction of a new self-storage facility.
Three new property constructions are underway at an estimated cost of $11
million. Completion dates range from the second quarter of 1996 through 1997. A
total of 15 expansion projects are in process with an estimated cost of $12 to
$13 million with openings scheduled for late 1996 into 1997. The Operating
Partnership currently plans to the develop 11 new facilities primarily in the
Washington, D.C. and Memphis, TN metropolitan areas. The Operating Partnership
expects that the cost of the land, the facility construction costs and the soft
costs, such as capitalized interest, will total approximately $42 million. These
contracts are subject to zoning approvals and other contingencies, and assuming
successful completion of the development and construction process, the
properties are expected to open during 1997 and 1998.
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, initially place two of its nominees on the Company's Board of
Directors, one of whom the Company has been informed will be William D. Sanders,
Chairman of the Board and Chief Executive Officer of Security Capital Group, 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
F-4
<PAGE>
Registration Rights Agreement with US Realty. The Company contributed the
proceeds of the offering to the Operating Partnership, which used the proceeds
to pay off $43.4 million of borrowings under the available lines of credit, for
property acquisitions, and for working capital.
At March 31, 1996, the Operating Partnership had $64.2 million of borrowings
outstanding on its line 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. The Operating Partnership had $40.9 million of
unused borrowing capacity under its lines of credit at March 31, 1996.
During the quarter, the Operating Partnership issued approximately 48,000
units of limited partnership interest valued at approximately $1.5 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 $55.8 million.
These acquisitions are subject to customary conditions to closing, including
satisfactory due diligence and should close during the second quarter. Should
these contracts be disapproved, the costs incurred by the Operating Partnership
would be immaterial.
On April 10, 1996, the Operating Partnership filed a shelf registration
statement relating to $250 million of unsecured non convertible senior debt
securities which 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 Company'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 $104,000 and $50,000 for
the three months ended March 31, 1996 and March 31, 1995, respectively. Because
certain REITs may have not yet adopted the amended method of FFO computation,
the Company's FFO and FFO per share may not be comparable to similarly titled
measures of other REITs.
The following table illustrates the components of the Operating
Partnership's FFO for the quarters ended March 31, 1996 and March 31, 1995.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
MARCH 31, 1996 MARCH 31, 1995
--------------- ---------------
<S> <C> <C>
Net Income..................................................... $ 8,886 $ 5,939
Depreciation of real property.................................. 2,445 1,234
Amortization of lease guarantees............................... 53 192
Amortization of non-compete.................................... 62 63
--------------- -------
Consolidated FFO............................................... $ 11,446 $ 7,428
--------------- -------
--------------- -------
</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. For the
year ended December 31, 1995, those distributions were approximately 85% of the
Company's FFO. 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 the Operating
Partnership's goal is to generate and retain
F-5
<PAGE>
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.
The Operating Partnership has incurred approximately $0.2 million for
regularly scheduled maintenance and repairs during the three months ended March
31, 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 continued to elect expense recognition under APB 25, and
disclosing pro forma net income, and earnings per share information based on the
FAS123 fair value methodology.
F-6
<PAGE>
SUSA PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
AS OF AS OF
MARCH 31, DECEMBER 31,
1996 1995
------------ ---------------
(AMOUNTS IN THOUSANDS,
EXCEPT UNIT DATA)
(unaudited)
Investment in storage facilities, at cost:
Land...................................................... $ 147,113 $ 139,603
Buildings and equipment................................... 391,050 369,694
------------ ---------------
538,163 509,297
Accumulated depreciation.................................. (17,031) (14,561)
------------ ---------------
521,132 494,736
Cash & cash equivalents................................... 2,985 2,802
Other assets.............................................. 11,133 11,987
------------ ---------------
Total assets............................................ $ 535,250 $ 509,525
------------ ---------------
------------ ---------------
<CAPTION>
LIABILITIES & SHAREHOLDERS' EQUITY
<S> <C> <C>
Line of credit borrowings................................... $ 64,165 $ 107,605
Mortgage notes payable...................................... 6,612 6,670
Accounts payable & accrued expenses......................... 3,295 5,910
Distributions payable....................................... 10,149 --
Rents received in advance................................... 4,184 3,680
Minority interest........................................... 515 524
------------ ---------------
Total liabilities....................................... 89,920 124,389
------------ ---------------
Partners' capital:
General partnership units, 19,552,645 and 17,562,363
outstanding.............................................. 425,362 364,947
Limited partnership units 1,073,231 and 1,025,423
outstanding.............................................. 28,948 26,916
Notes receivable -- officers.............................. (7,980) (6,727)
------------ ---------------
Total partners' capital................................. 446,330 385,136
------------ ---------------
Total liabilities & partners' capital................... $ 535,250 $ 509,525
------------ ---------------
------------ ---------------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
SUSA PARTNERSHIP, L.P
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
-------------------- --------------------
(AMOUNTS IN THOUSANDS,
EXCEPT PER UNIT DATA)
<S> <C> <C>
REVENUES:
Rental income...................................................... $ 20,819 $ 11,921
Management income.................................................. 240 244
Other income....................................................... 274 147
-------- --------
Total revenues................................................... 21,333 12,312
-------- --------
EXPENSES:
Cost of property operations & maintenance.......................... 5,733 3,290
Real estate taxes.................................................. 1,693 806
General & administrative........................................... 780 512
Depreciation & amortization........................................ 2,670 1,569
-------- --------
Total expenses................................................... 10,876 6,177
-------- --------
INCOME FROM OPERATIONS............................................... 10,457 6,135
OTHER INCOME (EXPENSE)
Interest expense................................................... (1,665) (157)
Interest income.................................................... 155 15
-------- --------
INCOME BEFORE MINORITY INTEREST...................................... 8,947 5,993
Minority interest.................................................. (61) (54)
-------- --------
NET INCOME........................................................... $ 8,886 $ 5,939
-------- --------
-------- --------
NET INCOME PER UNIT.................................................. $ 0.47 $ 0.43
WEIGHTED AVERAGE UNITS OUTSTANDING................................... 18,617 13,727
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
SUSA PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
-------------------- --------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income......................................................... $ 8,886 $ 5,939
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................... 2,670 1,569
Minority interest................................................ 61 54
Changes in assets and liabilities:
Other assets................................................... 1,583 (660)
Other liabilities.............................................. (2,109) (1,078)
-------- --------
Net cash provided by operating activities.................... 11,091 5,824
-------- --------
INVESTING ACTIVITIES:
Acquisition and improvements of storage facilities................. (27,329) (12,065)
Development of storage facilities.................................. (930) --
-------- --------
Net cash used in investing activities........................ (28,259) (12,065)
-------- --------
FINANCING ACTIVITIES:
Net borrowings/(repayments) under line of credit................... (43,440) 5,850
Mortgage principal payments........................................ (58) (11)
General partner contributions...................................... 60,919
Distributions to minority interests................................ (70) (60)
-------- --------
Net cash provided by financing activities.................... 17,351 5,779
-------- --------
Net increase (decrease) in cash and equivalents...................... 183 (462)
Cash and equivalents, beginning of period............................ 2,802 3,331
-------- --------
Cash and equivalents, end of period.................................. $ 2,985 $ 2,869
-------- --------
-------- --------
Supplemental schedules of non-cash activities:
Storage facilities acquired in exchange for Operating Partnership
Units............................................................. $ 1,538 --
Operating Partnership Units issued in exchange for notes
receivable........................................................ $ 1,253 --
-------- --------
-------- --------
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(THOUSANDS, EXCEPT 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 Company'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.
3. PARTNERSHIP CAPITAL
FORMATION OF STRATEGIC ALLIANCE
On March 1, 1996, the Company, as corporate general partner, 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, one of whom the Company has been informed will be William D. Sanders,
Chairman of the Board and Chief Executive Officer of Security Capital Group, 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.
After the Strategic Alliance has been approved by the shareholders of the
Company, and prior to December 31, 1996, the Company will issue to US Realty an
additional 5,079,872 shares of the Company's common stock at the same price for
an aggregate of $159,000. After acquiring the additional shares (and assuming no
other change in the number of outstanding shares) US Realty will own
approximately 28.6% of the outstanding Common Stock. The proceeds of additional
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.
The Company has 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 have been submitted to shareholders for
approval at the Company's 1995 annual meeting to be held June 5, 1996.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(THOUSANDS, EXCEPT PER UNIT DATA)
3. PARTNERSHIP CAPITAL (CONTINUED)
EMPLOYEE STOCK PURCHASE AND LOAN PLAN
The Company established the 1995 Employee Stock Purchase and Loan Plan.
Under the terms of the partnership agreement, all proceeds from the issuance of
common stock under the plan are contributed to the Operating Partnership in
exchange for Operating Partnership units. In March of 1996, the Company issued
40,000 shares of its common stock under the 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 March 31, 1996, there are 270,000 shares
outstanding under the plan.
4. INVESTMENT IN STORAGE FACILITIES
The following summarizes activity in storage facilities during the period:
<TABLE>
<CAPTION>
COST:
<S> <C>
Balance on January 1, 1996..................................... $ 509,297
Property acquisitions.......................................... 24,578
Land acquisitions.............................................. 2,200
Improvements................................................... 2,088
---------
Balance at March 31, 1996.................................... $ 538,163
---------
---------
ACCUMULATED DEPRECIATION:
Balance at January 1, 1996..................................... $ 14,561
Additions during the period.................................... 2,470
---------
Balance at March 31, 1996.................................... $ 17,031
---------
---------
</TABLE>
Unaudited pro forma combined results of operations of the Operating
Partnership for three months ended March 31, 1996 are presented below. Such pro
forma presentation has been prepared assuming that the acquisition of the 6
properties acquired during the quarter had been completed as of January 1, 1996.
<TABLE>
<CAPTION>
PRO FORMA FOR
QUARTER ENDED
MARCH 31, 1996
---------------
<S> <C>
Revenues......................................................................... $ 22,224
Net income....................................................................... $ 9,271
Earnings per unit................................................................ $ 0.49
</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. LINE OF CREDIT BORROWINGS
Line of credit borrowings at March 31, 1996 consists of $64,165 of
borrowings under a $75,000 line of credit with a group of commercial banks. This
line bears interest at various spreads over a base rate based on the Operating
Partnership's debt service coverage. During the first quarter of 1996, the
weighted average borrowing was $105,540, and the weighted average interest rate
was 6.1%. The Operating Partnership also has a line of credit with a commercial
bank which bears interest at Prime or
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
(THOUSANDS, EXCEPT PER UNIT DATA)
5. LINE OF CREDIT BORROWINGS (CONTINUED)
LIBOR plus 2.25%. During the quarter, the commercial bank agreed to release the
mortgages collateralizing the line and increase the amount available under the
line from $23 million to $30 million, with an initial maturity of July 1, 1996.
6. INTEREST RATE SWAP AGREEMENT
In anticipation of a debt offering in 1996, the Operating Partnership
entered into an interest rate swap agreement in October 1995, with the objective
of reducing its exposure to future interest rate fluctuations. The agreement
involved the exchange of a variable rate for a fixed rate interest payment
obligation. On March 8, 1996, the Operating Partnership closed the interest rate
swap agreement and received proceeds of approximately $50. The Operating
Partnership filed a $250,000 debt shelf registration statement on Form S-3 with
the Securities and Exchange Commission on April 10, 1996. Upon successful
completion of an offering of unsecured debt securities under the shelf, the
Operating Partnership will recognize the gain as a yield adjustment over the
life of the debt.
7. COMMITMENTS AND CONTINGENCIES
PROPERTY DEVELOPMENT
The Operating Partnership has entered into an agreement to develop a
self-storage facility in Northern Virginia. The facility will be owned by the
Operating Partnership and an unaffiliated third party. Under the terms of the
agreement the Operating Partnership is required to fund the cost of
construction, which is currently estimated to be approximately $6,500. As of
March 31, 1996, the Operating Partnership has incurred costs of approximately
$4,183. The facility is expected to be complete by the second quarter of 1996.
8. SUBSEQUENT EVENTS
Subsequent to March 31, 1996, the Operating Partnership has completed the
acquisition of five self-storage facilities for approximately $16,000. These
acquisitions were financed through operating cash flows and borrowings under the
available line of credit. The Operating Partnership has entered into various
property acquisition contracts with an aggregate cost of approximately $55,800.
These acquisitions are subject to customary conditions to closing, including
satisfactory due diligence and should close during the second quarter. Should
these contracts be disapproved, the costs incurred by the Operating Partnership
would be immaterial.
F-12
<PAGE>
SUSA PARTNERSHIP, L.P.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
F-13
<PAGE>
SUSA PARTNERSHIP, L.P.
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 SUSA Partnership, L.P. (the "Operating
Partnership") should be read in conjunction with the Consolidated Financial
Statements and Notes thereto. Storage USA, Inc. (the "Company") is the sole
general partner in the Operating Partnership and is a self-administered,
self-managed real estate investment trust ("REIT"). As discussed in Note 1 to
the Consolidated Financial Statements, the Operating Partnership's 1994 results
of operations are presented from March 24, 1994, the date the Operating
Partnership commenced operation. As discussed in Note 11 to the Consolidated
Financial Statements, the accompanying combined financial statements for the
periods prior to March 24, 1994, present only the "carved out" accounts of
Storage USA, Inc. (the "Predecessor") comprised of the combined assets,
liabilities, and operations of the Predecessor preceding the IPO, including 11
owned facilities and 6 controlled facilities and Storage USA Management Corp.
The Predecessor completed its initial public offering (the "IPO") on March 23,
1994, forming the Company and the Operating Partnership. References to the
"Operating Partnership" include SUSA Management, Inc., a wholly owned
subsidiary.
Due to the substantial number of facilities acquired during 1995 and 1994,
management believes that it is meaningful and relevant in understanding the
present and ongoing operations of the Operating Partnership to compare
information using occupancy, per square foot and pro forma data. The assumptions
underlying the pro forma data presented are described under "Pro Forma Results
of Operations for the period January 1, 1994 through December 31, 1994."
OVERVIEW:
In 1995, the Operating Partnership continued executing its strategy of
acquiring suitably located, under-performing facilities that offer upside
potential due to low occupancy rates or non-premium pricing. During the year,
the Operating Partnership invested $220 million in acquiring 63 facilities. In
addition, the Operating Partnership pursued development opportunities in
selective markets, specifically the San Francisco, Memphis, and Washington, D.C.
areas. The Operating Partnership invested $4.7 million in acquiring 11 parcels
of land for expansion of existing facilities and $0.8 million acquiring a parcel
of land to be developed. The 1995 financial results reflect the continuing
implementation of this acquisition and development strategy.
Contributions to the Operating Partnership's revenue growth came from
successful execution of both external and internal growth strategies. The
Operating Partnership continues to purchase properties on an accretive basis.
Internal growth remained strong during 1995. The 96 properties owned at December
31, 1994 demonstrated total revenue growth of 7.2% and NOI growth of 4.6% over
the pro forma 1994 results. The lower rate of NOI growth reflects the fact that
the pro forma expense is based on the previous operator's expense structure for
the period prior to acquisition, and the Operating Partnership's expense
structure is generally higher than that of the previous operator. The Operating
Partnership expects that when comparing its actual "same store" results, NOI
growth will generally exceed revenue growth, similarly to the 67 facilities
described herein. The Operating Partnership considers facilities to be suitable
for a year-over-year results comparison only after four complete quarters of
operation by the Operating Partnership. For example, if a facility was purchased
in January of 1995, the Operating Partnership would consider it suitable for a
year-over-year comparison beginning with the second quarter of 1996. The 67
properties owned by the Operating Partnership for the entire fourth quarter of
1994, experienced 5.2% rental income growth and 7.7% NOI growth for the fourth
quarter of 1995 over the same quarter in 1994. The Operating Partnership
believes that once it implements its property operations expense structure, its
Direct Property Operations Costs should increase on a year-over-year basis in a
more predictable pattern.
F-14
<PAGE>
In 1995, the Operating Partnership experienced cost growth principally in
the areas of real estate tax and Indirect Property Operations Cost. The
Operating Partnership's cost to manage, or Indirect Property Operations Cost,
grew during 1995 to a year-end result of $3.3 million or 4.9% of total revenues.
This was a result of the Operating Partnership's planning and structuring for
continued growth. The Operating Partnership added four district offices during
the year, and added regional coordinators and trainers at each of its four
regional offices. The personnel additions allow the Operating Partnership to
shift to the regional offices certain duties that were previously performed at
the Partnership's home office. During the fourth quarter of 1995, the Operating
Partnership began to experience growth in property tax expense as a result of
revised assessments on acquired facilities. In the initial period following the
Operating Partnership's purchase of a facility, the Operating Partnership is
subject to reassessments which may result in increased real estate tax expense
for the facility. While these increases are estimated by the Operating
Partnership in underwriting the acquisitions of the facility, they may not
actually be incurred by the Operating Partnership until generally 12-24 months
after closing. In the periods that follow the initial reassessment, increases in
property tax expense becomes more predictable.
The Operating Partnership expects to continue implementing its strategies
for growth in 1996. The addition of Indirect Property Operations Cost in 1995
will allow the Operating Partnership capacity to add more facilities in the
future, assuming an even distribution of the facilities in the Operating
Partnership's existing markets. Acquisitions continue to be available at
attractive capitalization rates and at prices that approximate replacement cost.
Development efforts will intensify in 1996, with the Operating Partnership
planning to have 500,000 square feet under development during 1996. This
development includes expansion of existing facilities as well as new
construction. The Operating Partnership considers a project to enter the
development stage when it obtains a conditional contract on the land, which
generally is subject to rezoning or special use permits. The Operating
Partnership will normally not acquire land until it is satisfied it can obtain
the entitlements required to develop a self-storage facility. Typical
self-storage facility construction costs range from $22 to $25 per net rentable
square foot. Land costs vary by location, with the Operating Partnership's past
experience being $12 to $35 per buildable square foot. Soft costs, such as
capitalized interest, can add $4 to $9 per net rentable square foot. The
Operating Partnership's development policy requires a projected 12.5% return at
stabilization, in order for the Operating Partnership to develop a facility. The
Operating Partnership considers a property at stabilization when it reaches an
85% physical occupancy level, which generally occurs over an 18 - 24 month
lease-up period. The 1996 development efforts are not expected to have a
material impact on earnings.
In 1996, the Operating Partnership anticipates funding its capital
requirements through a contribution from the Company following the sale of 7.03
million shares of common stock of the Company at $31.30 per share to the
Company's strategic alliance partner, Security Capital U.S. Realty, pursuant to
a Stock Purchase Agreement entered into on March 1, 1996. In addition, the
Operating Partnership anticipates filing a shelf registration statement relating
to $250 million of unsecured, nonconvertible senior debt securities, which
should enable the Operating Partnership to access the public debt markets
efficiently at opportune times.
RESULTS OF OPERATIONS:
YEAR ENDED DECEMBER 31, 1995, AS COMPARED TO PERIOD MARCH 24, 1994 (INCEPTION)
THROUGH DECEMBER 31, 1994:
In 1995, the Operating Partnership reported growth in revenue, income from
property operations, and net income, respectively, of $42.2 million, $27.3
million, and $18.2 million over the prior period. Compared to pro forma results
for 1994, the Operating Partnership's revenues grew $21.0 million, income from
property operations increased $12.2 million and net income rose $5.9 million.
These
F-15
<PAGE>
significant increases are primarily attributable to both the Operating
Partnership's aggressive acquisition strategy and aggressive rental rate
increases. Facility acquisitions during 1995, by quarter, were as follows
(dollar and square footage amounts in thousands):
<TABLE>
<CAPTION>
NET
NUMBER OF RENTABLE
1995 FACILITIES COST SQUARE FEET
- ------------------------------------------------------------ ---------- -------- -----------
<S> <C> <C> <C>
Quarter ended March 31,..................................... 2 $ 7,080 180
Quarter ended June 30,...................................... 34 119,788 2,248
Quarter ended September 30,................................. 14 56,682 1,110
Quarter ended December 31,.................................. 13 36,450 890
--
-------- -----
63 $220,000 4,428
--
--
-------- -----
-------- -----
</TABLE>
These acquisitions added 44,000 units, bringing the total square feet and
units of the 159 facilities owned by the Operating Partnership at December 31,
1995 to 10,715,000 and 105,000, respectively. For the year, the 96 facilities
owned on December 31, 1994, provided 74% of the Operating Partnership's rental
income. These facilities' rental income grew 9.1% over pro forma 1994 results.
Approximately 8% of this growth was provided by rate increases. At December 31,
1995, the physical and economic occupancy and rent per square foot on these
facilities was 88%, 81%, and $9.24, respectively. The Operating Partnership's
portfolio as a whole had average occupancy at December 31, 1995, of 88% physical
and 81% economic, with an average rent per square foot of $8.93.
Management income increased $365 thousand over the prior period, and $216
thousand over the 1994 pro forma results. The pro forma variance reflects the
addition of three managed facilities and management during the year of
facilities that were subsequently purchased by the Operating Partnership.
Other Income, which consists primarily of sales of lock and packaging
products and truck rentals, increased 4% over the prior period. This increase
reflects primarily the growth in the number of facilities owned.
Cost of property operations and maintenance was 27.2% of revenue for 1995 as
compared to 26.5% for the prior period. This increase reflects the addition of
Indirect Property Operations Cost to support the level of growth experienced in
1995 and planned in 1996.
Real estate taxes were 7.2% of revenue for 1995 as compared to 6.5% for the
prior period and 6.8% for the pro forma results. This growth as a percentage of
revenue reflects the impact of reassessments on the properties purchased during
1994 and 1995. The majority of the increase is attributable to reassessments on
acquisitions with the remainder attributable to increased tax rates or
reassessments on properties owned for a full year. The Operating Partnership
expects continued modest real estate tax expense growth as a percentage of
revenues in 1996.
Direct Property Operating Cost was 29.9% of rental income, both on the 96
properties owned at December 31, 1994 and the portfolio as a whole. The property
level margins remained consistent from 1994 to 1995.
General and Administrative ("G&A") expense declined as a percentage of total
revenue as compared to the prior period and was consistent as compared to the
1994 pro forma results. 1995 G&A expense was $2.6 million, or 3.8% of total
revenue as compared to $1.4 million or 5.3% in the prior period. G&A was $762
thousand for the quarter ended December 31, 1995 and the Operating Partnership
expects that the expense will decline further as a percentage of revenue in
1996, while the gross expense will grow as the Operating Partnership expands its
accounting, management information systems, and human resource departments, in
connection with its ongoing growth strategy.
F-16
<PAGE>
The increase in depreciation and amortization to $8.6 million from $2.9
million in the prior period and $5.7 million on a pro forma basis reflects the
Operating Partnership's acquisition of $220 million of facilities in 1995. In
addition, the Operating Partnership amortized $903 thousand of the loan fees
related to short term borrowings in 1995. As of December 31, 1995, the Operating
Partnership has unamortized loan fees of approximately $230 thousand.
Interest expense was $3.0 million in 1995, a $1.6 million increase over the
prior period. 1995 interest expense represents weighted average borrowings of
$47.2 million under the Operating Partnership's lines of credit at a weighted
average interest rate of 6.4%.
Interest income in 1995 was $166 thousand, as compared to $658 thousand in
1994. 1995 interest income represents earnings on overnight deposits and amounts
outstanding under the 1995 Employee Stock Purchase and Loan Plan, while the
prior period reflected the temporary investment of a portion of the proceeds
from the Company's two common stock offerings during the Period.
PERIOD MARCH 24, 1994 (INCEPTION) THROUGH DECEMBER 31, 1994:
The Operating Partnership reported rental income of $24.7 million, income
before minority interest of $12.3 million and net income of $12.1 million during
the Period. These results reflect the significant portfolio expansion that
occurred during 1994. On March 23, 1994, 17 facilities were contributed by the
Company (the "Original Properties") to the Operating Partnership. Property
acquisitions by quarter were as follows (dollar and square footage amounts in
thousands):
<TABLE>
<CAPTION>
NET
NUMBER OF RENTABLE
1994 FACILITIES COST SQUARE FEET
- ------------------------------------------------------------ ---------- -------- -----------
<S> <C> <C> <C>
Quarter ended March 31,..................................... 26 $ 65,193 1,743
Quarter ended June 30,...................................... 12 25,004 596
Quarter ended September 30,................................. 12 40,796 797
Quarter ended December 31,.................................. 29 83,831 1,991
--
-------- -----
79 $214,824 5,127
--
--
-------- -----
-------- -----
</TABLE>
The rental revenues reflect the weighted average per square foot rent
increases ranging from 4.9% for some of the facilities acquired during the
second quarter to 6.9% for facilities acquired during the first quarter.
There were no rent increases implemented at three of the facilities acquired
during the quarter ended June 30 nor at any of the facilities acquired during
the quarters ended September 30 and December 31. The Operating Partnership
generally operates an acquisition facility for three to six months prior to
implementing rent increases. At December 31, 1994, the Operating Partnership's
physical and economic occupancy and rent per square foot were 87%, 81% and
$8.53, respectively.
Cost of operations and maintenance expense was $6.9 million, or 26.5% of
revenue. The expense reflects the direct cost of operating the 96 properties
owned by the Operating Partnership at December 31, 1994. The ratio is
approximately 4% higher than the pro forma ratio in the Company's Prospectus,
dated September 22, 1994. The 4% increase reflects the Operating Partnership's
level of acquisition during the fourth quarter as there tends to be a slight
time lag between the cost structure the Operating Partnership puts in place at
an acquisition facility and the related impact of the Operating Partnership's
rent increases.
Real estate tax expense was $1.7 million or 6.5% of revenue. The Operating
Partnership evaluates real estate taxes on a property by property basis and
appeals assessments where it deems the action warranted.
F-17
<PAGE>
General and Administrative expense was $1.4 million in 1994, reflecting
growth in the number of facilities owned.
The 1994 depreciation expense of $2.9 million reflects the expansion in the
number of facilities owned. The facilities acquired during the Period had an
average depreciable base of 73% of cost.
Interest expense was $1.4 million. The Operating Partnership had a weighted
average of approximately $20.5 million in debt outstanding during the Period at
a weighted average interest rate of 6.8%.
Interest income was $0.7 million reflecting the temporary investment of a
portion of the proceeds contributed by the Company from the Company's two common
stock offerings during the Period.
YEAR ENDED DECEMBER 31, 1995, RESULTS OF THE OPERATING PARTNERSHIP AS COMPARED
TO THE COMBINED (HISTORICAL) YEAR ENDED DECEMBER 31, 1994 RESULTS OF THE
PREDECESSOR AND THE OPERATING PARTNERSHIP:
Rental Income increased $39.4 million (146%) primarily as a result of rental
rate increases, and an increase in the number of facilities owned as a result of
the Operating Partnership acquiring 63 facilities during fiscal year 1995.
Management income increased $.18 million (20%) reflecting the addition of three
managed facilities and management during the year of facilities that were
subsequently purchased by the Operating Partnership.
Cost of property operations and maintenance increased $10.8 million (142%)
as a result of an increase in the number of facilities owned during fiscal year
1995. Cost of property operations and maintenance was 27.2% of revenue for 1995
as compared to 26.9% for the combined 1994 period.
Real estate taxes increased $3.1 million (166%) as a result of additional
expenses due to acquisitions of 63 facilities during fiscal year 1995 and the
impact of property reassessments. Real estate taxes were 7.2% of revenue for
1995 as compared to 6.5% for the combined 1994 period.
General and administrative (G&A) expense increased $.9 million (51%) as a
result of additional expenses incurred to support the Operating Partnership's
aggressive growth strategy. G&A expense was 3.8% of revenue for 1995 as compared
to 6.0% for the combined 1994 period. This decline as a percentage of revenue
reflects an overall increase in revenue over the prior year.
Depreciation and amortization expense increased $5.5 million (175%) due to
the acquisition of $220 million of facilities in 1995, as well as the impact of
recognizing a full years of depreciation on the facilities acquired in the prior
period.
Interest expense increased $.4 million reflecting the changes in the
Operating Partnership's debt structure between the periods.
COMBINED (HISTORICAL) YEAR ENDED DECEMBER 31, 1994 RESULTS OF THE PREDECESSOR
AND THE OPERATING PARTNERSHIP, AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
RESULTS OF THE PREDECESSOR:
Rental Income increased $17.0 million (170%) primarily as a result of rental
rate increases, and an increase in the number of facilities owned as a result of
the Operating Partnership acquiring 79 facilities during fiscal year 1994.
Management income increased $.04 million (4%) reflecting growth in revenues at
managed properties.
Cost of property operations and maintenance increased $4.5 million (144%) as
a result of the Company operating 96 facilities during 1994, as compared to 17
facilities in 1993. Cost of property operations and maintenance was 26.9% of
revenue for the combined 1994 period as compared to 28.0% for 1993.
F-18
<PAGE>
Real estate taxes increased $1.2 million (169%) as a result of an increase
in the number of properties owned during the combined periods of 1994. Real
estate taxes were 6.5% of revenue for the combined 1994 period as compared to
6.1% for 1993. General and administrative (G&A) expense increased $.9 million
(104%) as a result of additional expenses incurred to support the current and
future growth in the number of facilities and the related increased requirements
for accounting, management information systems, and administrative personnel.
G&A expense was 6.0% of revenue for the combined 1994 period, as compared to
7.4% for 1993.
Depreciation and amortization expense increased $1.8 million (138%) as the
Operating Partnership acquired 79 facilities for approximately $214 million
during 1994.
Interest expense decreased $1.8 million as a result of the Predecessor's
outstanding mortgage debt balance being significantly reduced through the use of
the proceeds from the Company's March 1994 initial public offering.
PRO FORMA RESULTS OF OPERATIONS FOR THE PERIOD JANUARY 1, 1994 THROUGH
DECEMBER 31, 1994:
The Operating Partnership believes that pro forma results of operations
provide a meaningful and relevant understanding of the Operating Partnership's
results as if it had been operating since January 1, 1994. The following pro
forma results of operations were prepared as if: (i) the sale in the IPO of
6.325 million shares of the Company's common stock for aggregate proceeds of
approximately $125.8 million, the related transactions and the contributions of
the proceeds to the Operating Partnership, (ii) the sale of 5.980 million shares
of the Company's common stock for aggregate proceeds of approximately $155.5
million in a secondary offering, the related transactions, and the contributions
of the proceeds to the Operating Partnership, and (iii) the acquisition of the
79 facilities acquired during the year, had taken place on January 1, 1994.
The pro forma information is not necessarily indicative of the results of
operations which may have occurred if such transactions had been consummated on
January 1, 1994, nor does it purport to represent the results of operations for
future periods.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
<S> <C>
Revenues:
Rental income............................................. $45,093
Management income......................................... 856
Other income.............................................. 1,045
-------
Total revenues.......................................... 46,994
-------
Expenses:
Cost of property operations and maintenance............... 11,328
Real estate taxes......................................... 3,206
General and administrative................................ 1,794
Depreciation and amortization............................. 5,738
-------
Total expenses.......................................... 22,066
-------
Income from operations...................................... 24,928
Other income (expense)
Interest expense.......................................... (446)
Interest income........................................... 23
-------
Net income before minority interest......................... $24,505
-------
-------
</TABLE>
F-19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
CAPITAL RESOURCES:
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, initially place two of its nominees on the Company's Board of
Directors, one of whom the Company has been informed will be William D. Sanders,
Chairman of the Board and Chief Executive Officer of Security Capital Group, 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, and
contributed the proceeds to the Operating Partnership. At the same time, the
Company executed a Strategic Alliance Agreement and a Registration Rights
Agreement with US Realty.
The Company believes that the Strategic Alliance represents an attractive
opportunity to improve long-term shareholder value by providing the Company with
access to significant additional financial and strategic resources not otherwise
readily available to it, thereby enhancing the Company's short-term and
long-term growth prospects and better positioning it to capitalize on
opportunities as the REIT industry matures.
After the Strategic Alliance has been approved by the shareholders of the
Company, and prior to December 31, 1996, the Company will issue to US Realty an
additional 5,079,872 shares of the Company's common stock at the same price.
After acquiring the additional shares (and assuming no other change in the
number of outstanding shares), US Realty will own approximately 28.6% of the
outstanding Common Stock. The Company has 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 are expected to be
submitted to shareholders for approval at the Company's 1996 annual meeting.
Pursuant to the terms of the Partnership Agreement, the Company intends to
contribute proceeds received from US Realty to the Operating Partnership.
The Operating Partnership expects to finance the acquisition and development
of self-storage facilities primarily through the Company's issuance of equity
securities and the contribution of the proceeds to the Operating Partnership by
the Company, and the Operating Partnership issuance of debt securities. As
described above under "Strategic Alliance with Security Capital U.S. Realty,"
pursuant to the Strategic Alliance with US Realty the Company issued to US
Realty 1,948,882 shares of common stock for $61 million on March 19, 1996, and
expects to issue an additional 5,079,872 shares of common stock for $159 million
on or prior to December 31, 1996.
The Operating Partnership anticipates filing a shelf registration statement
relating to $250 million of unsecured, nonconvertible debt securities. In
addition, the Company has outstanding a shelf registration statement covering
approximately $75 million of unallocated equity securities. These registration
statements should permit the Operating Partnership and the Company to access the
public capital markets efficiently when it deems appropriate.
The Operating Partnership anticipates using the proceeds of the Company's
common stock issuance to U.S. Realty for acquisition and development of
self-storage facilities. The proceeds from any debt or equity offering by the
Operating Partnership or the Company would be used to repay borrowings under the
Operating Partnership's lines of credit used to finance acquisitions or
development and for general purposes. As a general matter, the Operating
Partnership anticipates utilizing its lines of credit as an interim source of
funds to acquire and develop self-storage facilities and repaying the credit
lines with longer-term debt or equity when management determines that market
conditions are favorable. The
F-20
<PAGE>
Operating Partnership believes that the combination of the Company's common
stock issuance pursuant to the Strategic Alliance, and debt or equity issuances
pursuant to the shelf registration statements, in addition to borrowings under
its credit facilities and issuances of Operating Partnership Units, as described
below, will provide the Operating Partnership with necessary liquidity and
capital resources to meet the requirements of its operating strategies in 1996.
On February 8, 1995, the Operating Partnership entered into a Credit
Agreement for a $55 million unsecured revolving line of credit (the "Line") with
a financial institution acting as an agent for a group of lenders. On October
31, 1995, the First Amendment to the Credit Agreement was entered into by the
Operating Partnership increasing the aggregate commitment available under the
Line to $75 million. The Line had an initial termination date of February 8,
1996, with the Operating Partnership having an option to extend the term for two
successive one-year periods. The Operating Partnership has exercised that right
and has extended the maturity on the Line to February 1997. The Line bears
interest at various spreads (75 basis points at March 1, 1996) over LIBOR based
on the Operating Partnership's debt service coverage. On December 31, 1995, the
Operating Partnership entered into a $25 million unsecured term loan facility
(the "Facility") with the same agent as on the Line. The Facility has a maturity
date of December 21, 1996, and bears interest at various spreads (135 basis
points at March 1, 1996) over LIBOR.
In addition to the $75 million Line, the Operating Partnership has a $30
million unsecured line of credit with a commercial bank with an initial maturity
date of July 1, 1996. This line of credit was increased from $15 million to $23
million in November 1995 and increased to $30 million after year end. In
connection with the last increase, the lender released its security interest in
13 self-storage facilities that previously had been pledged by the Operating
Partnership. This line of credit, at the option of the Operating Partnership,
bears interest at Prime or LIBOR plus 2.25%.
The Operating Partnership assumed a $2.4 million mortgage on a facility
acquired during September 1995. The mortgage bears interest at 8.375% and
matures in 2006.
At December 31, 1995, the Operating Partnership had $3.4 million of fixed
rate debt maturing in 2001, $2.3 million of fixed rate date maturing in 2006,
and $.9 million of floating rate debt maturing in 1999. The Operating
Partnership does not believe it has significant refinancing or interest rate
risk on its debt. At December 31, 1995, the Operating Partnership had $15.4
million available under the $23 million line of credit with a commercial bank.
During 1995, the Operating Partnership revised its debt policy. The
Operating Partnership's policy limits indebtedness at time of incurrence to the
lesser of 50% of its total assets at cost or the amount that will sustain a
minimum debt service coverage ratio of 3:1. In addition, following shareholder
approval of the Strategic Alliance Agreement with US Realty, the Strategic
Alliance Agreement with US Realty will restrict the Company, including the
Operating Partnership, from incurring total consolidated indebtedness in an
amount exceeding 60% of the market value of the total assets (generally defined
as the sum of (i) the value of the Company's outstanding common stock at $31.30
per share, (ii) the Company's consolidated outstanding indebtedness, and (iii)
net property acquisitions after March 1, 1996). The Operating Partnership does
not anticipate operating at a debt level that would cause the debt-to-total
assets ratio to exceed 40% for an extended period of time, and, consequently,
does not believe that these restrictions will materially restrict its operations
or have a material adverse effect on its financial condition or results of
operations, though there can be no assurance that they will not do so in the
future.
On June 7, 1995, the Company issued 4.025 million shares of common stock
raising net proceeds of approximately $107.6 million. Following the contribution
of the proceeds to the Operating Partnership, the proceeds were used to repay
$99.9 million of the Operating Partnership's indebtedness, and for portfolio
acquisitions.
F-21
<PAGE>
During 1995, the Operating Partnership issued approximately 600,000 units of
limited partnership interest ("Units") valued at approximately $18 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's investing activities during the year consisted
primarily of the acquisition of 63 self storage facilities, a warehouse to be
converted by the Operating Partnership into a self-storage facility, 11
expansion parcels of land at existing facilities and one parcel of land for
development by the Operating Partnership.
The Operating Partnership expects to incur approximately $1.2 million for
scheduled maintenance and repairs during the next twelve months and
approximately $5.9 million to conform facilities acquired during 1995 and 1994
to Operating Partnership standards.
The Operating Partnership at December 31, 1995, had Partners Capital of
approximately $385 million, a debt-to-equity ratio of 29.6% and a debt-to-total
assets ratio of 22.4%.
FUNDS FROM OPERATIONS:
The Operating Partnership believes FFO should be considered in conjunction
with net income and cash flows to facilitate a clear understanding of its
operating results. FFO is defined as net income, computed in accordance with
generally accepted accounting principles ("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 as an alternative to net income as a measure of the
Operating Partnership's financial performance or as an alternative to cash flows
from operating activities as a measure of liquidity. FFO does not represent cash
generated from operating activities in accordance with GAAP and is not
necessarily indicative of cash available to fund cash needs. Effective January
1, 1996, the National Association of Real Estate Investment Trusts amended its
definition of FFO. The Operating Partnership will begin presenting FFO under the
amended definition for the first quarter 1996. As such, the Operating
Partnership's 1995 FFO and FFO per share may not be comparable to similarly
titled measures of other REITs who may have chosen early adoption of the amended
method of FFO computation. The pro forma FFO was prepared as if the IPO and the
related formation transactions, including the acquisition of the 26 facilities,
had occurred on January 1, 1994.
The following table illustrates the components of the Operating
Partnership's FFO for the year ended December 31, 1995, the period ending
December 31, 1994 and pro forma for the year ended December 31, 1994 (in
thousands except per share data):
<TABLE>
<CAPTION>
1995 1994 1994
HISTORICAL HISTORICAL PRO FORMA
---------- ---------- ---------
<S> <C> <C> <C>
Net income.................................................. $30,420 $12,137 $14,531
Depreciation of real property............................... 7,246 2,474 2,984
Amortization of non compete................................. 248 167 167
Amortization of lease guarantees............................ 189 186 186
Amortization of loan fees...................................
Consolidated FFO............................................ 903 55 55
---------- ---------- ---------
$39,006 $15,019 $17,923
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The Company, as a qualified REIT, is required to distribute a substantial
portion of its net income as dividends to its shareholders. In 1995, those
distributions were approximately 85% of the Company's funds from operations. 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 the Operating Partnership's goal is to
generate and retain sufficient cash flow to meet its operating,
F-22
<PAGE>
capital and debt service needs, its distribution requirements may require the
Operating Partnership to utilize its bank lines of credit and other sources of
liquidity to finance property acquisitions and development, and major capital
improvements.
The Operating Partnership believes that its liquidity and capital resources
are adequate to meet its cash requirements for the next twelve months.
FUTURE ACTIVITIES:
The Company's strategic alliance with US Realty will not affect the
Operating Partnership's business plan or growth strategies for 1996. However,
the alliance has positively affected the Operating Partnership's access to
capital. Pursuant to the terms of the alliance, US Realty will provide certain
economic and market research, and assistance in capital strategy and formation.
The Operating Partnership expects that this alliance will positively impact the
formulation of the Operating Partnership's longer term strategic plan and its
ability to execute its strategies.
The Operating Partnership's external growth strategy is to increase the
number of facilities owned by the Operating Partnership either by acquiring
suitably located, under-performing facilities that offer potential for
improvement of occupancy or rental rates, or by developing and constructing new
facilities in favorable markets. The Operating Partnership, since its
commencement, has made approximately $435 million of acquisitions. The Operating
Partnership expects to continue investing at a consistent pace during 1996,
seeking to acquire approximately 65-75 facilities. The Operating Partnership
anticipates purchasing properties in 1996 at an average yield on trailing NOI of
not less than 10%.
The Operating Partnership will continue to selectively develop facilities in
markets that are determined by management to be favorable. The Operating
Partnership has budgeted commitments of approximately $30 million for
development beginning in 1996. The development activities will consist of
additions to existing facilities and construction of new facilities. The
Operating Partnership, at December 31, 1995, had 12 parcels of land in its
portfolio in various stages of development. The Operating Partnership has
entered into an agreement to develop a self-storage facility in Northern
Virginia, to be owned jointly by the Operating Partnership and an unaffiliated
third party. The Operating Partnership estimates that its share of the
construction expenses under the agreement will be approximately $6.5 million.
The Operating Partnership expects to complete construction in April of 1996 and
at December 31, 1995, had incurred costs of approximately $3.3 million. The
Operating Partnership is converting a warehouse into a self-storage facility at
an estimated cost of construction of $1 million. At December 31, 1995, the
Operating Partnership had incurred construction costs of approximately $400
thousand, and expects to complete the facility by the end of the first quarter
of 1996.
At December 31, 1995, the Operating Partnership had 1,025,423 Limited
Partnership Units outstanding. Certain Limited Partnership Units became
redeemable beginning on March 23, 1995, for an amount equal to their then fair
market value ($2.7 million, based upon a price per Unit of $32.625 at December
31, 1995) payable by the Operating Partnership either in cash or (at the
Operating Partnership's option, based upon a determination by the Company's
Board of Directors that the Operating Partnership's anticipated cash
requirements and anticipated cash flow make a lump sum payment imprudent) by a
promissory note payable in quarterly installments over two years with interest
at the prime rate. Units held by other Limited Partners are redeemable, at the
option of such Limited Partners, beginning on the first anniversary of their
issuance, for amounts equal to the then fair market value of their Units ($11.3
million, based upon a price per Unit of $32.625 at December 31, 1995) payable by
the Operating Partnership in cash or, at the option of the Operating
Partnership, in shares of the Company's Common Stock at the initial exchange
ratio of one share for each Unit. As of March 29, 1996, no Limited Partner has
requested to redeem Units. It is anticipated that a source of funds for any such
cash redemption will be retained cash flow or proceeds from the future sale of
securities of the Operating Partnership or the Company or other Operating
Partnership or Company indebtedness. The Company
F-23
<PAGE>
has granted registration rights to the holders of Units entitling them to
require the Company to register under the Securities Act of 1933 any shares of
the Company's common stock issued upon redemption of Units held by them.
Portfolio expansion and repayment of principal on Operating Partnership
indebtedness represent the Operating Partnership's primary liquidity
requirements. The Operating Partnership does not expect to generate sufficient
funds from operating cash flow to meet such long-term liquidity needs and
intends to finance them primarily through borrowings under its lines of credit,
debt or equity offerings, or additional borrowings for such purpose.
COMPETITION:
The Operating Partnership monitors the development of self-storage
facilities in its markets. The Operating Partnership has identified four markets
in which potential overbuilding may be occurring. In three of these markets
(Dallas, Atlanta, and Phoenix) the Operating Partnership may be required to
reduce by 50% its normal yearly rental rate increase, and in one market,
Albuquerque, the Operating Partnership may be unable to aggressively increase
rates in 1996. All of these markets may also demonstrate a minimal reduction in
the seasonal physical occupancy achieved throughout the year. As a result of the
geographic diversity of the Operating Partnership's portfolio, the Operating
Partnership does not expect the potential for excess supply in these markets to
have a significant impact on its financial condition or results of operations.
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 rent 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, summer, and early fall months due to the
greater incidence of 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 unitholders.
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 anticipates continuing to elect expense recognition under APB 25,
and disclosing pro forma net income, and earnings per unit information based on
the FAS 123 fair value methodology.
F-24
<PAGE>
SUSA PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1995 1994
----------- -----------
(AMOUNTS IN THOUSANDS,
EXCEPT UNIT DATA)
<S> <C> <C>
Investment in storage facilities, at cost:
Land.................................................................................. $ 139,603 $ 74,544
Buildings and equipment............................................................... 369,694 204,449
----------- -----------
509,297 278,993
Accumulated depreciation.............................................................. (14,561) (7,224)
----------- -----------
494,736 271,769
Cash & cash equivalents............................................................... 2,802 3,278
Other assets.......................................................................... 11,987 4,385
----------- -----------
Total assets........................................................................ $ 509,525 $ 279,432
----------- -----------
----------- -----------
LIABILITIES & PARTNERS' CAPITAL
Line of credit borrowings............................................................... $ 107,605 $ 4,000
Mortgage notes payable.................................................................. 6,670 4,373
Accounts payable & accrued expenses..................................................... 5,910 4,998
Rents received in advance............................................................... 3,680 2,038
Minority interest....................................................................... 524 133
----------- -----------
Total liabilities................................................................... 124,389 15,542
----------- -----------
Partners' capital:
General partnership units, 17,562,363 and 13,298,817 outstanding...................... 364,947 254,340
Limited partnership units, 1,025,423 and 406,890 outstanding.......................... 26,916 9,550
Notes receivable -- employees......................................................... (6,727) --
----------- -----------
Total partners' capital............................................................. 385,136 263,890
----------- -----------
Total liabilities and partners' capital............................................. $ 509,525 $ 279,432
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE>
SUSA PARTNERSHIP, L.P. (THE "OPERATING PARTNERSHIP")
AND
STORAGE USA, INC. (THE "PREDECESSOR")
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
OPERATING PARTNERSHIP
------------------------------ PREDECESSOR
FOR THE PERIOD ------------------------------
MARCH 24, 1994 FOR THE PERIOD
FOR THE (INCEPTION) JAN. 1, 1994 FOR THE
YEAR ENDED THROUGH THROUGH YEAR ENDED
DEC 31, 1995 DEC 31, 1994 MARCH 23, 1994 DEC 31, 1993
------------- --------------- --------------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C>
REVENUES:
Rental income................................. $ 66,455 $ 24,667 $ 2,358 $ 10,019
Management income............................. 1,072 707 188 859
Other income.................................. 480 460 52 311
------------- --------------- ------- -------------
Total revenues.............................. 68,007 25,834 2,598 11,189
------------- --------------- ------- -------------
EXPENSES:
Cost of property operations and maintenance... 18,471 6,851 792 3,130
Real estate taxes............................. 4,900 1,686 153 683
General and administrative.................... 2,568 1,374 325 831
Depreciation and amortization................. 8,586 2,882 244 1,313
------------- --------------- ------- -------------
Total expense............................... 34,525 12,793 1,514 5,957
------------- --------------- ------- -------------
------------- --------------- ------- -------------
INCOME FROM OPERATIONS.......................... 33,482 13,041 1,084 5,232
OTHER INCOME (EXPENSE):
Interest expense.............................. (3,004) (1,404) (1,195) (4,432)
Interest income............................... 166 658 --
------------- --------------- ------- -------------
INCOME (LOSS) BEFORE MINORITY INTEREST.......... 30,644 12,295 (111) 800
Minority interest............................. (224) (158) (54) (351)
------------- --------------- ------- -------------
NET INCOME (LOSS)............................... $ 30,420 $ 12,137 $ (165) $ 449
------------- --------------- ------- -------------
------------- --------------- ------- -------------
NET INCOME PER UNIT............................. $ 1.87 $ 1.28
------------- --------------- ------- -------------
WEIGHTED AVERAGE UNITS OUTSTANDING.............. 16,294 9,467
------------- --------------- ------- -------------
------------- --------------- ------- -------------
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
SUSA PARTNERSHIP, L.P. (THE "OPERATING PARTNERSHIP")
AND
STORAGE USA, INC. (THE "PREDECESSOR")
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
OPERATING PARTNERSHIP
-------------------------------
FOR THE PERIOD PREDECESSOR
MARCH 24, 1994 ---------------------------------
FOR THE (INCEPTION) JAN. 1, 1994 FOR THE
YEAR ENDED THROUGH THROUGH YEAR ENDED
DEC. 31, 1995 DEC. 31, 1994 MARCH 23, 1994 DEC. 31, 1993
-------------- --------------- ----------------- --------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income......................................... $ 30,420 $ 12,137 $ (165) $ 449
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 8,586 2,882 244 1,313
Minority interest................................ 224 158 -- --
Changes in assets and liabilities:
Other assets................................... (4,009) (4,385) (809) (591)
Other liabilities.............................. 2,554 7,036 393 218
-------------- --------------- ------ --------------
Net cash provided by operating activities.... 37,775 17,828 (337) 1,389
-------------- --------------- ------ --------------
-------------- --------------- ------ --------------
INVESTING ACTIVITIES:
Acquisition and improvements of
storage facilities................................ (212,326) (264,561) (655)
Development of storage facilities.................. (4,842) (327) -- (3,095)
-------------- --------------- ------ --------------
Net cash used in investing activities........ (217,168) (264,888) -- (3,750)
-------------- --------------- ------ --------------
-------------- --------------- ------ --------------
FINANCING ACTIVITIES:
Net borrowings under line of credit................ 103,605 4,000 450 --
Proceeds from the issuance of bank
notes............................................. -- -- -- 900
Mortgage principal payments........................ (79) (40) (44) (71)
Mortgage principal borrowing....................... 2,376 4,413 -- 2,970
Increase (decrease) in payable to
affiliates........................................ -- -- 178 (589)
Increase in deferred costs......................... -- -- -- (372)
General partner contributions...................... 108,169 255,483 -- --
Distributions to general partner................... (33,414) (13,070) (397) (350)
Distributions to limited partners.................. (1,483) (271) -- --
Distributions to minority interests................ (257) (177) -- --
-------------- --------------- ------ --------------
Net cash provided by financing activities.... 178,917 250,338 187 2,488
-------------- --------------- ------ --------------
-------------- --------------- ------ --------------
Net increase (decrease) in cash and equivalents.... (476) 3,278 (150) 127
-------------- --------------- ------ --------------
Cash and equivalents, beginning of period............ 3,278 150 23
-------------- --------------- ------ --------------
-------------- --------------- ------ --------------
Cash and equivalents, end of period.................. $ 2,802 $ 3,278 $ $ 150
Supplemental schedules of non-cash activities:
Storage facilities acquired in exchange for Limited
Partnership Units................................. 17,978 $ 9,611 -- --
General Partnership Units in exchange for notes
receivable........................................ $ 6,727 -- -- --
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
SUSA PARTNERSHIP, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL LIMITED NOTES TOTAL
PARTNERSHIP PARTNERSHIP RECEIVABLE PARTNERS'
CAPITAL CAPITAL EMPLOYEES CAPITAL
----------- ----------- ----------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Initial capital contribution at March 24, 1994.............. $ 109,969 $ $ $ 109,969
Contribution of self-storage facilities in exchange for
units...................................................... -- 9,611 -- 9,611
Capital contribution........................................ 145,514 -- -- 145,514
Net income.................................................. 11,927 210 -- 12,137
Distributions............................................... (13,070) (271) -- (13,341)
----------- ----------- ----------- -----------
Balance at December 31, 1994.............................. 254,340 9,550 -- 263,890
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Capital contribution........................................ 114,896 -- -- 114,896
Contribution of self-storage facilities in exchange for
units...................................................... -- 17,554 -- 17,554
Issuance of units to employees in exchange for notes
receivable................................................. -- -- (6,727) (6,727)
Net income.................................................. 29,125 1,295 -- 30,420
Distributions............................................... (33,414) (1,483) -- (34,897)
----------- ----------- ----------- -----------
Balance at December 31, 1995.............................. $ 364,947 $ 26,916 $ (6,727) $ 385,136
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE>
STORAGE USA, INC. (THE "PREDECESSOR")
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------- DISTRIBUTIONS IN
NUMBER OF PAID IN NOTES RECEIVABLE- ACCUMULATED EXCESS OF NET
SHARES AMOUNT CAPITAL OFFICERS DEFICIT INCOME
--------------- ----------- ------------- ----------------- ------------- -----------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993....... 1 $ 1 -- -- $ (3,562) --
Dividends deemed cash
distributions................... -- -- -- -- (11,012) --
Capital contributions............ -- -- -- -- 1,462 --
Stock split...................... 993 9 -- -- (9) --
Net income....................... -- -- -- -- 449 --
-- -- --
--- --- -------------
Balance at December 31, 1993..... 994 10 -- -- (12,672) --
-- -- --
-- -- --
--- --- -------------
--- --- -------------
Corporate reorganization
adjustments..................... -- -- -- -- (2,994) --
Net loss......................... -- -- -- -- (165) --
-- -- --
--- --- -------------
Balance at March 23, 1994........ 994 $ 10 -- -- $ (15,831) --
-- -- --
-- -- --
--- --- -------------
--- --- -------------
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
--------------
<S> <C>
Balance at January 1, 1993....... $ (3,561)
Dividends deemed cash
distributions................... (11,012)
Capital contributions............ 1,462
Stock split...................... --
Net income....................... 449
--------------
Balance at December 31, 1993..... (12,662)
--------------
--------------
Corporate reorganization
adjustments..................... (2,994)
Net loss......................... (165)
--------------
Balance at March 23, 1994........ $ (15,821)
--------------
--------------
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE>
SUSA PARTNERSHIP L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT DATA)
1. ORGANIZATION:
SUSA Partnership, L.P. (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. Storage USA,
Inc. (the "Predecessor" See Note 11), a Tennessee corporation, was formed in
1985 to own, develop, construct and operate self-storage facilities throughout
the United States. On March 23, 1994, the Predecessor completed an initial
public offering (the "IPO") of 6,325,000 shares of common stock at $21.75 per
share forming Storage USA, Inc. (the "Company"), the sole general partner in the
Operating Partnership. The Company is a self-administered and self-managed real
estate investment trust ("REIT").
The results for the period prior to January 1, 1994, and for the period from
January 1, 1994, through March 23, 1994 are presented for the Predecessor and
are labeled as such on the financial statements.
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.
The Operating Partnership used the contribution from the Company to acquire 26
self-storage facilities from unrelated third parties, to acquire the outstanding
partnership interests in five controlled facilities, and for working capital.
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.
On September 29, 1994, the Company contributed approximately $145,514 to the
Operating Partnership in exchange for approximately 5,980 units of interest in
the Operating Partnership ("Units"). The Operating Partnership used the
contribution from the Company to acquire 27 self-storage facilities from
unrelated third parties, to retire approximately $33,200 of indebtedness, and
for working capital. On June 7, 1995, the Company contributed $108,169 to the
Operating Partnership in exchange for approximately 4,025 Units. The Operating
Partnership used the contribution from the Company to acquire and repay debt
related to the acquisition of 34 self-storage facilities.
On October 31, 1995, the Company contributed $6,727 of notes receivable from
employees who are officers of the Company to the Operating Partnership in
exchange for approximately 230 Units. During 1995, the Company contributed
approximately $219 of proceeds from various issuances of common stock in
exchange for approximately 8 Units.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the Operating
Partnership and SUSA Management. All intercompany balances and transactions have
been eliminated. The financial statements reflect the segregation of the
operating activities for the periods presented related to the Operating
Partnership and the Predecessor, which has been accounted for on a basis
consistent with the Operating Partnership except for the items noted in Note 12.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates.
F-30
<PAGE>
SUSA PARTNERSHIP L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FEDERAL INCOME TAXES:
No provision has been made for income taxes in the accompanying consolidated
financial statements since such taxes, if any, are the responsibility of the
individual partners.
CASH AND CASH EQUIVALENTS:
The Operating Partnership considers all highly liquid debt instruments
purchased with maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION:
Rental income and management income is recorded when due from tenants and
customers. Rental income received prior to the start of the rental period is
included in rents received in advance.
INVESTMENT IN STORAGE FACILITIES:
Storage facilities are recorded at cost. Depreciation is computed using the
straight line method over estimated useful lives of 40 years for buildings and
improvements, and three to ten years for furniture, fixtures and equipment.
Expenditures for significant renovations or improvements which extend the useful
life of assets are capitalized. Repairs and maintenance costs are expensed as
incurred.
During 1995, the Operating Partnership adopted Statement of Accounting
Standards No. 121 "Accounting for Impairment of Long-Lived Assets." The adoption
of this standard had no impact on the Operating Partnership's financial
statements. Impairment is evaluated based upon comparing the sum of the expected
future cash flows (undiscounted and without interest charges) to the carrying
value of the asset. If the cash flows is less, an impairment loss is recognized
for the amount by which the carrying amount of the assets exceeds the fair value
of the asset.
OTHER INCOME:
Other income consists primarily of sales of storage-related merchandise
(locks and packing supplies) and commissions from truck rentals.
MINORITY INTEREST:
The minority interest reflects the ownership interest of the limited
partners in two facilities in which the Operating Partnership is the general
partner. The limited partner's share of the net income of the Operating
Partnership is charged to minority interest expense and increases the Operating
Partnership's liability. Distributions to the limited partners reduces the
Operating Partnership's liability.
OTHER ASSETS:
Included in other assets in 1995 and 1994, respectively, are $4,842 and $327
of costs related to two development projects, $257 and $63 due from affiliate,
prepaid expenses, accounts receivable and intangible assets. The intangible
assets at December 31, 1995 and 1994, respectively, consist primarily of loan
acquisition costs of approximately $254 and $230, net of accumulated
amortization of approximately $24 and $78, a covenant not to compete of $500,
net of accumulated amortization of approximately $415 and $167, and minimum
lease guarantees of approximately $189 and $186, which have been fully
amortized. Loan acquisition costs are amortized over the terms of the related
debt, the covenant is amortized over the contract period of the agreement.
Amounts under minimum lease guarantees on five of the Operating Partnership's
facilities are amortized as earned.
INCOME PER UNIT:
Net income per unit is calculated using the weighted average number of Units
outstanding during the period.
F-31
<PAGE>
SUSA PARTNERSHIP L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT DATA)
3. INVESTMENT IN STORAGE FACILITIES:
The following summarizes activity in storage facilities during the period:
<TABLE>
<CAPTION>
<S> <C>
COST:
Balance at March 23, 1994...................................... $ 54,762
Property acquisitions.......................................... 224,147
Improvements................................................... 84
---------
Balance at December 31, 1994................................... 278,993
Property acquisitions.......................................... 220,541
Land acquisitions.............................................. 5,733
Improvements................................................... 4,030
---------
Balance at December 31, 1995................................. $ 509,297
---------
---------
ACCUMULATED DEPRECIATION:
Balance at March 23, 1994...................................... $ 4,695
Additions during the year...................................... 2,529
---------
Balance at December 31, 1994................................... 7,224
Additions during the year...................................... 7,337
---------
Balance at December 31, 1995................................. $ 14,561
---------
---------
</TABLE>
The aggregate cost of real estate facilities for federal income tax purposes
was approximately $479,037 and $255,755 at December 31, 1995 and 1994,
respectively.
F-32
<PAGE>
SUSA PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Amounts in Thousands, Except Per Unit Data)
4. MORTGAGE NOTES PAYABLE:
Mortgage Notes payable consist of the following at December 31.
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
First mortgage note, payable in equal monthly installments
of $34, including interest at 10.6%, through May 2001, with
the remaining balance of $3,081 due June 2001.............. $3,428 $3,473
First mortgage note, payable in equal monthly installments
of $28, including interest at 8.375%, through June 2006.... 2,342
First mortgage note, interest only at prime plus 2% (9% at
December 31, 1994) payable monthly through December 31,
1998, with the balance due in full in January 1999......... 900
First mortgage note, payable in equal monthly installments
of $8, including interest at 8.5%, through August 2000,
with the remaining balance of $815 due September 2000...... 900
------ ------
Total................................................... $6,670 $4,373
------ ------
------ ------
</TABLE>
Principal payments are due as follows:
<TABLE>
<S> <C>
1996........................................................ $ 214
1997........................................................ 234
1998........................................................ 255
1999........................................................ 279
2000........................................................ 1,094
Thereafter.................................................. 4,594
------
$6,670
------
------
</TABLE>
5. LINE OF CREDIT BORROWINGS:
Line of credit borrowings at December 31, 1995, consists of $100,000 of
borrowings under a $100,000 line of credit with a group of commercial banks, and
$7,605 of borrowings under a $23,000 line of credit with a commercial bank. The
balance at December 31, 1994, consists of $4,000 of borrowings under the $23,000
line. The $100,000 facility, consists of a $75,000 tranche with an initial
termination date of February 8, 1996, and a $25,000 tranche with an initial
termination date of April 21, 1996. On the $75,000 tranche, the Operating
Partnership has an option to extend the term for two successive one year
periods. On the $25,000 tranche, the Operating Partnership has an option to
extend the term until December 21, 1996. Subsequent to year end, the Operating
Partnership exercised its option on the $75,000 tranche and extended the
maturity to February 8, 1997. This line bears interest at various spreads over a
base rate based on the Operating Partnership's debt service coverage. The
weighted average borrowings during the year was $41,662, the maximum borrowing
outstanding under the line during the period was $100,000, and the weighted
average interest rate during the year was 6.1%. The $23,000 line consists of an
$8,000 tranche maturing on February 15, 1996, and a $15,000 tranche maturing on
July 1, 1996. Both tranches, at the option of the Operating Partnership, bear
interest at prime or LIBOR plus 2.25%, and are collateralized by mortgages on 13
facilities. The facilities have a net book value of $28,035. Subsequent to year
end, the commercial bank agreed to release the mortgages, increase the line to
$30,000 with an initial maturity of July 1, 1996, and continue the borrowing
arrangement. During 1995 and 1994, respectively, the weighted average daily
borrowings were $5,513 and $4,900, the maximum borrowings outstanding under the
line were $21,700 and $11,500, and the weighted average interest rates were 8.9%
and 6.5%.
F-33
<PAGE>
SUSA PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT DATA)
5. LINE OF CREDIT BORROWINGS: (CONTINUED)
Under the terms of the agreements, the Operating Partnership is required to
maintain certain financial ratios and a minimum net worth, as defined under the
agreements.
Interest is capitalized on accumulated expenditures relating to the
development of certain qualifying properties. During 1995 and 1994, total cash
paid by the Operating Partnership for the interest was $3,345 and $2,281,
respectively, which includes $532 which was capitalized in 1995. No interest was
capitalized in 1994.
6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
The following unaudited pro forma statement of operations of the Operating
Partnership is presented as if the 1995 capital contributions, and the
acquisition of 63 properties during 1995 had occurred on January 1, 1995. This
unaudited pro forma statement of operations 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, 1995, nor does it
purport to represent the results of operations for future periods.
Pro forma for the year ended December 31, 1995
<TABLE>
<S> <C>
Revenues
Rental income............................................... $81,875
Management income........................................... 1,072
Other income................................................ 1,037
-------
Total revenues.......................................... 83,984
-------
Expenses
Cost of property operations and maintenance................. 22,385
Real estate taxes........................................... 6,171
General and administrative.................................. 3,046
Depreciation and amortization............................... 9,579
-------
Total expenses.......................................... 41,181
-------
Income from operations...................................... 42,803
Other income (expense):
Interest expense.......................................... (7,679)
Interest income........................................... 637
-------
Income before minority interest............................. $35,761
-------
-------
Net Income per Unit......................................... $ 1.93
-------
-------
</TABLE>
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Operating Partnership's carrying amount and fair value of its financial
instruments as of December 31, 1995 and 1994, respectively, were as follows:
CASH AND CASH EQUIVALENTS:
The carrying amount of $2,802 and $3,278 reported in the balance sheets for
cash and cash equivalents approximates its fair value.
MORTGAGE AND LINE OF CREDIT BORROWINGS:
The carrying amount of $107,605 and $4,000 reported in the balance sheets
for line of credit borrowings approximates their fair value. The fair value of
the $6,670 and $4,373 of mortgage notes
F-34
<PAGE>
SUSA PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT DATA)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
payable reported in the balance sheets is $7,003 and $4,631. These fair values
were estimated using discounted cash flow analysis, based on the Operating
Partnership's current incremental borrowing rate for similar types of borrowing
arrangements.
INTEREST RATE SWAP AGREEMENT:
The Operating Partnership had entered into an interest rate swap agreement
as more fully described in footnote 11. At December 31, 1995, the fair value of
the agreement was ($3,547). This fair value represents the estimated amount the
Operating Partnership would pay to terminate the swap at that date. The swap was
terminated on March 8, 1996, and the Operating Partnership recognized a gain of
$50 in connection with the termination. See footnote 11.
8. COMMITMENTS AND CONTINGENCIES:
LEASE AGREEMENTS:
The Operating Partnership has various lease agreements for office space.
Total future minimum rental payments on the office leases are $1,124: $222 in
years one through three; and $229 in years four and five.
PROPERTY DEVELOPMENT:
The Operating Partnership has entered into an agreement to develop a
self-storage facility in Northern Virginia. The facility will be owned by the
Operating Partnership and an unaffiliated third party. Under the terms of the
agreement, the Operating Partnership is required to fund the cost of
construction, which is currently estimated to be approximately $6,500. At
December 31, 1995, the Operating Partnership has incurred costs of approximately
$3,290. The facility is expected to be complete by the middle of the second
quarter of 1996.
REDEMPTION OF LIMITED PARTNERSHIP UNITS:
At December 31, 1995, there were 1,025,423 Units outstanding. Certain Units
became redeemable on March 23, 1995, for an amount equal to their then fair
market value ($2.7 million, based upon a price per Unit of $32.625 at December
31, 1995) payable by the Company either in cash or by a promissory note payable
in quarterly installments over two years with interest at the prime rate. Units
held by other Limited Partners are redeemable, at the option of such Limited
Partners, beginning on the first anniversary of their issue, for amounts equal
to the then fair market value of their Units ($11.3 million, based upon a price
per Unit of $32.625 at December 31, 1995) payable in cash or, at the option of
the Company, in shares of the Company's common stock at the exchange ratio of
one share for each Unit.
9. POST EMPLOYMENT BENEFIT PLAN:
The Operating Partnership contributes to a 401(k) savings plan (a voluntary
defined contribution plan) for the benefit of employees meeting certain
eligibility requirements and electing participation in the plan. Each year the
Operating Partnership is obligated to make a matching contribution on the
employee's behalf equal to 50% of the participant's contribution to the plan, up
to 2% of the participant's compensation. Operating Partnership profit sharing
contributions to the plan are determined annually by the Operating Partnership.
Operating Partnership contributions totaled $223 and $137 during 1995 and 1994,
respectively.
10. PARTNERSHIP CAPITAL:
The Company, as a corporate general partner, has Stock Option, Employee
Stock Purchase and Loan, and Dividend Reinvestment and Stock Purchase Plans.
Under the terms of the partnership agreement, all proceeds from the issuance of
common stock under the plans are contributed to the Operating Partnership in
exchange for Operating Partnership Units.
F-35
<PAGE>
SUSA PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT DATA)
10. PARTNERSHIP CAPITAL: (CONTINUED)
STOCK OPTIONS (amounts not in thousands):
The shareholders of the Company have approved and the Company has adopted
the Storage USA, Inc. 1993 Omnibus Stock Incentive Plan. The Company has granted
options to certain directors, officers and key employees to purchase shares of
the Company's common stock at a price not less than the fair market value at the
date of grant. There are 1,000,000 shares available to be issued under the plan.
Generally, the optionee has up to ten years from the date of the grant to
exercise the options. Plan activity is as follows:
<TABLE>
<CAPTION>
NUMBER OF PRICE
OPTIONS PER SHARE
---------- ---------------
<S> <C> <C>
Option outstanding:
March 24, 1994............................................ -- --
Granted................................................... 492,402 $21.75 - $24.75
Exercised................................................. -- --
Canceled.................................................. -- --
---------- ---------------
Options outstanding:
December 31, 1994......................................... 492,402 $21.75 - $24.75
Granted................................................... 220,750 $31.00
Exercised................................................. (4,500) $21.75 - $24.75
Canceled.................................................. -- --
---------- ---------------
Options outstanding:
December 31, 1995......................................... 708,652 $21.75 - $31.00
---------- ---------------
---------- ---------------
</TABLE>
At December 31, 1995, 525,486 options are exercisable under the plan.
EMPLOYEE STOCK PURCHASE AND LOAN PLAN (AMOUNTS NOT IN THOUSANDS):
In 1995, the Company issued 230,000 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 market price. The
Company provides 100% financing for the purchase of the shares with interest at
7% per annum payable quarterly. The underlying notes are secured by the shares
and mature in November 2002. Under the terms of the partnership agreement, all
proceeds from the issuance of common stock under the plan are contributed to the
Operating Partnership in exchange for Operating Partnership Units.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN:
In 1995, the Company adopted the Dividend Reinvestment and Stock Purchase
Plan (the "Plan"). Under the Plan, the Company offers holders of its common
stock the opportunity to purchase, through reinvestment of dividends or by
additional cash payments, additional shares of its common stock. The shares of
common stock for participants may be purchased from the Company at the greater
of the average high and low sales price or the average closing sales price on
the investment date or in the open market at 100% of the average price of all
shares purchased for the Plan. During 1995, 653 shares were issued under the
Plan. Under the terms of the partnership agreement, all proceeds from the
issuance of common stock under the plan are contributed to the Operating
Partnership in exchange for Operating Partnership units.
F-36
<PAGE>
SUSA PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT DATA)
11. SUMMARY OF PREDECESSOR SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The accompanying combined financial statements for the periods prior to
March 24, 1994 present only the "carved-out" accounts of the Predecessor
comprised of the continuing assets, liabilities and operations of the
Predecessor following the IPO, including 11 owned facilities and six controlled
facilities (Original Facilities) and Storage USA Management Corporation
(Management Corp.). All other accounts of the Predecessor were excluded since
the business segments to which they relate were discontinued by the Company
before the IPO. Due to common ownership and management of the Original
Facilities and Management Corp., the historical financial statements have been
accounted for as a group of entities under common control, which is similar to
the accounting method used for a pooling of interest. All significant
intercompany transactions and balances have been eliminated in the combined
presentation. The financial information included herein may not necessarily
reflect the financial position and results of operations of the Predecessor had
it been a separate stand-alone entity during the periods prior to March 24,
1994.
MINORITY INTEREST:
The Predecessor financial statements include the accounts of six facilities
(Selling Partnerships) which were owned by investment partnerships in which the
Predecessor or its affiliates had a controlling interest. The ownership interest
of the other partners in these partnerships is treated as a minority interest
and reported as a liability of the Predecessor. Increases in minority interest
are charged to operations.
FEDERAL INCOME TAXES:
The Predecessor was an S Corporation and thus was not subject to taxation at
the corporate level. The self-storage facilities owned through the investment
partnerships required the partners to include their respective share of profits
and losses in their individual tax returns. Therefore, the statements of
operations contain no provision for federal income taxes for any periods prior
to March 24, 1994.
SHAREHOLDERS' DEFICIT:
The Predecessor's President and Chief Executive Officer contributed a
portion of his interests in two of the Selling Partnerships in exchange for the
satisfaction of his indebtedness to the Predecessor. The value attributed to his
interest in the Selling Partnerships was determined on the same basis as the
determination of payments made by the Predecessor to the unrelated limited
partners in the Selling Partnerships.
Corporate reorganization adjustments consist primarily of dividends deemed
cash distributions, reclassification of certain minority interests, and other
non-cash adjustments relating to the IPO.
RELATED PARTY TRANSACTIONS:
The Predecessor had demand notes payable to the Predecessor's founder,
bearing interest at prime plus 2% (8% at December 31, 1993). These notes were
collateralized by second mortgages on certain of the Original Facilities. Total
interest expense to affiliates amounted to approximately $178 and $1,426 for
period from January 1, 1994 to March 23, 1994 and the year ended December 31,
1993, respectively.
OTHER:
There was no significant Investment in Storage Facilities activity for the
period from January 1, 1994 to March 23, 1994 and for the year ended December
31, 1993.
F-37
<PAGE>
SUSA PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT DATA)
11. SUMMARY OF PREDECESSOR SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Total cash paid for interest expense related to the mortgages payable and
notes payable balances for the period from January 1, 1994 to March 23, 1994 and
the year ended December 31, 1993 was $1,017 and $3,006, respectively.
12. SUBSEQUENT EVENTS:
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, one of whom the
Company has been informed will be William D. Sanders, Chairman of the Board and
Chief Executive Officer of Security Capital Group, 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.
After the Strategic Alliance has been approved by the shareholders of the
Company, and prior to December 31, 1996, the Company will issue to US Realty an
additional 5,079,872 shares of the Company's common stock at the same price for
an aggregate of $159,000. After acquiring the additional shares (and assuming no
other change in the number of outstanding shares), US Realty will own
approximately 28.6% of the outstanding Common Stock. The proceeds of both
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.
The Company has 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 are expected to be submitted to shareholders
for approval at the Company's 1996 annual meeting.
PROPERTY ACQUISITIONS:
Subsequent to December 31, 1995, the Operating Partnership has completed the
acquisition of six self-storage facilities for approximately $21,460. In
addition, the Operating Partnership purchased two land parcels for approximately
$688. These acquisitions were financed through operating cash flows and
borrowings under the $30,000 line of credit.
INTEREST RATE SWAP AGREEMENT:
In anticipation of a debt offering in 1996, the Operating Partnership
entered into an interest rate swap agreement in October 1995, with the objective
of reducing its exposure to future interest rate fluctuations. The agreement
involved the exchange of a variable rate for a fixed rate interest payment
obligation. The agreement had a notional principal amount of $100,000, an
effective date of March 1, 1996, and a maturity date of March 1, 2003. On March
8, 1996, the Operating Partnership closed the interest rate swap agreement and
received proceeds of approximately $50. The Operating Partnership anticipates
filing a $250,000 debt shelf registration statement on Form S-3 with the
Securities and Exchange Commission. Upon successful completion of an offering of
unsecured debt securities under the shelf, the Operating Partnership will
recognize the gain as a yield adjustment over the life of the debt.
F-38
<PAGE>
SUSA PARTNERSHIP, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER UNIT DATA)
13. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a summary of quarterly results of operations for 1995 and
1994:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------ ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue..................................................... $12,312 $16,233 $18,667 $20,795
Net Income.................................................. $ 5,938 $ 6,992 $ 8,937 $ 8,553
Per Unit
Net Income................................................ $ 0.43 $ 0.47 $ 0.49 $ 0.47
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 QUARTER* QUARTER QUARTER QUARTER
- ------------------------------------------------------------ -------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue..................................................... $ 523 $ 6,376 $ 7,668 $11,267
Net Income.................................................. $ 245 $ 3,029 $ 3,128 $ 5,735
Per Unit
Net Income................................................ $0.03 $ 0.41 $ 0.42 $ 0.42
</TABLE>
- ------------------------
* For the period March 24, 1994 (inception) to March 31, 1994 (See Note 1).
F-39
<PAGE>
[LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Storage USA, Inc.
We have audited the accompanying consolidated balance sheets of SUSA
Partnership, L.P. (the "Operating Partnership") as of December 31, 1995 and
1994, and the related consolidated statements of operations, shareholders'
equity, and cash flows for the year ended December 31, 1995, and for the period
from March 24, 1994, (inception) through December 31, 1994. We have also audited
the accompanying combined statements of operations, shareholders' equity, and
cash flows of Storage USA, Inc. (the "Predecessor") for the period from January
1, 1994 through March 23, 1994 and for the year ended December 31, 1993 (See
Note 1 and 11). These financial statements are the responsibility of the
management of the Operating Partnership. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 the 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 the Operating
Partnership as of December 31, 1995 and 1994, the consolidated results its
operations and its cash flows for the year ended December 31, 1995 and for the
period from March 24, 1994 (inception) through December 31, 1994 and the
combined results of the Predecessor's operations and cash flows for the period
from January 1, 1994 through March 23, 1994 and for the year ended December 31,
1993, in conformity with generally accepted accounting principles.
[SIGNATURE]
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 26, 1996, except for
Note 5 and Note 12, as to which
the date is March 21, 1996
F-40
<PAGE>
SUSA PARTNERSHIP, L.P.
SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS)
The following table summarizes certain selected financial data for the
Operating Partnership and its Predecessor. The results of operations of the
Predecessor for the period January 1, 1994 to March 23, 1994, and the Operating
Partnership for the period March 24, 1994 to December 31, 1994, have been
combined. This financial data should be read in conjunction with the Operating
Partnership's financial statements and notes thereto, and with Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
PREDECESSOR
PREDECESSOR AND OPERATING
------------------------------ PARTNERSHIP OPERATING
COMBINED* PARTNERSHIP
YEAR ENDED DECEMBER 31, ------------- -----------
------------------------------ YEAR ENDED YEAR ENDED
1991 1992 1993 1994 1995
------- ------- ------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Operating data:
Total revenue............................................. $ 6,732 $ 8,900 $11,189 $ 28,432 $ 68,007
Net (loss) income......................................... $(4,095) $ 9,235(1) $ 449 $ 11,972 $ 30,420
Net income per unit....................................... -- -- -- -- $ 1.87
Distributions declared per unit........................... -- -- -- -- $ 2.04
Balance sheet data:
Total assets.............................................. $51,900 $51,620 $55,253 $280,173 $509,525
Total Borrowings.......................................... $47,500 $53,237 $65,753 $ 8,373 $114,275
</TABLE>
<TABLE>
<CAPTION>
OPERATING
PREDECESSOR PARTNERSHIP
------------ -----------
PERIOD FROM PERIOD FROM
JANUARY 1, MARCH 24,
1994 TO 1994 TO
MARCH 23 DECEMBER 31
1994 1994
------------ -----------
<S> <C> <C>
Operating data:
Total Revenue............................................. $2,598 $25,834
Net (loss) income......................................... $ (165) $12,137
</TABLE>
- ------------------------
* The combined results for 1994 are presented unaudited as they represent the
sum of the amounts derived by combining the audited results of the
Predecessor for the period January 1, 1994 to March 23, 1994, and the
audited results of the Operating Partnership for the period March 24, 1994
through December 31, 1994.
(1) Inclues a $12,279 gain from the early extinguishment of debt.
F-41
<PAGE>
SUSA PARTNERSHIP, L.P., FACILITIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
GROSS AMOUNT
AT CLOSE OF
INITIAL COST TO REIT COST OF PERIOD
------------------------------ IMPROVEMENTS --------------
BUILDING & SUBSEQUENT
STATE PROPERTY NAME ENCUMBRANCES LAND FIXTURES TO ACQUISITION LAND
----- --------------------------- --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
AL Vestavia 652,309 1,771,282 43,795 652,309
AZ 24th Street 1,159,500 500,232 1,362,657 25,958 500,232
AZ Oracle 1,335,000 587,844 1,595,864 16,801 587,844
AZ 22nd Street 1,201,500 529,702 1,439,965 30,828 529,702
AZ East Phoenix 370,586 1,021,566 0 370,586
AZ Tempe 878,690 2,389,598 0 878,690
AZ Cave Creek 824,369 2,244,177 0 824,369
CA Miramar Self 1,612,554 4,404,071 73,502 1,612,554
CA Marina Del Rey 1,954,097 5,293,255 42,902 1,954,097
CA Covina 1,234,592 3,356,433 58,528 1,234,592
CA Norwalk 1,529,221 4,152,897 59,612 1,529,221
CA Campbell 1,045,526 2,834,735 29,250 1,041,860
CA Monterey I & II 1,612,187 4,374,059 50,072 1,613,922
CA Palo Alto 654,944 1,780,329 41,454 651,280
CA San Jose 1,270,652 3,443,410 7,564 1,266,988
CA Santa Cruz 1,092,783 2,963,688 31,168 1,092,718
CA Scotts Valley 654,945 1,779,847 9,275 651,281
CA Santa Clara 1,362,331 3,738,431 0 1,362,331
CA Watsonville 483,703 1,316,251 6,331 480,039
CA Panorama City 961,128 2,608,919 27,248 961,128
CA Westminster 975,304 2,641,287 32,624 975,304
CA Point Loma 2,135,347 5,777,511 85,800 2,135,347
CA Rialto 695,327 1,921,602 0 695,327
CA Yucaipa 411,580 1,145,267 0 411,580
CA Fallbrook 418,763 1,154,513 0 418,763
CA Hemet 455,585 1,252,504 0 455,585
CA Victorville 491,597 1,347,613 0 491,597
CA San Bernardino/Baseline 1,220,837 3,404,588 0 1,220,837
CA Colton 514,276 1,425,550 0 514,276
CA San Marcos 318,260 879,411 0 318,260
CA Capitola 827,352 2,283,337 0 827,352
CA Oceanside 1,236,627 3,383,435 0 1,236,627
CA San Bernardino/ Waterman 708,661 1,941,602 0 708,661
CA Santee 879,599 2,382,970 0 879,599
CA Santa Ana 1,273,489 3,456,542 0 1,273,489
CA Garden Grove 1,137,544 3,087,956 0 1,137,544
CA City of Industry 899,709 2,453,012 0 899,709
<CAPTION>
DEPRECIABLE
LIFE OF
BUILDING & ACCUMULATED YEAR BUILDING
STATE FIXTURES TOTAL DEPRECIATION ACQUIRED COMPONENT
----- -------------- -------------- -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
AL 1,815,077 2,467,386 (79,531) 1994 40
AZ 1,388,615 1,888,847 (61,947) 1994 40
AZ 1,612,665 2,200,509 (70,763) 1994 40
AZ 1,470,793 2,000,495 (65,175) 1994 40
AZ 1,021,566 1,392,152 (20,825) 1995 40
AZ 2,389,598 3,268,288 (19,662) 1995 40
AZ 2,244,177 3,068,546 (4,625) 1995 40
CA 4,477,573 6,090,127 (201,519) 1994 40
CA 5,336,157 7,290,254 (232,915) 1994 40
CA 3,414,961 4,649,553 (105,773) 1994 40
CA 4,212,509 5,741,730 (130,649) 1994 40
CA 2,867,650 3,909,510 (77,420) 1994 40
CA 4,422,395 6,036,317 (133,946) 1994 40
CA 1,825,447 2,476,727 (55,576) 1994 40
CA 3,454,638 4,721,626 (93,380) 1994 40
CA 2,994,920 4,087,638 (92,386) 1994 40
CA 1,792,786 2,444,067 (55,381) 1994 40
CA 3,738,431 5,100,762 (48,540) 1995 40
CA 1,326,246 1,806,285 (35,733) 1994 40
CA 2,636,167 3,597,295 (83,072) 1994 40
CA 2,673,911 3,649,215 (66,941) 1994 40
CA 5,863,311 7,998,658 (146,130) 1994 40
CA 1,921,602 2,616,929 (35,890) 1995 40
CA 1,145,267 1,556,847 (22,089) 1995 40
CA 1,154,513 1,573,276 (22,189) 1995 40
CA 1,252,504 1,708,089 (23,897) 1995 40
CA 1,347,613 1,839,210 (24,842) 1995 40
CA 3,404,588 4,625,425 (63,161) 1995 40
CA 1,425,550 1,939,826 (26,740) 1995 40
CA 879,411 1,197,671 (16,511) 1995 40
CA 2,283,337 3,110,689 (30,104) 1995 40
CA 3,383,435 4,620,062 (63,771) 1995 40
CA 1,941,602 2,650,263 (16,210) 1995 40
CA 2,382,970 3,262,569 0 1995 40
CA 3,456,542 4,730,031 (28,820) 1995 40
CA 3,087,956 4,225,500 (25,790) 1995 40
CA 2,453,012 3,352,721 (20,585) 1995 40
</TABLE>
F-42
<PAGE>
SUSA PARTNERSHIP, L.P., FACILITIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
GROSS AMOUNT
AT CLOSE OF
INITIAL COST TO REIT COST OF PERIOD
------------------------------ IMPROVEMENTS --------------
BUILDING & SUBSEQUENT
STATE PROPERTY NAME ENCUMBRANCES LAND FIXTURES TO ACQUISITION LAND
----- --------------------------- --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
CA Chatsworth 1,740,975 4,744,309 0 1,740,975
CA Palm Springs/Tamarisk 816,416 2,229,985 0 816,416
CA Moreno Valley 413,759 1,142,629 0 413,759
CA San Bern/23rd St 655,883 1,803,082 0 655,883
CA San Bern/Mill Ave 368,526 1,023,905 0 368,526
CA Highlands 626,794 1,718,949 0 626,794
CA Redlands 673,439 1,834,612 0 673,439
CA Palm Springs/Gene Autry 784,589 2,129,022 0 784,589
CT Wethersfield 472,831 1,294,408 25,211 472,831
CT Enfield 506,875 1,395,631 30,959 506,875
CT East Hartford 992,547 2,700,212 0 992,547
DC U Street 1,388,564 3,769,506 25,068 1,388,564
DE Wilmington 610,689 2,512,985 12,411 610,689
FL Kendall 1,838,903 3,870,318 3,987 1,838,903
FL Ives Dairy 1,061,776 4,306,278 0 1,061,776
FL Longwood 862,849 2,387,142 8,000 862,849
FL Sarasota 1,281,966 2,007,843 275,160 1,334,326
FL WPB Southern 900,000 226,524 922,193 1,821 226,524
FL WPB II 572,284 2,365,372 11,183 572,284
FL Port Richey 605,850 1,668,041 50,271 605,850
FL Ft. Myers 489,609 1,347,207 48,011 489,609
FL North Lauderdale 1,050,449 2,867,443 44,019 1,050,449
FL Naples 636,051 1,735,211 35,682 636,051
FL Jacksonville 828,468 2,282,155 0 828,468
FL Hallandale 1,696,519 4,625,578 0 1,696,519
FL Davie 2,005,938 5,452,384 0 2,005,938
FL Tampa/Adamo 837,180 2,291,714 0 837,180
FL SR 84 (Southwest) 1,903,782 5,187,373 0 1,903,782
FL Quail Roost 2,342,000 1,663,641 4,533,384 0 1,663,641
FL Tamiami 1,962,917 5,371,139 0 1,962,917
FL Highway 441 (2nd Avenue) 1,734,958 4,760,420 0 1,734,958
FL Miami Sunset 2,205,018 6,028,210 0 2,205,018
FL Doral (Archway) 1,633,500 4,464,103 0 1,633,500
GA South Cobb 161,509 1,349,816 10,001 161,509
GA Lilburn 1,461,000 634,879 1,724,697 13,685 634,879
GA Eastpoint 1,858,500 1,112,618 2,194,489 20,750 1,112,618
GA Acworth 748,500 493,504 917,825 62,330 520,032
<CAPTION>
DEPRECIABLE
LIFE OF
BUILDING & ACCUMULATED YEAR BUILDING
STATE FIXTURES TOTAL DEPRECIATION ACQUIRED COMPONENT
----- -------------- -------------- -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
CA 4,744,309 6,485,284 (39,555) 1995 40
CA 2,229,985 3,046,401 (18,509) 1995 40
CA 1,142,629 1,556,388 (4,742) 1995 40
CA 1,803,082 2,458,965 (7,455) 1995 40
CA 1,023,905 1,392,411 (4,249) 1995 40
CA 1,718,949 2,345,743 (7,096) 1995 40
CA 1,834,612 2,508,051 (6,067) 1995 40
CA 2,129,022 2,913,611 0 1995 40
CT 1,319,619 1,792,450 (54,688) 1994 40
CT 1,426,590 1,933,465 (51,936) 1994 40
CT 2,700,212 3,692,759 (50,657) 1995 40
DC 3,794,574 5,183,138 (165,796) 1994 40
DE 2,525,396 3,136,085 (425,111) 1989 40
FL 3,874,305 5,713,208 (694,330) 1988 40
FL 4,306,278 5,368,054 (750,660) 1988 40
FL 2,395,142 3,257,991 (410,496) 1988 40
FL 2,230,643 3,564,969 (372,524) 1988 40
FL 924,014 1,150,538 (117,220) 1991 40
FL 2,376,555 2,948,839 (141,386) 1991 40
FL 1,718,312 2,324,162 (75,508) 1994 40
FL 1,395,218 1,884,827 (61,175) 1994 40
FL 2,911,462 3,961,911 (127,388) 1994 40
FL 1,770,893 2,406,944 (52,473) 1994 40
FL 2,282,155 3,110,623 (8,180) 1995 40
FL 4,625,578 6,322,097 (78,318) 1995 40
FL 5,452,384 7,458,322 (82,897) 1995 40
FL 2,291,714 3,128,894 (33,118) 1995 40
FL 5,187,373 7,091,155 (32,102) 1955 40
FL 4,533,384 6,197,025 (28,180) 1995 40
FL 5,371,139 7,334,056 (78,304) 1995 40
FL 4,760,420 6,495,378 (69,290) 1995 40
FL 6,028,210 8,233,228 (87,870) 1995 40
FL 4,464,103 6,097,603 (65,385) 1995 40
GA 1,359,817 1,521,326 (105,630) 1992 40
GA 1,738,382 2,373,261 (77,168) 1994 40
GA 2,215,239 3,327,857 (97,768) 1994 40
GA 953,627 1,473,659 (37,815) 1994 40
</TABLE>
F-43
<PAGE>
SUSA PARTNERSHIP, L.P., FACILITIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
GROSS AMOUNT
AT CLOSE OF
INITIAL COST TO REIT COST OF PERIOD
------------------------------ IMPROVEMENTS --------------
BUILDING & SUBSEQUENT
STATE PROPERTY NAME ENCUMBRANCES LAND FIXTURES TO ACQUISITION LAND
----- --------------------------- --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
GA Western Hills 842,094 1,855,712 59,228 846,462
IL Brickyard 713,079 1,935,999 21,288 713,443
IL Cermak 948,679 2,582,566 21,012 949,042
IL Schaumburg 1,159,033 3,158,017 0 1,159,033
KS Shawnee 546,118 1,490,460 10,524 546,118
KS Olathe 429,808 1,176,442 22,516 429,808
KS Overland Park 561,549 1,530,969 22,072 561,549
KS State Avenue 448,025 1,224,381 20,094 448,025
LA Tchoup (New Orleans) 920,987 2,501,147 85,519 920,987
MA Worcester 661,235 1,541,427 22,556 661,235
MA Haverhill 573,068 1,568,047 7,867 573,068
MA New Bedford 768,959 2,099,751 7,966 768,959
MA Whitman 544,178 1,487.628 7,127 544,178
MD Annapolis/Route 50 3,473,000 1,565,664 4,324,670 10,891 1,565,664
MD Silver Spring 2,776,490 4,455,110 8,818 2,776,490
MD Essex 1,015,773 2,396,462 2,409 1,015,773
MD Columbia 1,057,034 3,289,952 18,509 1,057,034
MD Rockville 1,376,588 3,765,848 20,938 1,376,588
MD Annapolis/Trout 1,635,928 4,430,887 31,076 1,635,928
MD Montgomery Village 1,287,176 3,537,609 27,912 1,287,176
MD Millersville 1,501,123 4,101,854 0 1,501,123
MD Waldorf 1,168,869 3,175,314 0 1,168,869
MD SUSA Partnership/ 3,356,744 650,997 135,400 3,356,744
Management
MI Lincoln Park 761,209 2,097,502 0 761,209
MI Tel-Dixie 595,495 1,646,723 0 595,495
MO Grandview 511,576 1,396,230 39,260 511,576
MO Raytown 427,056 1,171,397 43,381 427,056
NJ Pennsauken 914,938 2,484,553 27,329 914,938
NJ Lawnside 1,095,126 2,972,032 0 1,095,126
NJ Cherry Hill/Cuthbert 720,183 1,894,545 0 720,183
NJ Cherry Hill/Route 70 693,314 1,903,413 0 693,314
NM Lomas 561,000 251,018 691,453 22,676 251,018
NM San Mateo 1,185,000 524,982 1,436,128 54,232 524,982
NM Montgomery 1,372,500 606,860 1,651,611 14,034 606,860
NM Legion 1,135,500 0 1,873,666 13,750 0
NM Ellison 1,453,500 620,366 1,715,897 0 620,366
NM Hotel Circle 624,000 277,101 766,547 30,108 255,163
<CAPTION>
DEPRECIABLE
LIFE OF
BUILDING & ACCUMULATED YEAR BUILDING
STATE FIXTURES TOTAL DEPRECIATION ACQUIRED COMPONENT
----- -------------- -------------- -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
GA 1,910,572 2,757,034 (60,012) 1994 40
IL 1,956,923 2,670,366 (71,026) 1994 40
IL 2,603,215 3,552,257 (86,585) 1994 40
IL 3,158,017 4,317,050 (52,742) 1995 40
KS 1,500,984 2,047,102 (65,853) 1994 40
KS 1,198,958 1,628,766 (53,445) 1994 40
KS 1,553,041 2,114,590 (68,712) 1994 40
KS 1,244,475 1,692,500 (36,823) 1994 40
LA 2,586,666 3,507,653 (111,592) 1994 40
MA 1,563,983 2,225,218 (54,802) 1994 40
MA 1,575,914 2,148,982 (49,583) 1994 40
MA 2,107,717 2,876,676 (66,365) 1994 40
MA 1,494,755 2,038,933 (47,217) 1994 40
MD 4,335,561 5,901,225 (602,437) 1989 40
MD 4,463,928 7,240,418 (718,349) 1989 40
MD 2,398,871 3,414,644 (322,898) 1990 40
MD 3,308,461 4,365,495 (393,918) 1991 40
MD 3,786,786 5,163,374 (142,771) 1994 40
MD 4,461,963 6,097,891 (147,458) 1994 40
MD 3,565,521 4,852,697 (111,601) 1994 40
MD 4,101,854 5,602,977 (21,939) 1995 40
MD 3,175,314 4,344,183 (26,586) 1995 40
MD 786,397 4,143,141 (95,552) 1989 5
MI 2,097,502 2,858,711 (36,562) 1995 40
MI 1,646,723 2,242,218 (27,835) 1995 40
MO 1,435,490 1,947,066 (62,973) 1994 40
MO 1,214,778 1,641,834 (36,140) 1994 40
NJ 2,511,882 3,426,820 (146,917) 1994 40
NJ 2,972,032 4,067,158 (55,840) 1995 40
NJ 1,894,545 2,614,728 (36,375) 1995 40
NJ 1,903,413 2,596,727 (16,060) 1995 40
NM 714,129 965,147 (28,676) 1994 40
NM 1,490,360 2,015,342 (59,066) 1994 40
NM 1,665,645 2,272,505 (66,747) 1994 40
NM 1,887,416 1,887,416 (73,031) 1994 40
NM 1,715,897 2,336,263 (69,409) 1994 40
NM 818,593 1,073,756 (30,449) 1994 40
</TABLE>
F-44
<PAGE>
SUSA PARTNERSHIP, L.P., FACILITIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
GROSS AMOUNT
AT CLOSE OF
INITIAL COST TO REIT COST OF PERIOD
------------------------------ IMPROVEMENTS --------------
BUILDING & SUBSEQUENT
STATE PROPERTY NAME ENCUMBRANCES LAND FIXTURES TO ACQUISITION LAND
----- --------------------------- --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
NM Eubank 577,099 1,568,266 37,905 577,099
NM Coors 494,400 1,347,792 10,610 494,400
NM Osuna 696,685 1,891,849 23,623 696,685
NM East Central 292,031 801,475 24,087 292,031
NV Rainbow 892,753 2,419,779 28,263 892,753
NV Oakey 663,607 1,825,505 0 663,607
NV Tropicana 815,085 2,211,952 47,344 815,085
NV Sunset 947,534 2,569,938 18,163 947,534
NV Sahara 1,217,565 3,373,622 0 1,217,565
NV Charleston 557,678 1,520,140 0 557,678
OK Sooner Road 453,185 1,252,031 23,287 453,185
OK 10th Street 621,413 743,356 47,762 621,413
OK Moore 281,912 776,815 19,966 281,912
OK NW Expressway 353,735 977,978 64,349 353,735
OK Midwest City 443,545 1,216,512 11,491 443,545
OK Meridian 252,963 722,040 103,520 244,143
OK Air Depot 347,690 965,923 42,359 347,690
OK Peoria 540,318 1,488,307 0 540,318
OK 11th and Mingo 757,054 2,071,799 0 757,054
OK Skelly 173,331 489,960 0 173,331
OK Lewis 642,511 1,760,304 0 642,511
OK Sheridan 531,978 1,509,718 0 531,978
PA Philadelphia 1,574,064 2,838,049 15,966 1,574,064
PA King of Prussia 1,354,359 3,678,011 0 1,354,359
PA Warminster 891,048 2,446,648 0 891,048
PA Allentown 578,632 1,583,744 0 578,632
PA Bethlehem 843,324 2,317,298 0 843,324
TN Summer 172,093 2,663,644 15,949 172,093
TN Union 286,925 1,889,030 16,323 286,925
TN Memphis/Mt Moriah 1,024,669 1,598,722 143,060 1,034,883
TN Antioch/Nashville 822,125 2,239,684 74,671 822,125
TN Keyport (Gateway) 403,492 1,100,184 36,763 403,492
TN Chattanooga 484,457 1,360,998 0 484,457
TN Memphis/Ridgeway 638,757 1,141,414 0 638,757
TX Ft. Worth Avenue 904,500 393,893 1,076,836 11,833 393,893
TX Euless 359,330 979,859 93,157 359,330
TX North Freeway 687,758 1,867,833 36,729 687,758
<CAPTION>
DEPRECIABLE
LIFE OF
BUILDING & ACCUMULATED YEAR BUILDING
STATE FIXTURES TOTAL DEPRECIATION ACQUIRED COMPONENT
----- -------------- -------------- -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
NM 1,606,171 2,183,270 (44,122) 1994 40
NM 1,358,402 1,852,802 (38,031) 1994 40
NM 1,915,472 2,612,157 (52,294) 1994 40
NM 825,562 1,117,593 (23,309) 1994 40
NV 2,448,042 3,340,795 (67,709) 1994 40
NV 1,825,505 2,489,112 (46,543) 1995 40
NV 2,259,269 3,074,354 (61,214) 1994 40
NV 2,588,101 3,535,635 (70,758) 1994 40
NV 3,373,622 4,591,187 (76,398) 1995 40
NV 1,520,140 2,077,818 (12,882) 1995 40
OK 1,275,318 1,728,503 (57,155) 1994 40
OK 791,118 1,412,531 (33,396) 1994 40
OK 796,781 1,078,693 (36,131) 1994 40
OK 1,042,327 1,396,062 (45,480) 1994 40
OK 1,228,003 1,671,548 (54,459) 1994 40
OK 834,380 1,078,523 (32,671) 1994 40
OK 1,008,282 1,355,972 (44,009) 1994 40
OK 1,488,307 2,028,625 (18,919) 1995 40
OK 2,071,799 2,828,853 (26,188) 1995 40
OK 489,960 663,291 (6,450) 1995 40
OK 1,760,304 2,402,815 (22,248) 1995 40
OK 1,509,718 2,041,696 (15,939) 1995 40
PA 2,854,015 4,428,079 (450,961) 1990 40
PA 3,678,011 5,032,370 (31,090) 1995 40
PA 2,446,648 3,337,696 (41,776) 1995 40
PA 1,583,744 2,162,376 (29,695) 1995 40
PA 2,317,298 3,160,622 (44,020) 1995 40
TN 2,679,593 2,851,686 (547,324) 1986 40
TN 1,905,353 2,192,278 (363,715) 1987 40
TN 1,731,568 2,766,451 (269,432) 1989 40
TN 2,314,355 3,136,480 (102,378) 1994 40
TN 1,136,947 1,540,439 (37,325) 1994 40
TN 1,360,998 1,845,455 (4,322) 1995 40
TN 1,141,414 1,780,171 (19,515) 1995 40
TX 1,088,669 1,482,562 (41,941) 1994 40
TX 1,073,016 1,432,346 (29,467) 1994 40
TX 1,904,562 2,592,320 (55,338) 1994 40
</TABLE>
F-45
<PAGE>
SUSA PARTNERSHIP, L.P., FACILITIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
GROSS AMOUNT
AT CLOSE OF
INITIAL COST TO REIT COST OF PERIOD
------------------------------ IMPROVEMENTS --------------
BUILDING & SUBSEQUENT
STATE PROPERTY NAME ENCUMBRANCES LAND FIXTURES TO ACQUISITION LAND
----- --------------------------- --------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
TX South Freeway 441,599 1,202,291 64,475 441,599
TX White Settlement 1,347,379 2,531,920 589,562 1,370,309
TX Airport Freeway 616,535 1,678,683 29,035 616,535
TX Midway 1,125,514 2,344,420 99,493 1,169,859
TX Dallas/Preston 1,194,744 3,245,423 0 1,194,744
UT Orem 629,867 1,722,550 20,195 629,867
UT Sandy 949,065 2,573,696 23,029 949,065
UT West Valley 576,248 1,579,605 0 576,248
VA Fairfax Station 1,019,015 2,115,385 66,405 1,019,015
VA Chantilly 882,257 2,395,841 30,790 882,257
VA Clarendon 37,575 0 0 37,575
VA Reston 551,285 0 0 551,285
VA Falls Church 1,226,409 3,348,761 0 1,226,409
$ 21,715,000 $ 139,488,761 $ 365,778,212 $ 4,029,917 $ 139,602,808
<CAPTION>
DEPRECIABLE
LIFE OF
BUILDING & ACCUMULATED YEAR BUILDING
STATE FIXTURES TOTAL DEPRECIATION ACQUIRED COMPONENT
----- -------------- -------------- -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
TX 1,266,766 1,708,365 (35,417) 1994 40
TX 3,098,552 4,468,861 (87,980) 1994 40
TX 1,707,718 2,324,253 (50,727) 1994 40
TX 2,399,568 3,569,427 (68,882) 1994 40
TX 3,245,423 4,440,167 (13,418) 1995 40
UT 1,742,745 2,372,612 (55,279) 1994 40
UT 2,596,725 3,545,790 (81,171) 1994 40
UT 1,579,605 2,155,853 (4,326) 1995 40
VA 2,181,790 3,200,805 (105,993) 1993 40
VA 2,426,631 3,308,88 (98,174) 1994 40
VA 0 37,575 0 1994 40
VA 0 551,285 0 1995 40
VA 3,348,761 4,575,170 (28,158) 1995 40
$ 369,694,065 $ 509,296,873 ($14,560,919)
</TABLE>
F-46
<PAGE>
[LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Storage USA, Inc.
In connection with our audits of the consolidated financial statements of
SUSA Partnership, L.P. as of December 31, 1995 and 1994 and for the year ended
December 31, 1995 and for the period from March 24, 1994 (inception) through
December 31, 1994, which financial statements are included in this Form S-3 of
SUSA Partnership, L.P. and Storage USA, Inc., we have also audited the related
financial statement schedule included in this Form S-3.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
[SIGNATURE]
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 26, 1996
F-47
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES
IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER OR
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE PARTNERSHIP SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Supplement Summary................ S-3
The Partnership.............................. S-10
Management................................... S-15
Use Of Proceeds.............................. S-16
Capitalization............................... S-16
Summary Financial and Operating Data......... S-17
Management's Discussion And Analysis Of
Financial Condition And Results Of
Operations.................................. S-19
SUSA Partnership, L.P. Pro Forma Financial
Information................................. S-22
Description of Notes......................... S-28
Underwriting................................. S-32
Validity of Notes............................ S-33
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Available Information........................ 2
Incorporation Of Certain Documents By
Reference................................... 2
The Partnership.............................. 3
Use of Proceeds.............................. 3
Ratios Of Earnings To Fixed Charges.......... 3
Description Of Debt Securities............... 3
Plan Of Distribution......................... 15
Validity of Debt Securities.................. 15
Experts...................................... 15
Index to Financial Information............... F-1
</TABLE>
THROUGH AND INCLUDING , ALL DEALERS EFFECTING TRANSACTIONS
IN THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECUTS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
$100,000,000
SUSA PARTNERSHIP, L.P.
% NOTES
DUE NOVEMBER 15, 2003
-------------
[LOGO]
-------------
GOLDMAN, SACHS & CO.
FIRST CHICAGO CAPITAL MARKETS, INC.
J.P. MORGAN & CO.
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