SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from_______to_______
Commission file number 001-12910
SUSA Partnership, L.P.
(Exact name of registrant as specified in its charter)
Tennessee 62-1554135
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
10440 Little Patuxent Parkway, Suite 1100, 21044
Columbia, MD (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (410) 730-9500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
SUSA Partnership, L.P. New York Stock Exchange
7.12% Notes
Due November 15, 2003
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K ('229.405 of this chapter) is not contained herein,
and will not be contained, to the best of this registrant's knowledge, in a
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. ( )
The aggregate market value of the units held by non-affiliates of the
registrant was approximately $72,106,000 as of March 26, 1997, based on
1,903,797 units held by non-affiliates of the registrant. (For this computation,
the registrant has excluded the market value of all units reported as
beneficially owned by executive officers and directors of the registrant and
certain other stockholders; such an exclusion shall not be deemed to constitute
an admission that any such person is an "affiliate" of the registrant.)
1,903,797
(Number of units of limited partnership interest outstanding as of March 26,
1997)
DOCUMENTS INCORPORATED BY REFERENCE
Part II and Part III incorporate certain information by reference from
the Storage USA, Inc.'s 1996 Annual Report to Shareholders and from the Storage
USA, Inc.'s definitive proxy statement to be filed with respect to the 1997
Annual Meeting of Shareholders.
<PAGE>
Part I
Item 1. Business
General
SUSA Partnership, L.P. (the "Partnership") is engaged in the business
of owning, managing, acquiring, developing and franchising self-storage
facilities. At December 31, 1996, the Partnership owned 242 facilities
containing 16.3 million net rentable square feet in 29 states and the District
of Columbia and managed for others 27 facilities containing an additional 1.6
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(R) 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 December 31, 1996, were 86% and 79%, 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 December 31,
1996, was $9.73. 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 890 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 December 31,
1996, it owned a 93% 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 500to 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 space is offered in many facilities for storing items that
are sensitive to extreme humidity or temperature. Some of the facilities provide
paved secure storage areas for recreational vehicles, boat 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). 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 1996, increased revenue and net
operating income by 7.7% and 5.7%, respectively, over revenue and net operating
income achieved by the Partnership in the prior year.
O 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.
O 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.
O 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.
O 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. 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 the Company's initial public offering in March 1994 ("IPO"),
the Partnership has purchased 198 self-storage facilities containing 13.2
million net rentable square feet for an aggregate purchase price of
approximately $674 million. Management believes that there are several factors
that favor its acquisition policy:
O 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 December 31, 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.
O 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. The Partnership
believes it has developed an expertise in improving the
performance of such properties.
O Demand for Tax Deferral - In several of its acquisitions, the
Partnership has financed a portion of the sales price through
the issuance of units of limited partnership interest in the
Partnership ("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 issued 1.8 million Units valued at
$56 million in consideration for the acquisition of 35
self-storage facilities.
O 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:
O 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 December
31, 1996, the Partnership had under construction or in
development approximately 1.3 million net rentable square feet
contained in 12 new facilities and in expansions to 18
existing facilities.
O Development Capital - The Partnership has a proven ability to
access various forms of capital that differentiates it from
most of its 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 Company and the Partnership intend to maintain a conservative
capital structure designed to enchance access to capital and to facilitate
earnings growth. The Company expects to finance long-term capital needs through
the issuance of equity and debt securities. Since the IPO, the Company has
issued $312 million of its Common Stock in three public offerings and $ 252
million of its Common Stock in a series of direct placements with Security
Capital U.S. Realty ("USRealty"), an affiliate of Security Capital Group,
pursuant to the strategic alliance discussed below. The proceeds of these
offerings were contributed to the Partnership in exchange for units of interest
in the Partnership . In October 1996, the Partnership issued to the public $100
million of its unsecured 7.125% Senior Notes due November 1, 2003. In addition,
since the IPO, the Operating Partnership has issued 1.8 million Units valued at
$56 million in consideration for the acquisition of 35 self-storage facilities.
Short-term capital needs, including acquisition funding pending the
issuance of additional securities, are met through the Partnership's revolving
lines of credit. The Partnership has available $105.0 million in unsecured
revolving lines of credit with a group of commercial banks, under which it had
borrowed $52.7 million as of December 31, 1996. At December 31, 1996, the
Partnership also had mortgage loans outstanding of $45.7 million that were
secured by 17 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. As of
December 31, 1996, the total indebtedness of the Partnership would have been
22.8% of total assets at cost and its debt service coverage ratio for the year
ended December 31, 1996, would have been 7:1. The Partnership believes that this
policy, the Company's success in raising equity capital and through the
Partnership, debt 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
In March 1, 1996, the Company entered into a Stock Purchase Agreement
and a Strategic Alliance Agreement with USRealty. Under the Stock Purchase
Agreement, between March and September 1996, USRealty purchased from the Company
7,028,754 shares of Common Stock for an aggregate direct investment of $220.0
million. The Strategic Alliance Agreement, among other things, permits USRealty
to purchase up to 37.5% of the Company's Common Stock and to participate in
certain offerings of the Company's equity securities. Through March 27, 1997, US
Realty had purchased an additional 3,713,047 shares of Common Stock, including
851,000 shares purchased pursuant to the exercise of its participation rights in
connection with the Company's public sale of 1,610,000 shares in March 1997. As
of March , 1997, USRealty owned 10,741,801 shares, or 37%, of the Company's
outstanding Common Stock. Also, pursuant to the Strategic Alliance Agreement
USRealty has placed 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.
Franchise Operations
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.
Operating Practices
The Partnership believes that it has been successful in operating
self-storage facilities primarily due to the Partnership's convenient,
attractive, well-equipped facilities, its friendly, customer-service oriented,
on-site facility management staff, and its experienced corporate staff.
<PAGE>
Pricing Policy
The Partnership is typically confident in its local competitive
position, and tends to seek higher rents more aggressively in appropriate
unit-size categories than its competitors. The Partnership believes the average
rental rate per net rentable square foot in its facilities is usually higher
than the rental rates at its competitor's facilities. The Partnership's managers
frequently survey activities and conditions at competing facilities. In
addition, the geographic diversity of self-storage facility tenants allows rents
to be raised more often at the end of rental periods in a non-uniform manner,
unlike apartments which must generally raise rents in a uniform manner on a less
routine basis.
Marketing
The Partnership employs various means to maintain and increase its
share of the self-storage market for its facilities and to obtain rental rate
increases. The Partnership develops a written marketing plan for each facility
with a strong emphasis on developing a customer-oriented management team. The
Partnership utilizes yellow page advertising, site signage and location as the
primary means to advertise its services. The Partnership utilizes some print and
media advertising, but generally only during a facility's lease up stage.
Primarily marketing emphasis is placed on training managers to act as
salespeople and to convert prospective tenants into actual tenants. Managers
visit area apartment complexes and businesses to contact potential customers and
provide them with information regarding the Partnership's services. The
Partnership's facility managers also seek new tenant referrals from area
apartment managers, moving and storage personnel, and existing tenants.
Capital Expenditures and Maintenance
Due to the type of simple structures and durable materials used for the
facilities, property maintenance is minimal as compared to other types of real
estate investments. The majority of the Partnership's facilities are one story,
with either tilt-up concrete or masonry load-bearing walls, easily moved steel
interior walls, and metal roofs. Typical capital expenditures include replacing
asphalt roofs, gates, air conditioning equipment and elevators (as contrasted
with expense items such as repairing asphalt, repairing a door, pointing up
masonry walls, painting trim and facades, repairing a fence, maintaining
landscaping, and repairing damage caused by tenant vehicles). Maintenance within
a storage unit between leasing typically consists of sweeping out the unit and
changing a light bulb. Maintenance is the responsibility of the facility manager
who resides in the apartment located at most of the facilities.
Property Security
All facilities are equipped with a modern security system after they
have been conformed to Partnership standards. The facility manager obtains a
positive identification of each tenant prior to leasing. The individual tenant
is then given a designated personal identification number for use in connection
with a computerized gate access system. Each access is computer-logged (and may
be denied for non-payment of rent) and the gate and some drive aisles are
monitored by video cameras.
Data Processing/Management Information Systems
The Partnership's computer system, which links the corporate office
with each facility, expedites financial statement and budget preparations,
internal auditing and provides detailed information with respect to the tenant
mix, occupancy levels, revenues, expenses and other information relating to each
facility. All necessary data is transmitted weekly to the Partnership's central
office. Management believes that the Partnership's present information systems
will be adequate to support additional growth with minimal additional upgrades.
Staffing and Training
Each existing facility is typically managed by a management couple who
reside on site and are responsible for the overall operations of the facility,
plus a relief manager. The Partnership's facility managers are trained to
provide conscientious customer service, are provided with incentives to exercise
properly the powers granted to them, and are supervised through the
Partnership's management information systems and site audits. Incentive programs
are put in place for facility management teams which emphasize monthly budgets
set for each facility. Managers receive bonuses based upon exceeding budgeted
goals.
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Employee Recognition and Compensation
In addition to their salaries, the Partnership's facility managers
receive annual vacation, health insurance and the ability to participate in the
Company's 401(k) tax-advantaged savings plan and 1993 Omnibus Stock Plan.
Facility managers generally receive bonuses when monthly revenues exceed
budgeted amounts and when annual revenue increases over the prior year. The
Partnership has a program to recognize good performance of managers on a
quarterly and yearly basis, with winners receiving cash bonuses and
Partnership-wide recognition.
"Total Storage Satisfaction Guaranteed TM" Program
The Partnership's "Total Storage Satisfaction Guaranteed TM" Program
emphasizes an aggressive approach which seeks to create a positive storage
experience for the customer and to promote repeat business and referrals.
Collections
Rents are paid in advance on a monthly basis. The Partnership imposes
substantial late fees for delinquent payment of rent beginning five days after
the due date and escalating periodically thereafter. The Partnership's accounts
receivable collection history has averaged over 98% in recent years due
primarily to management scrutiny and favorable state laws which permit the
relatively rapid eviction of non-paying tenants and the sale of their stored
goods without court order to pay past due charges. Upon non-payment of rent, the
tenant's access code is invalidated and a Partnership lock is placed on the
storage unit. The actual time typically required to evict a non-paying tenant
and to sell and remove his goods is between 45 and 75 days after default in the
states in which the facilities are located. Customers generally bring their
accounts current after access is denied and the eviction rate at the
Partnership's facilities has not been material.
Other Activities
The Partnership sells locks and packing materials and, at certain
locations, rents trucks to both tenants and non-tenants. The trucks are owned by
a third-party rental company and the Partnership receives a commission for each
rental. The Partnership,through a wholly-owned subsidiary also manages for a
fee, self-storage properties owned by others.
Local Regulations
As with all real property, storage facilities must conform to local
zoning ordinances. Typically, self-storage facilities are not a permitted use
within the commercial and retail zones desired by the Partnership for
development of a new facility. Therefore, the Partnership must generally obtain
a special use permit or zoning variance to undertake the development of a new
facility.
Competition
Competition exists in all of the market areas in which the facilities
are located. The Partnership principally faces competitors who seek to attract
tenants primarily on the basis of lower prices. However, the Partnership usually
does not seek to be the lowest price competitor. Rather, based on the quality of
its facilities and its customer service-oriented managers and amenities, the
Partnership's strategy is to lead particular markets in terms of prices.
The pool of self-storage users has increased in recent years due to
greater consumer awareness, cost reduction programs by businesses, increased
mobility in the general population and an increasing mix of products and
services offered by self-storage facilities. Although circumstances vary among
markets, the Partnership believes that current demand for self-storage
facilities is strong when compared to the available supply of self-storage
space. At the same time, the Partnership believes that few operators of
self-storage facilities are currently constructing additional facilities or have
access to the capital and the development and construction expertise necessary
to do so. Therefore, the Partnership believes that the supply of self-storage
facilities will remain relatively limited for some time, and that the industry
generally will continue to experience strong occupancy and increasing rental
rates. The Partnership believes that its access to capital markets as a public
company, the systems and methods it has developed and the skilled personnel it
has gathered and trained for acquiring and managing self-storage facilities with
potential for increased occupancy and rental rates, and its expertise in
facility development and construction place the Partnership in a position to
capitalize on these market conditions for the benefit of its shareholders.
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Certain of the Partnership's competitors operate more facilities and
have substantially greater financial resources than the Partnership. The three
largest self-storage managers, based on industry data as to the number of
facilities operated (whether or not the facilities are owned), are: (1) Public
Storage Management, Inc. (66.3 million square feet in 1,121 facilities); (2)
U-Haul International, Inc. (18.2 million square feet in 779 facilities); and (3)
Shurgard Incorporated (18.1 million square feet in 296 facilities). (Source:
Self-Storage Almanac 1996-1997 edition). The Partnership is the fourth largest
self-storage manager, with 18.7 million square feet in 281 facilities as of
March 27, 1997. These other entities may generally be able to accept more risk
than the Partnership can prudently manage, including risks with respect to the
geographic proximity of its investments and the payment of higher facility
acquisition prices. This competition may generally reduce the number of suitable
acquisition opportunities offered to the Partnership and increase the price
required to be able to consummate the acquisition of particular facilities.
Further, the Partnership believes that competition from entities organized for
purposes substantially similar to the Partnership's objectives could increase.
Nevertheless, the Partnership believes that the operations, development and
financial experience of its executive officers and directors and its
customer-oriented approach to management of self-storage facilities should
enable the Partnership to compete effectively.
Employees
All persons referred to herein as employees of the Partnership are employees of
the Partnership or of its subsidiaries. As of December 31, 1996, the Partnership
employed approximately 893 employees, of whom approximately 250 were employed
part-time (fewer than 30 hours per week) on a regular basis. None of the
Partnership's employees is covered by a collective bargaining agreement.
Qualification as a Real Estate Investment Trust
The Company operates so as to qualify as a REIT under the Internal Revenue Code
of 1986, as amended (the "Code"). Generally, a REIT which complies with the Code
and distributes at least 95% of its taxable income to its shareholders does not
pay federal tax on its distributed income. Qualification as a REIT involves the
application of highly technical and complex rules for which there are only
limited judicial or administrative interpretations. The complexity of these
rules is greater in the case of a REIT that holds its assets in partnership
form. Furthermore, there are no controlling authorities that deal specifically
with many tax issues affecting a REIT that operates self-storage facilities. The
determination of various factual matters and circumstances not entirely within
the Company's control may affect its ability to qualify as a REIT. In addition,
new regulations, administrative interpretations or court decisions could have a
substantial adverse effect with respect to the qualifications as a REIT or the
federal income tax consequences of such qualification. If the Company were to
fail to qualify as a REIT in any taxable year, the Company would not be allowed
a deduction for distributions to shareholders in computing its taxable income
and would be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. Unless entitled
to relief under certain Code provisions, the Company also would be disqualified
from treatment as a REIT for the four taxable years following the year during
which qualification was lost. As a result, the cash available for distribution
to shareholders would be reduced for each of the years involved. Although the
Company currently intends to operate in a manner designed to qualify as a REIT
it is possible that future economic, market, legal, tax or other considerations
may cause the Board of Directors, with the consent of a majority of the
shareholders, to revoke the REIT election.
Environmental Matters
The Partnership has obtained Phase 1 environmental audits on all of its
facilities from various outside environmental engineering firms. The purpose of
the Phase 1 audits is to identify potential sources of contamination at these
facilities and to access the status of environmental regulatory compliance. The
Phase 1 audits include historical reviews of the facilities, reviews of certain
public records, preliminary investigations of the sites and surrounding
properties, visual inspection for the presence of asbestos, PCBs and underground
storage tanks, and the preparation and issuance of a written report. A Phase 1
audit does not include invasive procedures, such as soil sampling or ground
water analysis. In certain instances the Partnership has obtained Phase 2
environmental audits or procedures in order to determine (using invasive
testing) whether potential sources of contamination indicated in Phase 1 audits
actually exist. While some of the facilities have in the past been the subject
of environmental remediation or underground storage tank removal, the
Partnership is not aware of any contamination of facilities requiring
remediation under current law. The Partnership will not take ownership of any
acquisition facility prior to completing a satisfactory environmental review and
inspection procedure. No assurance can be given that the Phase 1 and 2 audits
identified or will identify all significant environmental problems or that no
additional environmental liabilities exist.
Under various federal, state and local laws and regulations, an owner
or operator of real estate may be liable for the costs of removal or remediation
of certain hazardous or toxic substances on such property. Such laws often
impose such liability without regard to whether the owner caused or knew of the
presence of hazardous or toxic substances and whether or not the storage of such
substances was in violation of a tenant's lease. Furthermore, the cost of
remediation or removal of such substances may be substantial, and the presence
of such substances, or the failure to promptly remediate such substances, may
adversely affect the owner's ability to sell such real estate or to borrow using
such real estate as collateral. In connection with the ownership and operation
of its facilities, the Company or the Partnership may become liable for such
costs.
<PAGE>
The environmental audit reports have not revealed any environmental
liability that the Partnership believes would have a material adverse effect on
the Partnership's business, assets or results of operations, nor is the
Partnership aware of any such liability. Nevertheless, it is possible that these
reports do not or will not reveal all environmental liabilities or that there
are material environmental liabilities of which the Partnership is unaware.
Moreover, no assurances can be given that (i) future laws, ordinances or
regulations will not impose any material environmental liability, (ii) the
current environmental condition of the facilities will not be affected by the
condition of the properties in the vicinity of the facilities (such as the
presence of leaking underground storage tanks) or by third parties unrelated to
the Partnership or the Company or, (iii) tenants will not violate their leases
by introducing hazardous or toxic substances into the Partnership's facilities.
The Partnership may be potentially liable as owner of the facility for hazardous
materials stored in units in violation of a tenant's lease, although to date the
Partnership has not incurred any such liability.
The Partnership believes that the facilities are in compliance in all
material respects with all applicable federal, state and local ordinances and
regulations regarding hazardous or toxic substances and other environmental
matters. The Partnership has not been notified by any governmental authority of
any material noncompliance, liability or claim relating to hazardous or toxic
substances or other environmental substances in connection with any of its
present or former properties.
Policies and Objectives with Respect to Certain Activities
The following is a discussion of the Partnership's policies with
respect to investment financing, conflict of interest and certain other
activities. The policies with respect to these activities have been determined
by the Board of Directors of the Company and may be amended or revised from time
to time at the discretion of the Board of Directors without a vote of the
shareholders of the Company, except that (i) changes in certain policies with
respect to conflicts of interest must be consistent with legal requirements and
(ii) the Company cannot take any action intended to terminate its qualification
as a REIT without the approval of the holders of a majority of the outstanding
Common Stock. See also "-Limitations on Corporate Actions Pursuant to Strategic
Alliance Agreement" below.
Acquisition, Development and Investment Policies
The Partnership's investment objectives are to acquire or develop
income-producing self-storage facilities with property level cash flow growth
potential. The Partnership's business is focused solely on self-storage
facilities. The Partnership's policy is to acquire facilities with less than
mature occupancy levels or less than optimum rental rates to expand existing
facilities, and to develop new facilities. The Partnership reviews its portfolio
of self-storage facilities periodically and considers whether any of its
facilities are no longer an optimal use of the Partnership's capital or
management resources. When a facility is no longer considered an optimal use of
the Partnership's capital, the Partnership will seek to sell the facility taking
into account the tax consequences of such sales.
The Partnership expects to pursue its investment objectives through the
direct and indirect ownership of self-storage facilities. The Partnership will
participate with other entities in property ownership, thought joint ventures,
subject to limitations of the Strategic Alliance Agreement or other types of
co-ownership. Equity investment may be subject to existing mortgage financing
and other indebtedness that may have priority over the equity interest of the
Partnership.
While the Partnership emphasizes equity real estate investments, it
may, in its discretion, invest in mortgage and other real estate interests,
including securities of other REITs. The Partnership does not currently invest
in securities of other REITs and has no present intention of doing so. The
Partnership may invest in participating or convertible mortgages if it concludes
that it may benefit from the cash flow or any appreciation in the value of the
subject property. Such mortgages are similar to equity participation.
Specifically, the Partnership may make participating and non-participating loans
collateralized self-storage facilities owned by third parties.
The Company is subject to certain restrictions on its investing
activities pursuant to the Strategic Alliance Agreement with US Realty, as
described below.
The Partnership intends to continue to manage self-storage facilities
owned by others for a fee.
The Partnership may make investments other than as described above
although it does not currently intend to do so.
<PAGE>
Financing Policies
The Company intends to make additional investments in self-storage
facilities and may incur or cause the Partnership to incur indebtedness to make
such investments or to meet the distribution requirements imposed by the REIT
provisions of the Code, to the extent that cash flow from the Company's
investments and working capital is insufficient.
The Partnership may from time to time re-evaluate its borrowing
policies in light of then current economic conditions, relative costs of debt
and equity capital, market values of facilities, growth and acquisition
opportunities and other factors. The Charter and Bylaws of the Company do not
limit the amount or percentage of indebtedness, funded or otherwise, the Company
or the Partnership might incur. The Board of Directors of the Company has
adopted a policy limiting the Company's and the Partnership's indebtedness 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. However, the Board of Directors can,
without shareholder approval, amend or modify its current policy on borrowing.
If this policy were changed, the Partnership could become more highly leveraged,
resulting in an increase in debt service that could adversely affect the
Partnership's cash flow and ability to make distributions to its shareholders,
an increased risk of default on its obligations and an increased risk of
foreclosure on facilities securing debt. In the event management deems it
appropriate, the Partnership will enter into arrangements with a creditworthy
financial institution for the purpose of limiting the maximum interest expense
to which the Partnership would be subjected in the event interest rates rise.
The Company is also subject to certain limitations with respect to the
incurrence of indebtedness under the Strategic Alliance Agreement, as described
below.
Borrowings may be incurred through the Partnership or the Company.
Indebtedness incurred by the Company may be in the form of bank borrowings,
secured and unsecured, and publicly and privately placed debt instruments.
Indebtedness incurred by the Partnership may be in the form of purchase money
obligations to the sellers of properties, publicly or privately placed debt
instruments, financing from banks, institutional investors or other lenders, any
of which indebtedness may be unsecured or may be secured by mortgages or other
interests in the property owned by the Partnership. Such indebtedness may be
recourse to all or any part of the assets of the Company or the Partnership, or
may be limited to the particular property to which the indebtedness relates. The
proceeds from any borrowings by the Company or the Partnership may be used for
the payment of distributions, working capital, for refinancing existing
indebtedness or for financing acquisitions or expansions of facilities.
If the Board of Directors determines to raise additional equity
capital, the Board has the authority, generally without shareholder approval, to
issue additional common stock, preferred stock or other capital stock of the
Company in any manner (and on such terms and for such consideration) as it deems
appropriate, including in exchange for property. Except for USRealty's rights
under the Strategic Alliance Agreement to participate in certain issuances or
sales of the Company's capital stock, existing shareholders have no preemptive
right to purchase shares issued in any offering, and any such offering might
cause a dilution of a shareholder's investment in the Company.
Conflict of Interest Policies
The Company's Board of Directors and its officers are subject to
certain provisions of Tennessee law which are designed to eliminate or minimize
certain potential conflicts of interest. In addition, the Company and the
Partnership has adopted certain policies designed to eliminate or minimize
potential conflicts of interest. However, there can be no assurance that these
policies always will be successful in eliminating the influence of such
conflicts, and if they are not successful, decisions could be made that might
fail to reflect fully the interests of all shareholders.
Amended Charter and Bylaw Provisions. The Company's Charter, with
limited exceptions, requires that a majority of the Company's Board of Directors
be comprised of persons who are not officers or employees of the Company
("Independent Directors"). The Charter provides that such requirement may not be
amended, altered, changed or repealed without the affirmative vote of at least
80% of the members of the Board of Directors or the affirmative vote of the
holders of not less than 75% of the outstanding shares of capital stock of the
Company entitled to vote. In addition, the Company's Bylaws provide that any
action pertaining to any transaction involving the Company, including the
purchase, sale, lease or mortgage of any real estate asset or any other
transaction in which a director or officer of the Company, or any affiliate of
the foregoing, has any direct or indirect interest, must be approved by a
majority of the directors, including a majority of the Independent Directors.
<PAGE>
The Operating Partnership. The Partnership Agreement as defined below
gives the Company, as General Partner of the Partnership (the "General
Partner"), full, complete and exclusive discretion in managing and controlling
the business of the Partnership and in making all decisions affecting the
business and assets of the Partnership. The Partnership Agreement provides that
the General Partner may cause the Partnership to issue additional Units for such
consideration and on such terms and conditions as the Company in its discretion
may determine.
Provisions of Tennessee Law. Pursuant to Tennessee law (the
jurisdiction under which the Company is organized), each director is required to
discharge his duties in good faith, with the care an ordinarily prudent person
in a like position would exercise under similar circumstances and in a manner he
reasonably believes to be in the best interests of the Company. The provisions
of the Company's Bylaws are more stringent than the Tennessee law restrictions
on transactions with the Company in which a director or officer of the Company
has a direct or indirect interest.
Officers' Ownership. The Company has adopted a policy, in which all of
its officers have concurred, generally prohibiting officers of the Company from
owning, directly or indirectly, interests in self-storage facilities which
compete with the Company's facilities, as well as from owning Units if the
result would be that the officers would have a different tax basis from the
Company in any facilities acquired by the Partnership.
Policies with Respect to other Activities
The Company has authority to offer shares of its capital stock or other
securities and to repurchase or otherwise reacquire its shares or any other
securities and may engage in such activities in the future. The Company may pay
cash or issue shares of Common Stock to holders of Units upon exercise of their
Redemption Rights (as described below). The Company has not engaged in trading,
underwriting, agency distribution or sale of securities of other issuers, nor
has the Company invested in the securities of other issuers other than the
Partnership for the purpose of exercising control. The Company intends to make
investments that will not cause it to be treated as an investment company under
the Investment Company Act of 1940.
At all times, the Company intends to make investments in a manner
consistent with the requirements of the Code for the Company to qualify as a
REIT unless, because of changing circumstances or changes in the Code (or in
Treasury Regulations), the Board of Directors, with the consent of a majority of
the shareholders, determines that it is no longer in the best interests of the
Company to qualify as a REIT.
Working Capital Reserves Policy
The Partnership will attempt to maintain working capital reserves in
amounts adequate to meet normal contingencies in connection with the operation
of the Partnership's business and investments.
<PAGE>
Limitations on Corporate Actions Pursuant to Strategic Alliance Agreement.
Pursuant to the Strategic Alliance Agreement, and until the first to
occur of (y) the expiration of the five-year period following shareholder
approval of the Strategic Alliance (the "Standstill Period") and any extension
thereof, and (z) the first date following the consummation of the second funding
in connection with the Strategic Alliance on which US Realty's ownership of
Company Common Stock drops below 20% of the outstanding shares of Company Common
Stock for a continuous period of 180 days (a "20% Termination Date"), the
Company may not (a) incur total indebtedness in an amount exceeding 60% of the
value of the Company's total assets (which is deemed to be equal to the market
value of the Company's outstanding equity (on a fully-diluted basis at a price
of $31.30 per share) and debt as of March 1, 1996, plus the acquisition cost of
properties acquired after March 1, 1996 (less any proceeds of property
dispositions that are distributed to shareholders)), (b) cause or permit the sum
of (i) securities of any other person, (ii) assets held other than directly by
the Company or the Partnership, (iii) loans made by the Company to the
Partnership or any other Subsidiary, or the reverse, (iv) assets managed by
persons other than employees of the Company or the Partnership, to, at any time,
exceed 10%, at cost, of the consolidated assets owned by both the Company and
the Partnership, (c) own real property other than self-storage facilities or
land suitable for the development of self-storage facilities whose value exceeds
10% of the aggregate value of the Company's real estate assets at cost, (d)
terminate its eligibility for treatment as a REIT for federal income tax
purposes, or (e) except as permitted or required by agreements existing as of
March 1, 1996, (i) own any interest in any partnership unless the Company is the
sole managing general partner of such partnership or (ii) permit the Partnership
to issue units, or securities convertible or exercisable for Units, if such
issuance would cause the Company to own less than 90% of the Units on a fully
diluted basis (collectively, the "Corporate Action Covenants"). The Company has
certain specified rights to cure certain failures to comply with the Corporate
Action Covenants.
In addition, the Partnership is subject to certain limitations,
pursuant to the Strategic Alliance that continue until USRealty's ownership of
Company Common Stock shall have been below 20% by value of the actually
outstanding shares of Company Common Stock for a continuous period of 180 days
(subject to certain conditions). Generally, these limitations restrict the
amount of assets that the Partnership own indirectly through other entities and
the manner in which the Parntership conducts its business. USRealty requested
these conditions because of its belief that REITs with direct and extensive
control over the operation of all of their assets operate more effectively and
in order to permit US Realty to comply with certain requirements of the Code and
other countries' tax laws applicable to foreign investors. The Company, during
the same period, has agreed not to take actions in the future that would result
in more than 10% of its gross income, or more than 10% of the Company's assets
by value (subject to certain adjustments), being attributable to properties that
are indirectly owned and are not managed by employees of the Company or the
Partnership. USRealty has agreed to waive these requirements in certain specific
instances where indirect ownership facilitates the Company's acquisition of
certain facilities.
The Partnership believes that these limitations are generally
consistent with its operating strategies and does not believe that they 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.
Forward-Looking Statements and Risk Factors
All statements contained in this Annual Report that are not historical
facts, including but not limited to, statements regarding the Partnership's
business strategies and managements' evaluation of industry and competitive
conditions, are based on current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties.
Actual results may differ materially. Among the factors that could cause actual
results to differ materially are the following: changes in the economic
conditions in the markets in which the Partnership operates negatively affecting
impacting the financial resources of the Partnership's clients; certain of the
Partnership's competitors with substantially greater financial resources than
the Partnership reducing the number of suitable acquisition opportunities
offered to the Partnership and increasing the price necessary to consummate the
acquisition of particular facilities; increased development of new facilities
and competition in Partnership markets resulting in over-supply and lower rental
or occupancy rates; the availability of sufficient capital to finance the
Partnership's business plan on terms satisfactory to the Partnership; increased
costs related to compliance with laws, including environmental laws; general
business and economic conditions; and other risk factors described elsewhere in
this Annual Report. The Partnership cautions readers not to place undue reliance
on any such forward-looking statements, which statements are made pursuant to
the Private Securities Litigation Reform Act of 1995 and, as such, speak only as
of the date made.
The Partnership's business is subject to the following particular risks:
Acquisition and Development Risks; Risks Related to Co-Investments in Property
Acquisitions entail risks that investments will fail to
perform in accordance with expectations and that judgments with respect to the
prices paid for acquired facilities and the costs of any improvements required
to bring an acquired facility up to standards established for the market
position intended for that facility will prove inaccurate, as well as general
investment risks associated with any new real estate investment. The
self-storage development business involves significant risks in addition to
those involved in the ownership and operation of established self-storage
facilities, including unfavorable financing terms, timing delays in construction
and lease-up, unavailable take-out financing and less-favorable than anticipated
lease terms.
Debt Financing Reduces Cash Flow and Increases Risk of Default
General Risks. The Partnership finances certain of its acquisitions and
development with unsecured debt and, in some cases, mortgage debt. As a result
of the Company's use of debt in its capital structure, the Partnership is
subject to the risks normally associated with debt financing. The required
payments on indebtedness are not reduced if the economic performance of any
property declines. If such decline occurs, the Partnership's ability to make
debt service payments would be adversely affected. If a property is mortgaged to
secure payment of indebtedness and the Partnership is unable to meet mortgage
payments, the property could be transferred to the mortgagee with a consequent
loss of revenue and asset value to the Partnership. Likewise if increased debt
payment requirements utilize funds that would otherwise have been distributed in
order to meet the 95% REIT distribution test, the Company may lose its REIT
status.
In order to maintain its qualification as a REIT, the Company must make
annual distributions to its shareholders of at least 95% of its taxable income
(which does not include net capital gains). Under certain circumstances, the
Company may be required to make distributions in excess of cash available for
distribution to shareholders in order to meet such distribution requirements. In
such event, the Company would seek to borrow the amount of the deficiency or
sell assets to obtain the cash necessary to make distributions to retain its
qualification as a REIT for federal income tax purposes.
No Limitation on Debt. The Board of Directors has adopted a policy
limiting the Company's total indebtedness to not more than 50% of its total
assets at cost or the amount that will sustain a minimum debt service coverage
ration of 3:1. However, the Board of Directors of the Company, without
shareholder approval, may amend or modify its current policy on borrowing. If
this policy were changed, the Partnership could become more highly leveraged,
resulting in an increase in debt service that could adversely affect the
Partnership's funds from operations, cash flow and ability to make distributions
to its shareholders, an increased risk of default on its obligations and an
increased risk of foreclosure on facilities securing debt. See "Policies and
Objectives with Respect to Certain Activities--Financing Policies."
Changes in Policies
The major policies of the Partnership, including its policies with
respect to acquisitions, development, financing, growth, operations, debt
limitation and distributions, will be determined by the Board of Directors of
the Company. The Board of Directors may amend or revise these and other policies
from time to time without a vote of the limited partners. See "Policies and
Objectives with Respect to Certain Activities."
Tax Risks
Tax Liabilities as a Consequence of the Failure to Qualify as a REIT.
The Company intends to operate so as to qualify as a REIT for federal income tax
purposes. However, no assurance can be given that the Company will qualify or
remain qualified as a REIT. Qualification as a REIT involves the application of
highly technical and complex provisions of the Internal Revenue Code (the
"Code") for which there are only limited judicial or administrative
interpretations. The complexity of these provisions and of the applicable income
tax regulations that have been promulgated under the Code is greater in the case
of a REIT that holds its assets in partnership form. Furthermore, there are no
controlling authorities that deal specifically with many tax issues affecting a
REIT that operates self-storage facilities. The determination of various factual
matters and circumstances not entirely within the Company's control may affect
its ability to qualify as a REIT. In addition, no assurance can be given that
legislation, new regulations, administrative interpretations or court decisions
will not have a substantial adverse effect with respect to the qualification as
a REIT or the federal income tax consequences of such qualification.
If the Company were to fail to qualify as a REIT in any
taxable year, the Company would not be allowed a deduction for distributions to
shareholders in computing its taxable income and would be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Unless entitled to relief under certain Code
provisions, the Company also would be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification was lost.
As a result, the cash available for distribution to shareholders would be
reduced for each of the years involved. Moreover, if the Company were to fail to
qualify as a REIT, it would no longer be subject to the distribution
requirements of the Code and, to the extent that distributions to stockholders
had been made in anticipation of the Company's qualification, the Company might
be required to borrow funds or to liquidate assets to pay applicable corporate
tax. Although the Company currently intends to operate in a manner designed to
qualify as a REIT, it is possible that future economic, market, legal, tax or
other considerations may cause the Board of Directors, with the consent of a
majority of the shareholders, to revoke the REIT election.
Adverse Effects of REIT Minimum Distribution Requirements. In order to
qualify as a REIT, the Company generally will be required each year to
distribute to its shareholders at least 95% of its net taxable income (excluding
any net capital gain). In addition, the Company will be subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of (i) 85% of
its ordinary income, (ii) 95% of its capital gain net income for that year and
(iii) 100% of its undistributed taxable income from prior years.
The Company intends to make distributions to its shareholders
to comply with the 95% distribution requirement and to avoid the nondeductible
excise tax. The Company's income and cash flow consists primarily of its share
of those items from the Partnership. Differences in timing between taxable
income and cash available for distribution could require the Company, by itself
or through the Partnership, to borrow funds on a short-term basis to meet the
95% distribution requirement and to avoid the nondeductible excise tax. For
federal income tax purposes, distributions paid to shareholders may consist of
ordinary income, capital gains, nontaxable return of capital, or a combination
thereof. The Company will provide its shareholders with an annual statement as
to the taxability of distributions.
Distributions by the Partnership are determined by the
Company's Board of Directors and will be dependent on a number of factors,
including the amount of the Partnership's cash available for distribution, the
Partnership's financial condition, any decision by the Board of Directors to
reinvest funds rather than to distribute such funds, the Partnership's capital
expenditures, the annual distribution requirements under the REIT provisions of
the Code and such other factors as the Board of Directors deems relevant.
Classification of the Partnership and Its Subsidiary Partnerships as
Partnerships for Federal income Tax Purposes; Impact on REIT Status. The Company
believes that the Partnership and its subsidiary partnerships each will be
classified as a partnership for federal income tax purposes. If the Internal
Revenue Service (the "Service") were to challenge successfully the tax status of
the Partnership or any subsidiary partnership as a partnership for federal
income tax purposes, such partnership would be taxable as a corporation. If the
Partnership were treated as a corporation, the Company would not be able to
satisfy the asset and income requirements for REIT status. If any subsidiary
partnership were treated as a corporation, the Company may cease to qualify as a
REIT because the Company would be treated as owning more than 10% of such
partnership's voting securities. Furthermore, the imposition of a corporate
income tax on the Partnership or a significant subsidiary partnership would
substantially reduce the amount of cash available for distribution to the
Company and its shareholders.
Self-Storage Industry Risks
Operating Risks. The Partnership's facilities are subject to all
operating risks common to the self-storage facility industry. These include the
risks normally associated with lack of demand for rental spaces in a locale,
changes in supply of or demand for similar or competing facilities in an area
and changes in market rental rates.
Competition. The Partnership's facilities compete with other
self-storage properties in their geographic markets. Most of the Partnership's
competitors seek to compete by offering storage space at lower prices than the
Company. However, instead of emphasizing lower prices, the Partnership seeks to
emphasize its facilities' convenience and customer-oriented management and
amenities to attract quality tenants.
The Partnership competes in operations and for investment opportunities
with entities which have substantially greater financial resources than the
Partnership. These entities may generally be able to accept more risk than the
Partnership can prudently manage. Competition may generally reduce the number of
suitable investment opportunities offered to the Partnership and increase the
bargaining power of property owners seeking to sell.
Real Estate Investment Risks
General Risks. The Partnership's investments are subject to varying
degrees of risk generally incident to the ownership of real property. The
underlying value of the Partnership's real estate investments and the
Partnership's income and ability to make distributions to its shareholders is
dependent upon the Partnership's ability to operate the facilities in a manner
sufficient to maintain or increase cash provided by operations. Income from the
facilities may be adversely affected by adverse changes in national economic
conditions, adverse changes in local market conditions due to changes in general
or local economic conditions and neighborhood characteristics, competition from
other self-storage properties, changes in interest rates and in the
availability, cost and terms of mortgage funds, the impact of present or future
environmental legislation and compliance with environmental laws, the ongoing
need for capital improvements, changes in real estate tax rates and other
operating expenses, adverse changes in governmental rules and fiscal policies,
civil unrest, acts of God, including earthquakes and other natural disasters
(which may result in uninsured losses), acts of war, adverse changes in zoning
laws, and other factors which are beyond the control of the Company.
Illiquidity of Real Estate May Limit its Value. Real estate investments
are relatively illiquid. The ability of the Partnership to vary its portfolio in
response to changes in economic and other conditions will be limited. There can
be no assurance that the Company will be able to dispose of an investment when
it finds disposition advantageous or necessary or that the sale price of any
disposition will recoup or exceed the amount of the Partnership's investment.
Uninsured and Underinsured Losses Could Result in Loss of Value of
Facilities. The Partnership maintains comprehensive insurance on each of its
facilities, including liability, fire and extended coverage. Management believes
this coverage is of the type and amount customarily obtained for or by an owner
on real property. However, there are certain types of losses, generally of a
catastrophic nature, such as earthquakes and floods, that may be uninsurable or
not economically insurable, as to which the Partnership's facilities are at risk
in their particular locales. The Partnership's management uses its discretion in
determining amounts, coverage limits and deductibility provisions of insurance,
with a view to requiring appropriate insurance on the Partnership's investments
at a reasonable cost and on suitable terms. This may result in insurance
coverage that in the event of a substantial loss would not be sufficient to pay
the full current market value or current replacement cost of the Partnership's
lost investment. Inflation, changes in building codes and ordinances,
environmental considerations, and other factors also might make it infeasible to
use insurance proceeds to replace a facility after it has been damaged or
destroyed. Under such circumstances, the insurance proceeds received by the
Partnership might not be adequate to restore its economic position with respect
to such property.
Possible Liability Relating to Environmental Matters. The Partnership
may be subject to liability under various environmental laws as an owner or
operator of real estate. See "Business - Operating Practices - Environmental
Matters."
Anti-Takeover Measures
The following limitations could have the effect of discouraging a
takeover or other transaction in which shareholders of the Company might receive
a premium for their shares over the then prevailing market price or which such
holders might believe to be otherwise in their best interest.
Ownership Limitation. In order for the Company currently to maintain
its qualification as a REIT, not more than 50% in value of its outstanding stock
may be owned, directly or constructively, by five or fewer individuals (as
defined in the Code to include certain entities) (the "5/50 Rule"). For the
purpose of preserving the Company's REIT qualification, the Charter prohibits
direct or constructive ownership of more than 9.8% of the outstanding shares of
Common Stock by any person (except US Realty, which may acquire up to 37.5% of
the Company's Common Stock). This ownership limitation may have the effect of
precluding acquisition of control of the Company by a third party without the
approval of the Board of Directors.
Staggered Board. The Board of Directors of the Company currently has
three classes of directors, with the terms of the classes expiring in
consecutive years. The staggered terms of directors may affect the shareholders'
ability to change control of the Company even if a change in control were in the
shareholders' interest.
Preferred Stock. The Charter authorizes the Board of Directors to issue
up to 5,000,000 shares of preferred stock and to establish the preferences and
rights of any shares issued. The issuance of preferred stock could have the
effect of delaying or preventing a change in control of the Company even if a
change in control were in the shareholders' interest.
Tennessee Anti-Takeover Statutes. As a Tennessee corporation, the
Company is subject to various legislative acts set forth in the Tennessee Code,
including the Tennessee Investor Protection Act, Business Combination Act and
Greenmail Act, which impose certain restrictions and require certain procedures
with respect to certain takeover offers and business combinations, including,
but not limited to, combinations with interested shareholders and share
repurchases from certain shareholders.
Partnership Agreement
The following summary of the Second Amended and Restated Agreement of
Limited Partnership of SUSA Partnership, L.P. ("Partnership Agreement"), and the
descriptions of certain provisions thereof set forth elsewhere in this Form
10-K, are qualified in their entirety by reference to the Partnership Agreement,
and the amendments thereto, which are filed as exhibits to this Form 10-K.
Management
The Partnership has been organized as a Tennessee limited partnership.
The Company, as the General Partner has full, exclusive complete responsibility
and discretion in the management and control of the Partnership and the limited
partners have no authority to transact business for, or participate in the
management activities or decisions of, the Partnership. However, any amendment
to the Partnership Agreement that would (i) affect the Redemption Rights (as
defined below), (ii) adversely affect the limited partners' rights to receive
cash distributions (other than with respect to the issuance of additional
Units), (iii) alter the Partnership's allocations of income or losses (other
than with respect to the issuance of additional Units) or (iv) impose on the
limited partners any obligations to make additional contributions to the capital
of the Partnership, would require the consent of limited partners (other than
the General Partner) holding more than 51% of the percentage interests of the
limited partners in addition to the consent of the General Partner. Pursuant to
an Agreement of General Partner executed in connection with the Company's
acquisition of five self-storage facilities in 1995, the Company has agreed not
to give its consent to any such amendment that has not been approved by limited
partners holding 51% of the Units issued to them in connection with such
acquisition.
Transferability of Interests
The Company may not voluntarily withdraw from the Partnership or
transfer or assign its general partnership interest in the Partnership unless
the transaction in which such withdrawal or transfer occurs results in the
limited partners' receiving property in an amount equal to the amount they would
have received had they exercised their Redemption Rights immediately prior to
such transaction, or unless the successor to the Company contributes
substantially all of its assets to the Partnership in return for an interest in
the Partnership. With certain limited exceptions, the limited partners may not
transfer their Units, in whole or in part, without the consent of the Company,
which consent may be withheld in the Company's sole discretion. The Company may
not consent to any transfer that would cause the Partnership to be treated as a
separate corporation for federal income tax purposes or would jeopardize the
REIT status of the Company.
<PAGE>
Capital Contributions
With certain exceptions, the Company shall not issue any additional
shares of Common Stock other than to all holders of Common Stock (or rights,
options, warrants or convertible or exchangeable securities containing the right
to subscribe for or purchase Common Stock), unless (A) the Company shall cause
the Partnership to issue to the Company, partnership interests (or rights,
options, warrants or convertible or exchangeable securities of the Partnership)
having designations, preferences and other rights, all such that the economic
interests are substantially similar to those of the additional shares of Common
Stock and (B) the Company contributes the proceeds from the issuance of such
additional shares to the Partnership; provided, however, that the Company may
issue additional securities of Common Stock (or such other securities) in
connection with an acquisition of a property to be held directly by the Company,
but if and only if, such direct acquisition and issuance of additional shares of
Common Stock (or such other securities) have been approved and determined to be
in the best interests of the Company and the Partnership by a majority of the
Company's independent directors. The Partnership Agreement provides that if the
Partnership requires additional funds at any time or from time to time in excess
of funds available to the Partnership from borrowings or capital contributions,
the Company may borrow such funds from a financial institution or other lender
and lend such funds to the Partnership on the same terms and conditions as are
applicable to the Company's borrowing of such funds. As an alternative to
borrowing funds required by the Partnership, the Company may contribute the
amount of such required funds as an additional capital contribution to the
Partnership subject to the terms and conditions set forth in the Partnership
Agreement. Moreover, the Company is authorized to cause the Partnership to issue
partnership interests for less than fair market value if the Company has
concluded in good faith that such issuance is in the best interests of the
Company and the Partnership. If the Company so contributes additional capital to
the Partnership, the Company's partnership interest in the Partnership will be
increased on a proportionate basis based upon the amount of such additional
capital contributions and the value of the Partnership at the time of such
contributions. Conversely, the partnership interests of the limited partners
will be decreased on a proportionate basis in the event of additional capital
contributions by the Company. In addition, if the Company contributes additional
capital to the Partnership, the Company will revalue the property of the
Partnership to its fair market value (as determined by the Company) and the
capital accounts of the partners will be adjusted to reflect the manner in which
the unrealized gain or loss inherent in such property (that has not been
reflected in the capital accounts previously) would be allocated among the
partners under the terms of the Partnership Agreement if there were a taxable
disposition of such property for such fair market value on the date of the
revaluation.
Awards Under Omnibus Stock Plan
If stock options granted in connection with the Company's 1993 Omnibus
Stock Plan are exercised, the Partnership Agreement requires the
Company to contribute to the Partnership as an additional contribution the
exercise price received by the Company in connection with the issuance of Common
Stock to such exercising participant. However, the Partnership
Agreement will treat the Company as having contributed an amount equal to the
fair market value of the Common Stock issued to the exercising party or, in the
case of restricted shares (as defined in Rule 144 under the Securities Act of
1933, as amended) of Common Stock (the "Restricted Shares"), the fair market
value of the restricted shares as the applicable restrictions lapse, for
purposes of increasing the percentage interest of the Company (and diluting the
percentage interests of the limited partners) in the partnership.
<PAGE>
Redemption Rights
Pursuant to the Partnership Agreement, a Limited Partner has Redemption
Rights on or after the first anniversary after which such Limited Partner
acquires Units, which will enable such Limited Partner to cause the Partnership
to redeem its Units in exchange for Restricted Shares or, in certain
circumstances, cash. The redemption price will be paid in cash in the discretion
of the Company or in the event that the issuance of Restricted Shares to the
redeeming Limited Partner would (i) result in any person owning, directly or
indirectly, shares of Common Stock in excess of the Ownership Limitation, (ii)
result in shares of capital stock of the Company being owned by fewer than 100
persons (determined without reference to any rules of attribution), (iii) result
in the Company being "closely held" within the meaning of section 856(h) of the
Code, (iv) otherwise cause the Company to lose REIT status, or (v) cause the
acquisition of shares of Common Stock by such redeeming Limited Partner to be
"integrated" with any other distribution of shares of Common Stock for purposes
of complying with the Securities Act. The number of shares of Common Stock
issuable upon exercise of the Redemption Rights will be adjusted upon the
occurrence of share splits, mergers, consolidations or similar pro rata share
transactions, which otherwise would have the effect of diluting the ownership
interests of the limited partners or the shareholders of the Company. The
limited partners have the right to require the Company to register the Common
Stock issuable upon exercise of the Redemption Rights pursuant to federal and
state securities laws.
Distributions
The Partnership Agreement provides that the Partnership will distribute
cash from operations (including net sale or refinancing proceeds, but excluding
net proceeds from the sale of the Partnership's property in connection with the
liquidation of the Partnership) quarterly, in amounts determined by the Company
in its sole discretion, to the partners, for any fiscal year of the Partnership
in accordance with their respective percentage interests in the Partnership.
Upon liquidation of the Partnership, after payment of, or adequate provision
for, debts and obligations of the Partnership, including any partner loans, any
remaining assets of the Partnership will be distributed to all partners with
positive capital accounts in accordance with their respective positive capital
account balances. If the Company has a negative balance in its capital account
following a liquidation of the Partnership, it will be obligated to contribute
cash to the Partnership equal to the negative balance in its capital account.
Allocations
Income, gain and loss of the Partnership for each fiscal year generally
will be allocated among the partners in accordance with their respective
interests in the Partnership, subject to compliance with the provisions of Code
sections 704(b) and 704( c) and Treasury Regulations promulgated thereunder.
Operations
The Partnership Agreement requires that the Partnership be operated in
a manner that will enable the Company to satisfy the requirements for being
classified as a REIT, to avoid any federal income or excise tax liability
imposed by the Code and to ensure that the Partnership will not be classified as
a "publicly traded partnership" for purposes of section 7704 of the Code.
In addition to the administrative and operating costs and expenses
incurred by the Partnership, the Partnership will pay all administrative costs
and expenses of the Company (the "Company Expenses") and the Company Expenses
will be treated as expenses of the Partnership. The Company Expenses generally
will include (A) all expenses relating to the formation and continuity of
existence of the Company, (B) all expenses relating to the public offering and
registration of securities by the Company, (C) all expenses associated with the
preparation and filing of any periodic reports by the Company under federal,
state or local laws or regulations, (D) all expenses associated with compliance
by the Company with laws, rules and regulations promulgated by any regulatory
body and (E) all other operating or administrative costs of the Company incurred
in the ordinary course of its business on behalf of the Partnership. The Company
Expenses, however, will not include any administrative and operating costs and
expenses incurred by the Company that are attributable to self-storage
facilities owned by the Company directly. The Company currently does not have
any such self-storage facilities.
Term
The Partnership will continue until December 31, 2154, or until sooner
dissolved upon (i) the bankruptcy, dissolution or withdrawal of the Company
(unless the limited partners elect to continue the Partnership), (ii) the sale
or other disposition of all or substantially all the assets of the Partnership,
(iii) the redemption of all limited partnership interests in the Partnership
(other than those held by the Company, if any), or (iv) the election of the
General Partner.
Tax Matters
Pursuant to the partnership Agreement, the Company is the tax matters
partner of the Partnership and, as such, will have authority to handle tax
audits and to make tax elections under the Code on behalf of the Partnership.
<PAGE>
Item 2. Properties
The following are definitions of terms used throughout this discussion in
analyzing the 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. Economic occupancy is determined by dividing the
expected income by the gross potential income. 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. 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.
<PAGE>
<TABLE>
<CAPTION>
PROPERTY AVAIL AVAIL. % PHY RENT PER % ECON
UNITS SQ. FT. OCC SQ. FT. OCC
----- ------- --- ------- ---
<S> <C>
ALABAMA
BIRMINGHAM 272 36,250 75% $7.45 71%
VESTAVIA 614 74,262 89% $8.19 83%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 886 110,512 85% $7.95 79%
ARIZONA
22ND ST/TUSCON 471 47,350 92% $8.84 86%
24TH ST/YUMA 470 48,450 96% $7.00 93%
CAVE CREEK 731 61,024 82% $10.37 76%
E. PHOENIX 460 45,520 96% $7.58 90%
ORACLE/TUCSON 486 50,150 84% $9.39 82%
TEMPE 673 65,666 92% $8.35 91%
PHOENIX-32ND STREET 848 80,125 89% $9.53 80%
7TH ST. & INDIAN SCHOOL-PHOENIX 466 24,810 97% $13.52 90%
MESA/ALMA SCHOOL RD 845 79,480 80% $7.81 71%
MESA/COUNTRY CLUB 600 59,975 89% $7.06 68%
MESA/EAST MAIN ST 865 122,503 71% $5.51 52%
METRO-21ST/PEORIA-PHOENIX 404 46,449 92% $8.48 79%
N PHOENIX - BELL RD 762 80,165 65% $10.95 65%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 8,081 811,667 84% $8.43 76%
CALIFORNIA, NORTHERN
CAMPBELL 472 28,313 92% $22.60 83%
CAPITOLA 511 46,742 99% $13.23 88%
MONTEREY 1,157 75,676 97% $15.93 87%
PALO ALTO 605 46,075 98% $14.77 89%
SAN JOSE 790 70,753 98% $14.27 87%
SANTA CRUZ 721 48,766 93% $14.89 89%
SANTA CLARA 1,049 94,100 99% $12.71 84%
SCOTT'S VALLEY 337 31,706 99% $14.88 87%
WATSONVILLE 306 33,132 97% $11.15 89%
SALINAS 454 53,700 99% $9.68 88%
WHITTIER 598 73,933 88% $9.01 83%
FLORIN/FREEPORT-SACRAMENTO 665 59,415 88% $10.07 76%
SUNRISE/SACRAMENTO 703 93,092 94% $6.25 80%
SANTA ROSA 1,017 96,375 100% $8.77 87%
PACHECO/FIRST AVE. NORTH 779 58,745 88% $12.26 86%
SACRAMENTO/AUBURN 721 78,955 88% $6.69 78%
SACRAMENTO 517 62,400 87% $6.30 82%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 11,402 1,051,878 94% $11.19 85%
CALIFORNIA, SOUTHERN
CHATSWORTH 811 104,616 77% $11.11 67%
CITY OF INDUSTRY 797 80,057 93% $8.43 83%
COLTON 485 45,845 86% $6.62 79%
COVINA 714 76,401 88% $10.16 80%
FALLBROOK 464 48,950 93% $6.99 89%
GARDEN GROVE 774 78,373 79% $9.72 78%
HEMET 363 45,535 93% $5.60 90%
HIGHLAND 556 62,397 98% $6.63 91%
MARINA DEL REY 1,249 114,531 84% $16.96 73%
MIRAMAR ARJONS 866 120,207 82% $9.01 77%
MIRAMAR CABOT 456 37,796 96% $9.93 90%
MORENO VALLEY 524 44,831 91% $7.54 87%
NORWALK 919 80,785 91% $11.75 82%
OCEANSIDE 1,199 75,125 90% $12.17 83%
PALM-GENE AUTRY 620 72,975 90% $7.16 85%
PANORAMA CITY 790 80,812 83% $10.58 74%
REDLANDS 654 71,740 90% $6.46 86%
RIALTO 580 58,375 87% $6.65 80%
SAN BERN./23RD ST. 775 79,320 81% $6.63 71%
SAN BERN./BASELINE 1,198 112,416 71% $6.27 67%
SAN BERN./MILL AVE 586 57,305 71% $6.48 66%
SAN BERN./WATERMAN 1,197 132,106 62% $5.30 55%
SAN DIEGO/PT. LOMA 1,537 140,899 67% $11.16 65%
SANTA ANA 800 86,850 68% $11.59 58%
SAN MARCOS 277 37,200 98% $6.50 90%
SANTEE 775 83,195 77% $7.97 67%
TAMARISK 839 73,637 86% $8.80 73%
VICTORVILLE 439 54,124 81% $5.68 73%
WESTMINSTER 678 65,572 83% $10.36 73%
YUCAIPA 376 39,618 92% $6.81 80%
THOUSAND PALMS 729 49,617 81% $9.79 71%
HUNTINGTON BEACH 710 67,739 84% $8.57 69%
LA PUENTE 648 69,435 95% $9.33 82%
HUNTINGTON BEACH II/McFADDEN AVE 764 71,105 93% $8.79 84%
HAWAIIAN GARDENS-NORWALK BLVD 1,188 134,709 76% $9.67 73%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 26,337 2,654,198 82% $8.99 75%
DC/BALTIMORE AREA
14TH & U ST. 1,402 107,405 81% $15.34 78%
ANNAPOLIS/RTE 50 628 70,930 90% $14.98 82%
ANNAPOLIS/TROUT 751 65,267 90% $16.34 82%
COLUMBIA 731 71,285 92% $15.28 86%
ESSEX 528 60,590 93% $12.47 87%
MILLERSVILLE 857 82,325 99% $10.59 89%
MONT. VILLAGE 656 74,633 84% $12.52 76%
ROCKVILLE 935 57,565 88% $18.10 82%
SILVER SPRING 983 89,510 90% $17.72 85%
WALDORF 680 75,875 95% $9.42 87%
BALTIMORE CITY 846 82,174 84% $9.84 80%
RT 3/MILLERSVILLE 417 32,050 99% $11.00 92%
CHARLOTTESVILLE/SEMINOLE TRAIL 484 46,425 67% $10.66 56%
CLARENDON 909 68,049 38% $17.22 35%
FREDERICKSBURG/JEFFERSON DAVIS HWY 471 47,475 70% $10.30 62%
FREDERICKSBURG/PLANK ROAD 564 50,258 73% $10.50 64%
RESTON 614 54,505 58% $16.18 51%
STAFFORD/JEFFERSON DAVIS HWY. 469 51,286 69% $10.60 64%
CHANTILLY 532 49,200 86% $14.66 81%
FAIRFAX STATION 778 64,135 95% $13.88 88%
FALLS CHURCH 656 60,763 89% $14.38 75%
WILLOW LAWN 638 71,917 97% $12.19 86%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 15,529 1,433,622 84% $13.53 76%
FLORIDA, WESTERN
FT. MYERS - SAN CARLOS 413 52,175 94% $8.69 86%
LONGWOOD 610 65,575 87% $11.07 77%
PT RICHEY - HWY 19 501 80,409 91% $6.28 82%
OLD US41-NAPLES 626 71,725 94% $7.93 83%
SARASOTA 907 102,645 76% $10.97 68%
TAMPA-ADAMO 635 81,775 91% $7.74 82%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 3,692 454,304 88% $8.83 78%
FLORIDA, SOUTHERN
ANSIN BLVD-HALLANDALE 1,145 99,193 84% $10.53 80%
DAVIE/I595 1,133 87,235 90% $13.12 86%
DORAL-MIAMI 885 83,223 89% $11.52 87%
HWY 441-MIAMI 936 80,541 89% $11.95 84%
IVES DAIRY 706 75,712 80% $13.54 75%
KENDALL 891 80,670 77% $14.33 73%
MIAMI GARDENS/441 858 37,258 75% $13.01 65%
MIAMI-SUNSET 950 78,984 96% $14.32 92%
N. LAUDERDALE - MCNAB 865 80,547 77% $12.30 69%
QUAIL-MIAMI 947 77,983 78% $12.35 65%
TAMIAMI-MIAMI 985 77,452 89% $11.81 94%
WPB II 738 70,345 79% $9.81 76%
WPB SOUTH 701 62,050 81% $11.11 75%
CORAL WAY-MIAMI 865 84,873 77% $13.72 72%
EVERGREEN-BOCA RATON 650 84,114 98% $11.64 91%
EVERGREEN-FT. LAUDERDALE 814 63,083 97% $10.84 96%
MILLER RD.-MIAMI 964 73,815 69% $15.01 59%
HARBORVIEW RD/PT CHARLOTTE 582 49,725 88% $10.30 75%
MIRAMAR/STATE RD 7 1,879 151,188 77% $9.97 65%
DELRAY BEACH/W. ATLANTIC BLVD. 460 44,475 89% $8.48 77%
DAVIE/STATE RD 7 1,266 117,408 80% $12.00 75%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 19,220 1,659,874 83% $11.99 77%
GEORGIA
ACWORTH 328 39,753 87% $8.02 75%
EASTPOINT 686 65,884 93% $9.64 87%
LILBURN 545 66,140 86% $7.69 76%
SOUTH COBB 578 54,750 83% $8.16 78%
WESTERN HILLS 587 70,125 81% $7.48 71%
STONE MOUNTAIN 627 81,260 89% $7.99 80%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 3,351 377,912 87% $8.16 78%
ILLINOIS
BRICKYARD 901 91,875 93% $9.08 88%
CERMAK 798 63,288 95% $10.50 94%
SCHAUMBURG 603 80,736 91% $11.07 90%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 2,302 235,899 93% $10.14 90%
KANSAS CITY AREA
OLATHE - KSC 434 47,550 86% $7.84 77%
OVERLAND PK - KSC 378 47,075 95% $9.31 93%
SHAWNEE - KSC 486 56,255 86% $8.41 78%
STATE AVENUE-KSC 390 49,925 90% $7.25 87%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 1,688 200,805 89% $8.20 84%
MICHIGAN
LINCOLN PARK 537 63,650 97% $8.94 94%
TEL DIXIE 470 46,350 95% $7.94 97%
GRAND RAPIDS/28TH STREET 636 53,943 97% $6.98 93%
GRANDVILLE-SPARTAN IND. DRIVE 597 59,654 85% $6.17 80%
TROY/COOLIDGE HIGHWAY 511 59,180 96% $11.06 91%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 2,751 282,777 94% $8.26 91%
MISSOURI
GRANDVIEW 515 53,820 97% $7.23 98%
RAYTOWN-350 HWY 454 51,050 96% $6.64 93%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 969 104,870 96% $6.94 96%
NEVADA
DECATUR/OAKEY 548 52,305 86% $9.31 75%
LORENZI/RAINBOW RD 563 56,500 89% $9.83 81%
SAHARA 729 127,432 78% $6.98 65%
SAHARA/PIONEER 610 73,100 85% $7.77 75%
STORTITE/CHARLESTON 520 55,850 85% $8.23 74%
SUNSET SAFSTO 683 69,274 91% $9.13 80%
TROPICANA 512 57,465 86% $9.39 74%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 4,165 491,926 85% $8.40 74%
NEW ENGLAND STATES
E. HARTFORD 842 85,370 87% $9.63 75%
ENFIELD 548 66,100 79% $8.45 64%
HAVERHILL 545 53,545 98% $9.22 95%
NEW BEDFORD 567 65,700 70% $9.10 53%
WETHERSFLD 704 94,700 74% $9.06 62%
WHITMAN 337 34,625 99% $11.37 89%
WORCESTER 470 65,150 90% $8.98 84%
FARMINGTON 599 82,900 97% $9.28 91%
ROCKY HILL 667 84,950 92% $9.43 83%
WATERBURY 515 50,950 90% $9.57 83%
NORTH ATTLEBORO 430 46,025 94% $10.90 89%
NORTHBOROUGH 513 64,200 91% $9.62 77%
SOUTH EASTON 467 64,490 91% $8.25 90%
NASHUA/TYNGSBORO 566 79,100 99% $8.88 92%
BROCKTON 690 70,125 94% $10.55 86%
FALL RIVER 626 76,250 84% $7.74 76%
SALISBURY 488 59,325 89% $8.92 81%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 9,574 1,143,505 89% $9.25 80%
NEW JERSEY
HACKENSACK 1,498 123,860 84% $17.91 75%
HARRISON 586 29,862 82% $19.34 79%
FLANDERS 215 25,790 86% $14.44 68%
MAYS LANDING 269 29,680 85% $9.54 81%
ORANGE 1,018 80,815 85% $18.56 84%
SECAUCUS 1,181 106,975 93% $16.88 81%
POMONA 325 34,400 86% $10.11 78%
CHERRY HILL/CUTHBERT 443 49,020 93% $11.30 89%
CHERRY HILL/RTE 70 478 60,676 96% $10.42 95%
LAWNSIDE 638 55,200 97% $13.22 87%
PENNSAUKEN 747 80,375 78% $11.67 73%
WILMINGTON 632 71,825 87% $11.37 78%
CORAM/BALD HILL 940 94,714 94% $12.36 81%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 8,970 843,192 88% $14.17 80%
NEW MEXICO
ALBUQ.-COORS/CENTRAL 394 52,500 90% $6.38 81%
ALBUQ.-E. CENTRAL 328 29,150 92% $7.64 79%
ALBUQ.-EUBANK 866 74,025 76% $6.73 70%
ALBUQ.-OSUNA 641 71,110 83% $6.26 80%
ELLISON/NM 546 54,635 85% $9.09 72%
HOTEL CIRCLE 461 52,842 49% $8.85 33%
LEGION/NM 494 43,950 88% $10.62 79%
LOMAS/NM 411 31,650 85% $9.96 73%
MONTGOMERY/NM 533 49,245 85% $9.69 75%
SAN MATEO/NM 437 44,285 63% $8.60 56%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 5,111 503,392 79% $8.15 69%
NEW ORLEANS
TCHOUPITOULAS - N.O. 663 68,562 89% $10.81 80%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 663 68,562 89% $10.81 80%
NORTH CAROLINA
CHARLOTTE/AMITY ROAD 633 70,652 94% $7.43 82%
CHARLOTTE/TYRON ST. 796 66,932 88% $8.49 78%
RALEIGH/HILLSBOROUGH 515 55,932 92% $8.30 84%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 1,944 193,516 91% $8.05 81%
OKLAHOMA
10TH ST - OKC 511 58,000 90% $5.11 80%
AIR DEPOT - OKC 485 54,100 98% $5.15 95%
MERIDIAN - OKC 601 82,300 78% $4.23 72%
MIDWEST CITY - OKC 521 61,415 98% $5.65 93%
MOORE - OKC 411 51,900 94% $5.12 88%
NW EXPRESSWAY - OKC 447 51,000 94% $5.86 86%
SOONER ROAD/OKC 549 59,900 92% $5.57 82%
OKC/33RD STREET 350 37,180 90% $5.42 84%
OKC/ROXBURY BLVD. 378 40,150 93% $5.26 84%
MINGO-TULSA 765 81,913 84% $6.88 78%
PEORIA-TULSA 489 62,225 75% $6.13 70%
S. LEWIS-TULSA 537 46,538 93% $7.44 90%
SHERIDAN-TULSA 557 66,310 92% $6.56 87%
SKELLY-TULSA 368 44,660 72% $5.55 64%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 6,969 797,591 88% $5.71 82%
OREGON
PORTLAND/185TH AVE 814 68,110 94% $11.72 88%
PORTLAND/229T H AVE 688 71,410 91% $8.46 85%
PORTLAND/MURRAY BLVD. 662 63,345 90% $9.88 77%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 2,164 202,865 92% $10.00 83%
PENNSYLVANIA
ALLENTOWN 723 59,700 90% $8.83 86%
BETHLEHEM 790 71,740 87% $9.16 83%
KING OF PRUSSIA 717 81,855 98% $10.13 94%
PHILADELPHIA 597 70,275 89% $11.99 81%
WARMINSTER 543 56,660 97% $10.25 94%
NORRISTOWN 624 61,590 96% $13.71 88%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 3,994 401,820 93% $10.65 87%
SOUTH CAROLINA
CHARLESTON/ASHELY RD. 628 63,608 90% $6.75 78%
COLUMBIA/BROAD RIVER RD. 513 57,797 91% $6.49 86%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 1,141 121,405 90% $6.63 82%
TENNESSEE
GATEWAY 464 50,875 95% $6.92 92%
MEMPHIS-MT. MORIAH 764 86,505 76% $10.87 69%
MEMPHIS-RIDGEWAY 543 51,950 82% $7.30 70%
SUMMER 578 61,066 89% $10.82 82%
UNION 529 57,585 97% $10.77 82%
ANTIOCH/BELL RD 567 65,300 72% $8.93 66%
NASHVILLE 913 109,800 89% $7.87 80%
NASHVILLE/HAYWOOD 461 48,225 95% $7.01 86%
NASHVILLE/LEBANON PIKE 715 83,674 92% $8.58 85%
NASHVILLE/MURFREESBORO, SE 695 101,875 68% $7.84 65%
NASHVILLE/MURFREESBURG 350 35,925 86% $7.13 76%
NASHVILLE/OLD HICKORY BLVD. 551 73,132 81% $10.17 74%
NASHVILLE/TROUSDALE RD 684 101,475 79% $8.25 79%
CHATTANOOGA 440 46,875 95% $7.33 82%
FRANKLIN/LIBERY PK 558 72,600 73% $8.05 73%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 8,812 1,046,862 83% $8.62 77%
TEXAS
EULESS BLVD. 795 103,246 85% $7.09 76%
FT. WORTH AVE - DALLAS 479 48,118 97% $7.55 89%
IRVING-ARPT FREEWAY 819 84,272 94% $7.43 80%
MIDWAY-DALLAS 538 53,850 92% $10.45 83%
N. FREEWAY-FT.WORTH 636 87,744 84% $5.27 78%
W. SETTLEMENT-HWY 183 1,624 169,048 86% $6.66 77%
S. FREEWAY-FT.WORTH 711 79,270 90% $5.40 85%
SPRING/I-45 NORTH 612 72,140 83% $8.97 78%
SUGARLAND/OLD MILL RD. 478 54,910 56% $8.48 51%
DALLAS-PRESTON RD. 719 86,775 89% $9.41 84%
BEDFORD/EULESS 665 76,265 89% $7.53 79%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 8,076 915,638 86% $7.43 78%
UTAH
OREM 553 59,450 75% $6.95 67%
SANDY 563 83,760 75% $7.17 70%
WEST VALLEY 464 53,375 82% $7.32 75%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 1,580 196,585 77% $7.14 71%
WASHINGTON STATE
VANCOUVER/78TH STREET 585 62,550 94% $7.39 85%
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL 585 62,550 94% $7.39 85%
===================================================================================================================================
TOTALS 159,956 16,367,727 86% $9.73 79%
</TABLE>
<PAGE>
Item 3. Legal Proceedings.
There are no material legal proceedings pending against the Partnership
or any of its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Partnership's unitholders
during the last quarter of its fiscal year ended December 31, 1996.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
No established public trading market exists for the Units. At March 27,
1997, there were 55 limited partners and 1,898,397 Units outstanding held by
such limited partners. During 1996, the Partnership made the following quarterly
cash distributions per Unit: $0.5625 in the First Quarter; $ 0.5625 in the
Second Quarter; $ 0.5625 in the Third Quarter; and $ 0.5625 in the Fourth
Quarter.
The table below sets forth all issuances of Units made by the
Partnership to persons other than the Company during the year ended December 31,
1996. All Units were issued in exchange for interests in self-storage facilities
acquired by the Partnership. The price per Unit is determined by the closing
price of a share of the Company's Common Stock on the date of issuance as quoted
on the New York Stock Exchange. The offerings were exempt from registration
pursuant to Regulation D under the Securities Act of 1933, as amended (investor
are required to establish their status as accredited investors pursuant to an
investor questionnaire):
Price
Date Units Issued Per Unit
---- ------------ --------
03/06/96 47,808 $32.17
04/12/96 16,786 33.90
04/30/96 113,249 32.45
06/30/96 67,453 32.80
09/30/96 18,302 33.47
11/01/96 498,392 34.41
11/15/96 65,063 34.57
11/26/96 74,342 36.60
For a description of the terms under which the Units may be redeemed
for Common Stock, see Item 1. Business, "Partnership Agreement - Redemption
Rights."
Item 6. Selected Financial Data.
Pages are attached hereto as Exhibit 13.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Pages are attached hereto as Exhibit 13.
Item 8. Financial Statements and Supplementary Data.
Pages are attached hereto as Exhibit 13.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Incorporated herein by reference from the captions " Election of
Directors" and "--Compliance with Section 16 of the Securities Exchange Act of
1934" in the Company's definitive proxy statement to be filed with respect to
its Annual Meeting of Shareholders.
The following information relates to executive officers of the General
Partner who are not also directors:
Douglas Chamberlain has been Executive Vice President, Development of
the General Partner since March 1994 and President and Chief Operating Officer
of Storage USA Construction Corp. since March 1989. From December 1985 to March
1989, Mr. Chamberlain served as Vice President of Baltimore Contractors, Inc., a
general contracting firm located in Baltimore, Maryland. Mr. Chamberlain holds a
Masters degree in Structural Engineering from the University of Maryland.
<PAGE>
Karl Haas has been Executive Vice President, Management of the General
Partner since March 1994. He was Executive Vice President of Storage USA
Management Corp. from October 1988 until November 1991, when he became its
President and Chief Operating Officer. From October 1983 through September 1988,
Mr. Haas served as Treasurer for Ward Development Corp., a real estate developer
located in Baltimore, Maryland. Mr. Haas received his Bachelor of Science degree
in Accounting from the University of Maryland, is a Certified Public Accountant
and worked for the accounting firm of Arthur Young & Co. for ten years.
Morris J. Kriger has been Executive Vice President of the General
Partner since March of this year, and is responsible for Acquisitions. Mr Kriger
holds a Bachelors Degree in Industrial Management from MIT and received his
Juris Doctorate from Harvard Law School. Mr. Kriger has more than 30 years
experience in practical real estate law and lending law, representing developers
and lenders in a variety of real estate types throughout the United States.
Kriger has also served as General Counsel to two prestigious real estate
companies.
Jesse Morgan has been Executive Vice President since March of this year
and is responsible for Development. A business graduate of Tulane University,
Mr. Morgan spent 11 years with The Balcor Company, formerly a division of
American Express, heading a variety of efforts including property sales,
property management, asset portfolio and investment management. Mr. Morgan more
recently has worked as a consultant to Storage USA in the independent
development of self storage properties and brokering of several acquisitions.
Carol Shipley has been Senior Vice President, Management of the General
Partner since 1991, and is primarily responsible for facility manager training
and marketing. From 1985 to 1991, Ms. Shipley served in various positions,
including President, with the Robert T. Foley Company, which owned and operated
office, residential and self-storage properties. Ms. Shipley served as a
National Director of the Self-Storage Association, President of the Northeast
Region of the Self-Storage Association and is a recent Past President of the
Washington Area Self-Storage Association. Ms. Shipley attended the University of
Maryland, where she majored in Business Management.
Richard B. Stern has been Senior Vice President, Development since July
of this year. Prior to joining the General Partner, Mr. Stern held Senior
Executive positions with Kemper Corporation, Baird & Warner and Balcor. Rich
hold a B.A. in Urban Planning from the University if Illinois and a M.A. in
Geography from Northeastern Illinois University.
Christopher Marr became Vice President, Financial Reporting and
Controller of the General Partner on August 1, 1994. From 1986 to July 1994, Mr.
Marr worked for the accounting firm of Coopers & Lybrand, from 1992 through 1994
as a senior manager. Mr. Marr holds a Bachelor of Arts degree in Accounting from
Loyola College, Baltimore, Maryland, and is a Certified Public Accountant.
James G. Williams currently serves as Vice President and Director of
Acquisitions. Mr. Williams has been associated with Storage USA in various
capacities, including financial analysis, brokering services to third party
owners, and acquisitions, since January 1990. He holds a Bachelor of Science
degree in Accounting from Union University and worked for three years for the
accounting firm of Coopers & Lybrand. Mr. Williams is Mr. Jernigan's
brother-in-law.
David M. Levenfeld has been Vice President, Development since July of
this year. Prior to joining the General Partner, Mr. Levenfeld worked for The
River Group, Inc. Mr. Levenfeld holds a B.A. in Political Science from Boston
University and a M.B.A. from The Wharton School.
Item 11. Executive Compensation.
Incorporated herein by reference from the caption "Election of
Directors - Executive Compensation" in the Company's definitive proxy statement
to be filed with respect to its Annual Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated herein by reference from the captions "Election of
Directors - Securities Ownership of Management" and "--Security Ownership of
Certain Beneficial Owners" in the Company's definitive proxy statement to be
filed with respect to its Annual Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions.
Incorporated herein by reference from the caption "Election of
Directors - Certain Transactions" in the Company's definitive proxy statement to
be filed with respect to its Annual Meeting of Shareholders.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report and are
hereby incorporated by reference:
<TABLE>
<CAPTION>
<S> <C>
1996 Annual Report to Form 10-K
Shareholders (Exhibit 13)
---------------
Page Numbers
(Manually signed original)
------------------------------------------
1. Financial Statements:
Report of Coopers & Lybrand L.L.P. __ ___
Balance sheets as of December 31, 1996 and 1995 __ ___
Statements of operations for the years ended December 31, 1996 and
1995, for the period March 24, 1994 (inception) through December 31,
1994. __ ___
Statements of cash flows for the years ended December 31, 1996 and
1995, for the period March 24, 1994 (inception) through December 31,
1994. __ ___
Statements of Partnership Capital for the years ended December 31,
1996 and 1995, for the period March 24, 1994 (inception) through
December 31, 1994. ___ ___
Notes to financial statements ____ ____
Supplementary information on Quarterly financial data (unaudited) __ ___
Selected Financial Data ____ ____
Schedule III, Real Estate and Accumulated Depreciation as of December ____ ____
31, 1996
Report of Independent Accountants ____ ____
</TABLE>
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
(b) Reports on Form 8-K
On October 24, 1996, the Partnership filed its Current Report on Form
8-K. The filing included the following historical and pro forma financial
statements with respect to the 9 self-storage facilities referred to in the
filing.
Financial Statements Applicable to Real Estate Properties Acquired:
o Report of Independent Accountants
o Acquisition Facilities Historical Summaries of Combined Gross
Revenue and Direct Operating Expenses for the year ended
December 31, 1995 (Audited), and for the six months ended June
30, 1996 (Unaudited).
o Notes to Historical Summaries of Combined Gross Revenue and
Direct Operating Expenses
Pro Forma Financial Information:
o Unaudited Pro-Forma Combined Condensed Balance Sheet as of
June 30, 1996.
o Unaudited Pro-Forma Combined Condensed Statement of Operation
for the six months ended June 30, 1996.
o Unaudited Pro-Forma Combined Condensed Statement of Operations
for the year ended December 31, 1995.
o Notes to Unaudited Pro-Forma Combined Condensed Financial
Statements.
On October 31, 1996, the Company filed an amendment to its Current
Report on Form 8-K, filed October 24, 1996. The amendment corrected certain
immaterial financial information in the initial filing.
On December 19, 1996, the Company filed its Current Report on Form 8-K.
The filing included the following historical and pro forma financial statements
with respect to the 26 self-storage facilities referred to in the filing.
Financial Statements Applicable to Real Estate Properties Acquired:
o Report of Independent Accountants
o Acquisition Facilities Historical Summaries of Combined Gross
Revenue and Direct Operating Expenses for the year ended
December 31, 1995 (Audited), and for the nine months ended
September 30, 1996 (Unaudited).
o Notes to Historical Summaries of Combined Gross Revenue and
Direct Operating Expenses
Pro Forma Financial Information:
o Unaudited Pro-Forma Combined Condensed Balance Sheet as of
September 30, 1996.
o Unaudited Pro-Forma Combined Condensed Statement of Operation
for the nine months ended September 30, 1996.
o Unaudited Pro-Forma Combined Condensed Statement of Operations
for the year ended December 31, 1995.
o Notes to Unaudited Pro-Forma Combined Condensed Financial
Statements.
(c) Exhibits
The following exhibits are filed as part of this report:
Exhibit No. Description
----------- -----------
3.1++++ Second Amended and Restated Agreement of Limited Partnership of
SUSA Partnership, L.P. (the "Partnership"), dated as September
21, 1994 (the "Partnership Agreement").
3.2 First Amendment to the Partnership Agreement, dated March 19,
1996 (filed as Exhibit 10.3 to the Current Report on Form 8-K of
Storage USA, Inc., (the "Comapany"), filed April 1, 1996, and
incorporated by reference herein).
3.3 Second Amendment to the Partnership Agreement, dated as of June
14, 1996 (filed as Exhibit 10.0 to the Company's Current Report
on Form 8-K/A filed July 17, 1996, and incorporated by reference
herein).
3.4 Third Amendment to Partnership Agreement, dated as of August 14,
1996 (filed as Exhibit 10.1 to the Company's Amendment No. 1 to
a Registration Statement on Form S-3 (File No. 333-04556), and
incorporated by reference herein).
10.1 Amended Charter of Storage USA, Inc. (the "Company"), (filed as
Exhibit 4.2 to the Company's Amendment No. 1 to the Registration
Statement on Form S-3 (File No. 333-04556), and incorporated by
reference herein).
10.2* Restated and Amended Bylaws of the Company.
10.3* Agreement between the Company and certain executive officers
prohibiting conflicting self-storage interest.
10.4* Company's Omnibus Stock Option Plan.
10.5* Deed of Trust Promissory Note made by Severn River Associates
Limited Partnership ("Severn River") in favor of Aid Association
of Lutherans ("AAL").
10.6 First Deed of Trust made by Severn River in favor of AAL.
10.7 SUSA Partnership, L.P. 401(k) Savings Plan.
10.8* Form of Registration Rights Agreement relating to Partnership
unit issuances in 1994.
10.9** Promissory Note dated February 8, 1995, in the amount of
$15,000,000 executed by the Partnership payable to Crestar Bank.
10.10** Promissory Note dated February 8, 1995, in the amount of
$15,000,000 executed by the Partnership payable to Signet
Bank/Virginia.
10.11+ Credit Agreement, dated as of December 21, 1995, by and among
the Partnership, the Company, and The First National Bank of
Chicago.
10.12 Promissory Note, dated December 21, 1995, in the amount of
$25,000,000 executed by the Partnership, payable to The First
National Bank of Chicago.
10.13+ Form of Agreement of General Partners relating to certain
Partnership issuances in 1995 and schedule of beneficiaries.
10.14++ Promissory Note, dated March 23, 1995, in the original principal
amount of $2,400,000 executed by the Partnership.
10.15++ Form of Registration Rights Agreement relating to certain
issuances of Partnership units after 1994 and schedule of
beneficiaries.
10.16++ Form of Stock Purchase Agreement in connection with the 1995
Employee Stock Purchase and Loan Plan, and schedule of
participants.
10.17++ Form of Promissory Note in connection with the 1995 Employee
Stock Purchase and Loan Plan, and schedule of issuers.
10.18 Stock Purchase Agreement, dated as of March 1, 1996, between the
Company and Security Capital Holdings S.A. and Security Capital
U.S. Realty (filed as Exhibit 10.1 to the Company's Current
Report on Form 8-K, filed March 7, 1996, and incorporated by
reference herein).
10.19 Amendment No. 1 to Stock Purchase Agreement, dated July 1, 1996,
between the Company, Security Capital Holdings S.A. and Security
Capital U.S. Realty (filed as Exhibit 10.3 to the Company's
Amendment No. 1 to Registration Statement on Form S-3 (File No.
333-04556), and incorporated by reference herein).
10.20 Strategic Alliance Agreement, dated as of March 1, 1996, between
the Company and Security Capital Holdings S.A. and Security
Capital U.S. Realty (filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K, filed on April 1, 1996, and
incorporated by reference herein).
10.21 Amendment No. 1 to Strategic Alliance Agreement, dated June 14,
1996, between the Company, the Partnership, Storage USA Trust,
Security Capital U.S. Realty and Security Capital Holdings, S.A.
(filed as Exhibit 10.2 to the Company's Amendment No. 1 to the
Registration Statement on Form S-3 (File No. 333-04556), and
incorporated by reference herein).
10.22 Registration Rights Agreement, dated as of March 19, 1996,
between the Company, Security Capital Holdings, S.A. and
Security Capital U.S. Realty (filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K, filed on April 1, 1996,
and incorporated by reference herein).
10.23 Indenture, dated November 1, 1996, between the Partnership and
First National Bank of Chicago, as Trustee (filed as Exhibit
10.1 to the Company's Current Report on Form 8-K, filed on
November 8, 1996, and incorporated by reference herein).
10.24+ First Amendment to the Adoption Agreement for the Company's
401(k) Plan.
21 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule.
99 Managements Discussion and Analysis of Financial Condition and
Results of Operations; Selected Financial Data; and Financial
Statements of the Partnership, including footnotes, for the
fiscal year ended December 31, 1996.
- --------------------
* Filed as an Exhibit to the Company's Registration Statement on Form
S-11, File No. 33-74072, as amended, and incorporated by reference
herein.
** Filed as an Exhibit to the Company's Registration Statement on Form
S-11, File No. 33-82764, as amended, and incorporated by reference
herein.
*** Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, and incorporated by reference
herein.
+ Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, and incorporated by reference
herein.
++ Filed as an Exhibit to the Company's Current Report on Form 8-K, as
amended to Form 8-K/A Filed November 17, 1995, and incorporated by
reference herein.
++ Filed as an Exhibit to the Company's Current Report on form 8-K, filed
May 30, 1995, and incorporated by reference herein.
++++ Filed as an Exhibit to the Company's Registration Statement on Form
S-3, File No. 33-91302, and incorporated by reference herein.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SUSA PARTNERSHIP, L.P.
by STORAGE USA, Inc.,
General Partner
By: /s/ Thomas E. Robinson
----------------------------------
Thomas E. Robinson
President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Storage USA, Inc., General Partner of the registrant, and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
Signature Title Date
--------- ----- ----
/s/ DEAN JERNIGAN Chairman of the Board of Directors March 28, 1997
------------------------ Chief Executive Officer (Principal
Dean Jernigan Executive Officer)
/s/ THOMAS E. ROBINSON Director, President, and March 28, 1997
------------------------ Chief Financial Officer
Thomas E. Robinson
/s/ Howard P. Colhoun Director March 28, 1997
------------------------
Howard P. Colhoun
/s/ DENNIS A. REEVE Director March 28, 1997
------------------------
Dennis A. Reeve
/s/ HARRY THIE Director March 28, 1997
------------------------
Harry Thie
/s/ MARK JORGENSEN Director March 28, 1997
------------------------
Mark Jorgensen
/s/ JOHN MCCANN Director March 28, 1997
------------------------
John McCann
/s/ WILLIAM D. SANDERS Director March 28, 1997
------------------------
William D. Sanders
/s/ J. MARSHALL PECK Director March 28, 1997
------------------------
J. Marshall Peck
</TABLE>
<PAGE>
SUSA PARTNERSHIP, L.P.
Exhibit Index
Exhibit No. Description
----------- -----------
3.1++++ Second Amended and Restated Agreement of Limited Partnership of
SUSA Partnership, L.P. (the "Partnership"), dated as September
21, 1994 (the "Partnership Agreement").
3.2 First Amendment to the Partnership Agreement, dated March 19,
1996 (filed as Exhibit 10.3 to the Current Report on Form 8-K of
Storage USA, Inc., (the "Comapany"), filed April 1, 1996, and
incorporated by reference herein).
3.3 Second Amendment to the Partnership Agreement, dated as of June
14, 1996 (filed as Exhibit 10.0 to the Company's Current Report
on Form 8-K/A filed July 17, 1996, and incorporated by reference
herein).
3.4 Third Amendment to Partnership Agreement, dated as of August 14,
1996 (filed as Exhibit 10.1 to the Company's Amendment No. 1 to
a Registration Statement on Form S-3 (File No. 333-04556), and
incorporated by reference herein).
10.1 Amended Charter of Storage USA, Inc. (the "Company"), (filed as
Exhibit 4.2 to the Company's Amendment No. 1 to the Registration
Statement on Form S-3 (File No. 333-04556), and incorporated by
reference herein).
10.2* Restated and Amended Bylaws of the Company.
10.3* Agreement between the Company and certain executive officers
prohibiting conflicting self-storage interest.
10.4* Company's Omnibus Stock Option Plan.
10.5* Deed of Trust Promissory Note made by Severn River Associates
Limited Partnership ("Severn River") in favor of Aid Association
of Lutherans ("AAL").
10.6 First Deed of Trust made by Severn River in favor of AAL.
10.7 SUSA Partnership, L.P. 401(k) Savings Plan.
10.8* Form of Registration Rights Agreement relating to Partnership
unit issuances in 1994.
10.9** Promissory Note dated February 8, 1995, in the amount of
$15,000,000 executed by the Partnership payable to Crestar Bank.
10.10** Promissory Note dated February 8, 1995, in the amount of
$15,000,000 executed by the Partnership payable to Signet
Bank/Virginia.
10.11+ Credit Agreement, dated as of December 21, 1995, by and among
the Partnership, the Company, and The First National Bank of
Chicago.
10.12 Promissory Note, dated December 21, 1995, in the amount of
$25,000,000 executed by the Partnership, payable to The First
National Bank of Chicago.
10.13+ Form of Agreement of General Partners relating to certain
Partnership issuances in 1995 and schedule of beneficiaries.
10.14++ Promissory Note, dated March 23, 1995, in the original principal
amount of $2,400,000 executed by the Partnership.
10.15++ Form of Registration Rights Agreement relating to certain
issuances of Partnership units after 1994 and schedule of
beneficiaries.
10.16++ Form of Stock Purchase Agreement in connection with the 1995
Employee Stock Purchase and Loan Plan, and schedule of
participants.
10.17++ Form of Promissory Note in connection with the 1995 Employee
Stock Purchase and Loan Plan, and schedule of issuers.
10.18 Stock Purchase Agreement, dated as of March 1, 1996, between the
Company and Security Capital Holdings S.A. and Security Capital
U.S. Realty (filed as Exhibit 10.1 to the Company's Current
Report on Form 8-K, filed March 7, 1996, and incorporated by
reference herein).
10.19 Amendment No. 1 to Stock Purchase Agreement, dated July 1, 1996,
between the Company, Security Capital Holdings S.A. and Security
Capital U.S. Realty (filed as Exhibit 10.3 to the Company's
Amendment No. 1 to Registration Statement on Form S-3 (File No.
333-04556), and incorporated by reference herein).
10.20 Strategic Alliance Agreement, dated as of March 1, 1996, between
the Company and Security Capital Holdings S.A. and Security
Capital U.S. Realty (filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K, filed on April 1, 1996, and
incorporated by reference herein).
10.21 Amendment No. 1 to Strategic Alliance Agreement, dated June 14,
1996, between the Company, the Partnership, Storage USA Trust,
Security Capital U.S. Realty and Security Capital Holdings, S.A.
(filed as Exhibit 10.2 to the Company's Amendment No. 1 to the
Registration Statement on Form S-3 (File No. 333-04556), and
incorporated by reference herein).
10.22 Registration Rights Agreement, dated as of March 19, 1996,
between the Company, Security Capital Holdings, S.A. and
Security Capital U.S. Realty (filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K, filed on April 1, 1996,
and incorporated by reference herein).
10.23 Indenture, dated November 1, 1996, between the Partnership and
First National Bank of Chicago, as Trustee (filed as Exhibit
10.1 to the Company's Current Report on Form 8-K, filed on
November 8, 1996, and incorporated by reference herein).
10.24+ First Amendment to the Adoption Agreement for the Company's
401(k) Plan.
21 Subsidiaries of Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule.
99 Managements Discussion and Analysis of Financial Condition and
Results of Operations; Selected Financial Data; and Financial
Statements of the Partnership, including footnotes, for the
fiscal year ended December 31, 1996.
- --------------------
* Filed as an Exhibit to the Company's Registration Statement on Form
S-11, File No. 33-74072, as amended, and incorporated by reference
herein.
** Filed as an Exhibit to the Company's Registration Statement on Form
S-11, File No. 33-82764, as amended, and incorporated by reference
herein.
*** Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, and incorporated by reference
herein.
+ Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, and incorporated by reference
herein.
++ Filed as an Exhibit to the Company's Current Report on Form 8-K, as
amended to Form 8-K/A Filed November 17, 1995, and incorporated by
reference herein.
++ Filed as an Exhibit to the Company's Current Report on form 8-K, filed
May 30, 1995, and incorporated by reference herein.
++++ Filed as an Exhibit to the Company's Registration Statement on Form
S-3, File No. 33-91302, and incorporated by reference herein.
EXHIBIT 21
SUSA PARTNERSHIP, L.P.
SUBSIDIARIES
All subsidiaries are organized under Tennessee law, unless otherwise indicated.
Storage USA Franchise Corp.
Storage USA Construction, Inc.
Elite Storage, Inc.
SUSA Tennessee, Inc.
SUSA Arizona, Inc.
SUSA New Jersey, Inc.
Peachtree Development II, Inc.(Texas)
Tamiami Mini Storage Partners, L.P. (Florida)
441 Mini Storage Partners, L.P. (Florida)
Sunset Mini Storage Partnership, L.P. (Florida)
Dade County Mini Storage Associates, L.P. (Florida)
Southeast Mini Storage, L.P. (Florida)
Buzzman Partners I, L.P. Buzzman Partners II, L.P.
Storage USA of Palm Beach County, L.P.
Preston Self Storage, L.P.
SUSA Nashville, L.P.
SUSA Mesa, L.P.
SUSA Hackensack, L.P.
SUSA Secaucus, L.P.
SUSA Harrison, L.P.
SUSA Orange, L.P.
Clarendon Storage Associates, L.P.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference into the
Registration Statements on Forms S-3, (Commission File Nos. 333-21991 and
333-3344) of SUSA Partnership, L.P. (the "Operating Partnership"), of: (1) our
report dated January 29, 1997, except for Note 13, as to which the date is March
17, 1997, on our audits of the consolidated financial statements of the
Operating Partnership as of December 31, 1996 and 1995 and for the each of the
two years in the period ended December 31, 1996 and for the period from March
24, 1994 (inception) through December 31, 1994, and the combined results of
Storage USA, Inc, (the Predecessor") for the period from January 1, 1994 through
March 23, 1994, which report is included in the Operating Partnership's 1996
Form 10-K; and (2) our report dated January 29, 1997, on the financial statement
schedule of the Operating Partnership as of December 31, 1996, which report is
included in the Operating Partnership's 1996 Form 10-K.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,349
<SECURITIES> 0
<RECEIVABLES> 14,889
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,238
<PP&E> 855,642
<DEPRECIATION> 26,573
<TOTAL-ASSETS> 845,307
<CURRENT-LIABILITIES> 14,873
<BONDS> 198,454
0
0
<COMMON> 0
<OTHER-SE> 631,980
<TOTAL-LIABILITY-AND-EQUITY> 845,307
<SALES> 105,091
<TOTAL-REVENUES> 107,309
<CGS> 0
<TOTAL-COSTS> 53,672
<OTHER-EXPENSES> (818)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,244
<INCOME-PRETAX> 46,211
<INCOME-TAX> 0
<INCOME-CONTINUING> 46,211
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,211
<EPS-PRIMARY> 2.09
<EPS-DILUTED> 2.09
</TABLE>
Exhibit 99
Management's Discussion and Analysis of Financial Condition and Results of
Operations SUSA Partnership, L.P.
All statements contained herein that are not historical facts, including but not
limited to, statements regarding anticipated future development and acquisition
activity, the impact of anticipated rental rate increases on the Operating
Partnership's revenue growth, the Operating Partnership's 1997 budgeted revenues
and expenses, and future capital requirements are based on current expectations.
These statements are forward looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the following: changes in
the economic conditions in the markets in which the Operating Partnership
operates negatively impacting the financial resources of the Operating
Partnership's clients; certain of the Operating Partnership's competitors with
substantially greater financial resources than the Operating Partnership
reducing the number of suitable acquisition opportunities offered to the
Operating Partnership and increasing the price necessary to consummate the
acquisition of particular facilities; increased development of new facilities
and competition in the Operating Partnership's markets resulting in over-supply
thereby lowing rental and occupancy rates; the availability of sufficient
capital to finance the Operating Partnership's business plan on terms
satisfactory to the Operating Partnership; increased costs related to compliance
with laws, including environmental laws; general business and economic
conditions; and the other risk factors described in the Operating Partnership's
reports filed from time to time with the Securities and Exchange Commission. The
Operating Partnership cautions readers not to place undue reliance on any such
forward looking statements, which statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 and, as such, speak only as of the date
made.
The following discussion and analysis of the consolidated financial condition
and results of operations 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, SUSA Partnership, L.P.'s (the "Operating
Partnership") 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 from the IPO to December
31, 1996, management believes that it is meaningful and relevant in
understanding the present and ongoing operations of the Operating Partnership to
compare information using occupancy and per square foot and pro forma
information.
The following are definitions of terms used throughout this discussion 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.
Outlook:
Internal Growth Strategy:
The Operating 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. The following table
details the same-store Physical Occupancy and Rent Per Square Foot at the end of
each quarter of 1996 and 1995:
<TABLE>
<CAPTION>
<S> <C>
- ------------------- ----------------- --------------------- ------------------- ------------------ -------------- ---------------
Quarter ended: Number of Physical Occupancy Physical Rent Per Square Rent Per % increase in
same-store 1996 Occupancy 1995 Foot 1996 Square Foot Rent Per
facilities 1995 Square Foot
- ------------------- ----------------- --------------------- ------------------- ------------------ -------------- ---------------
March 31 98 88% 87% $9.61 $8.93 7.6%
- ------------------- ----------------- --------------------- ------------------- ------------------ -------------- ---------------
June 30 132 90% 90% $9.59 $8.91 7.6%
- ------------------- ----------------- --------------------- ------------------- ------------------ -------------- ---------------
September 30 146 89% 90% $9.60 $8.98 6.9%
- ------------------- ----------------- --------------------- ------------------- ------------------ -------------- ---------------
December 31 153 87% 88% $9.61 $8.94 7.5%
- ------------------- ----------------- --------------------- ------------------- ------------------ -------------- ---------------
</TABLE>
The Operating Partnership was able to aggressively increase its Rent Per Square
Foot on facilities it has owned for at least one year, while maintaining its
Physical Occupancy. This can be attributed, in part, to Partnership-wide sales
and marketing programs that are customized for each location by facility
managers who have substantial authority and effective incentives. The Operating
Partnership's policy is to raise rents, both rates to existing customers and its
"street" rates for new customers, at all of its facilities at least once a year
regardless of the occupancy level. This increase typically takes place in the
Spring, the beginning of the Operating Partnership's highest rental season. The
Operating Partnership increases its street rates throughout the year, based on
facts and circumstances at individual facilities. The 1% decline in Physical
Occupancy at the end of both the third and fourth quarters represents less than
one thousand self-storage units and can be attributed, in part, to the Operating
Partnership increasing rates during 1996 at facilities acquired during the last
six months of 1995. Historically, as the Operating Partnership implements its
rate policies at acquisition facilities, existing tenants paying lower rental
rates may vacate, to be replaced by tenants leasing under the Operating
Partnership's higher rate structure.
The greater than 7% increases in same-store Rent Per Square Foot translated into
1996 total same-store revenue growth of 7.7%, or $3.8 million over 1995
same-store total revenues of $49.2 million. Revenues include late fees,
administration fees, lock and packaging income, and other miscellaneous income
that account for the fact that total same-store revenue growth was greater than
same-store Rent Per Square Foot growth.
The Operating Partnership anticipates same-store revenue growth will slow in
1997, as facilities the Operating Partnership has owned for two or more years
will comprise a larger percentage of the same-store pool of facilities during
1997. Revenue growth for a facility generally is greatest in the first year
following acquisition as the Operating Partnership implements its higher base
rate structure.The Operating Partnership anticipates generating same-store
revenue growth of approximately 5.5% in 1997 subject to the risks discussed
above.
External Growth Strategy:
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, and by developing and constructing new
self-storage facilities in favorable markets. During the year the Operating
Partnership invested $304 million in acquiring 82 facilities containing 5.4
million square feet. The Operating Partnership remains committed to its policy
of acquiring facilities at projected annual capitalization rates ("Cap Rates")
of not less than 10% and generally is acquiring properties at Cap Rates of
between 10.0-10.5%. The acquisition facilities continued to realize their upside
potential. The 96 facilities the Operating Partnership owned at December 31,
1994 generated returns of 12.3% in 1995, 13.1% in 1996(calculated by dividing
NOI by the total acquisition costs of the facilities), and the Operating
Partnership is budgeting a return of approximately 14.1% on the facilities in
1997. In 1997, the Operating Partnership has budgeted to invest its acquisition
capital at the same levels as in the prior three years, seeking to acquire
between 65 and 75 facilities. The Operating Partnership's acquisitions entail
risks that investments will fail to perform as expected and that judgements with
respect to acquisition prices and costs of improvements will be inaccurate, as
well as general real estate investment risks.
In addition to its acquisitions during the year, the Operating Partnership
opened two newly developed facilities in northern Virginia totaling 123 thousand
square feet for a cost of $9 million. The Operating Partnership also completed
expansions to five existing facilities, adding 129 thousand square feet. The
Operating Partnership's minimum internal rate of return on investment on
development opportunities is 12.5%. The 1997 budgeted un-leveraged return on the
two facilities opened during 1996 is 8.8%. In addition to risks associated with
owning and operating established facilities, development involves additional
risks relating to delays in construction and lease-up and less favorable than
anticipated lease terms, all of which could reduce the Company's return.
The Operating Partnership believes that its external growth strategy is enhanced
by favorable supply and demand conditions. According to industry data, there
were less than four hundred construction starts in 1996. Barriers to entry,
including availability of development capital and the absence in many markets of
appropriate zoning for self-storage, contribute to the favorable supply and
demand balance in the business. Based on Operating Partnership surveys, 52% of
its customers are first time users. The Operating Partnership believes that this
low market penetration, along with improving product quality and development of
a more educated consumer, will continue to validate its external growth
strategy. At December 31, 1996, the Operating Partnership had $17.9 million of
development in progress and the Operating Partnership had plans to develop 21
new facilities containing 1.7 million square feet. Expansions are planned for 23
existing facilities. Of these, 12 new construction projects and 18 expansions
are underway with total estimated costs of $66.8 million. These 30 projects have
expected completion dates ranging from the second quarter of 1997 through the
first quarter of 1998.
Capital Strategy:
The Operating Partnership expects to finance its external growth strategy
primarily through the issuance of debt securities and contributions from the
Company's issuance of equity securities. On February 19, 1997, the Operating
Partnership and the Company filed a joint shelf registration statement with the
Securities and Exchange Commission relating to $450 million of securities,
including up to $250 million of common stock, preferred stock, depository
shares, and warrants of the Company and up to $200 million of unsecured,
nonconvertable senior debt securities of the Operating Partnership. An
additional $150 million of unsecured, nonconvertable senior debt securities are
issuable under the Operating Partnership's existing shelf registration
statement, permitting the Operating Partnership and the Company to issue up to
$600 million of securities.
The Operating Partnership anticipates using its lines of credit as an interim
source of acquisition funds, repaying the credit lines with longer term debt or
contributions from the Company's equity offerings, when management determines
market conditions are favorable.
Results of Operations:
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
In 1996, the Operating Partnership reported growth in revenue, income from
property operations, and net income, respectively, of $39.3 million, $20.2
million, and $15.8 million over the prior period. These significant increases
are primarily attributable to the Operating Partnership's implementation of its
internal and external growth strategies.
Facility acquisitions during 1996, by quarter, were as follows (in thousands
except number of facilities):
<TABLE>
<CAPTION>
<S> <C>
Number of Facilities Cost Net Rentable Square Feet
- ------------------------------------- --------------------- --------------------------- ----------------------------
419
Quarter ended March 31, 1996 6 $21,960
- ------------------------------------- --------------------- --------------------------- ----------------------------
91,754 1,666
Quarter ended June 30, 1996 26
- ------------------------------------- --------------------- --------------------------- ----------------------------
85,588 1,599
Quarter ended September 30, 1996 23
- ------------------------------------- --------------------- --------------------------- ----------------------------
104,610 1,717
Quarter ended December 31, 1996 27
- ------------------------------------- --------------------- --------------------------- ----------------------------
303,912 5,401
Total 82
- ------------------------------------- --------------------- --------------------------- ----------------------------
</TABLE>
These acquisitions added 55 thousand units, bringing the total square feet and
units of the 242 facilities owned by the Operating Partnership at December 31,
1996 to 16.37 million and 160 thousand, respectively. At December 31, 1996, the
average occupancy of the 242 facilities was 86% Physical and 79% Economic with
an average Rent Per Square Foot of $9.73. For the 153 comparable facilities
owned by the Operating Partnership since December 31, 1995, average occupancy
was 87% Physical and 80% Economic, compared to 88% Physical and 81% Economic a
year ago. Rent Per Square Foot increased 7.5%, rising to $9.61 from $8.94 a year
ago. Same store revenues were $52.96 million in 1996, a 7.7% increase over the
$49.19 million in 1995. The majority of this increase is attributable to
increases in rental rates as occupancy remains fairly consistent.
Management income in 1996 was $701 thousand, a decline of $371 thousand from the
$1.07 million reported in 1995, as the Operating Partnership purchased 16
self-storage facilities during 1996 that had been managed by the Operating
Partnership during 1995.
Other income grew to $1.52 million in 1996, or $1.04 million, from the $480
thousand reported in 1995. The increase is primarily caused by $365 thousand
increase in the sale of locks and boxes and a $222 thousand increase in truck
rental and billboard/cell tower income.
As a percentage of total revenue, rental and management income declined to 98.6%
of total revenue from 99.3% in 1995. Other income grew to 1.4% of total revenue
from 0.7% in 1995.
Cost of property operations and maintenance was $28.03 million or 26.1% of total
revenue in 1996. In 1995, the expense was $18.74 million, or 27.2% of total
revenues. The decline as a percentage of total revenues is explained by same
store revenue growth out-pacing the expense growth, combined with the revenue
impact of over $100 million of late fourth quarter acquisitions. The Operating
Partnership historically benefits in the first month or two following
acquisitions as the revenues precede the costs of implementing the Operating
Partnership's management and operational strategy. During the first three
quarters of 1996, expenses averaged 26.5% of revenues, a more typical
percentage. Same-store expenses were $11.82 million, representing 6.4% growth
over the $11.12 million of expense in 1995. The expense growth on a same-store
basis was caused by increased repair and maintenance charges and miscellaneous
expenses, including postage, printing, and trash removal.
Tax expense was $8.9 million, or 8.3% of revenues in 1996, compared to $4.9
million, or 7.2% of revenues in 1995. The growth in taxes is caused by increased
assessments on properties acquired during late 1994 and 1995. The Operating
Partnership expects the expense to remain at a consistent level in 1997.
Direct Property Operating Cost was 30.4% of revenues in 1996, a slight increase
from the 29.9% in 1995. This increase is primarily attributable to the increased
property tax expense in 1996.
General and administrative expense ("G&A") was $4.12 million, or 3.8% of
revenues in 1996, as compared to $2.57 million or 3.8% of revenues in 1995. The
growth in the Acquisitions, Administration, and the Development departments
contributed to the majority of the dollar growth in the G&A expense.
The increase in depreciation and amortization expense to $12.6 million from $8.6
million reflects the Operating Partnership's acquisition of $304 and $220
million of facilities in 1996 and 1995, respectively.
Interest expense was $8.2 million in 1996, an increase of $5.2 million over the
$3.0 million reported in 1995. Interest expense in 1996 represents weighted
average borrowings of $92.2 million under the Operating Partnership's lines of
credit at a weighted average interest rate of 6.99% as compared to 1995 weighted
average borrowings and interest rate of $47.2 million and 6.4%, respectively. In
addition, on November 4, 1996, the Operating Partnership issued $100 million of
7.125% notes due November 1, 2003 and during the year assumed $37.3 million of
mortgages on facilities acquired.
Interest income grew to $687 thousand, or 0.6% of total revenue in 1996, an
increase of $521 thousand, or 0.2% of total revenue in 1995. 1996 interest
income represents primarily earnings on overnight deposits and amounts
outstanding under the 1995 Employee Stock Purchase and Loan Plan.
Gain on investment of $288 thousand represents a gain on the disposition of the
Operating Partnership's investment in a Jacksonville, Florida storage facility
that was exchanged for cash and two facilities located in Oklahoma.
Year Ended December 31, 1995 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 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 (in thousands,
except number of facilities):
<TABLE>
<CAPTION>
<S> <C>
Number of Facilities Cost Net Rentable Square Feet
- ------------------------------------- --------------------- --------------------------- ----------------------------
Quarter ended March 31, 1995 2 $7,080 180
- ------------------------------------- --------------------- --------------------------- ----------------------------
Quarter ended June 30, 1995 34 119,788 2,248
- ------------------------------------- --------------------- --------------------------- ----------------------------
Quarter ended September 30, 1995 14 56,682 1,110
- ------------------------------------- --------------------- --------------------------- ----------------------------
Quarter ended December 31, 1995 13 36,450 890
- ------------------------------------- --------------------- --------------------------- ----------------------------
Total 63 $220,000 4,428
- ------------------------------------- --------------------- --------------------------- ----------------------------
</TABLE>
These acquisitions added 44 thousand units, bringing the total square feet and
units of the 159 facilities owned by the Operating Partnership at December 31,
1995 to 10.72 million and 105 thousand, 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.
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.
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.
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 gross expense
will grow in 1996 as the Operating Partnership expands its accounting,
management information systems, and human resource departments, in connection
with its ongoing growth strategy.
<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
the Operating Partnership's 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.
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.
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 the overall increase in
revenue.
Depreciation and amortization expense increased $5.5 million (175%) due to the
acquisition of $220 million in facilities in 1995, as well as the impact of
recognizing a full year 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.
Liquidity and Capital Resources
Capital Resources
The Operating Partnership funds its capital requirements primarily through the
issuance of debt securities and the contributions from the Company of the
proceeds from the issuance of equity securities. On March 1, 1996, the Company
entered into a series of agreements providing for a strategic alliance with
Security Capital U.S. Realty ("US Realty"). Pursuant to the agreement, subject
to the terms and conditions thereof, US Realty purchased 7,028,754 shares of
common stock at $31.30 per share in three fundings, and contributed the proceeds
to the Operating Partnership. The initial purchase of 1,948,882 shares for $61
million occurred on March 19, 1996. The second funding of 1,916,933 shares for
$60 million took place on July 8, 1996. The final funding of 3,162,939 shares
for $99 million took place on September 30, 1996. As of December 31, 1996, US
Realty owned approximately 34.6% of the outstanding shares of common stock of
the Company. On November 4, 1996, the Operating Partnership issued $100 million
of 7.125% Notes due November 1, 2003. The Notes are unsecured obligations of the
Operating Partnership, and may be redeemed at any time at the option of the
Operating Partnership, subject to certain terms and conditions. To fund short
term capital needs, the Operating Partnership had in place at December 31, 1996,
two lines of credit with total borrowing capacity of $105 million. The lines
bear interest at various spreads over a base rate, depending upon the Operating
Partnership's debt service coverage. Amounts outstanding under the lines of
credit bore interest at a weighted average rate of 6.78% in February 1997.
During 1996 the Operating Partnership had net repayments under its lines of
credit of $54.9 million. At December 31, 1996, the Operating Partnership had
$52.7 million of borrowings outstanding on its lines of credit.
The Operating Partnership also assumed $37.3 million of mortgages on facilities
acquired during 1996. At December 31, 1996, the Operating Partnership had $36.7
million of fixed rate mortgages with a weighted average interest rate of 10.14%
and $9.1 million of variable rate mortgages with a weighted average interest
rate of 9.2%. These mortgages mature at various dates through 2021.
During 1996 the Operating Partnership issued 901,374 units of limited
partnership interest in the Operating Partnership ("Units") valued at $30.7
million in connection with the acquisition of facilities. At December 31, 1996,
the Operating Partnership had 1,903,797 Operating Partnership Units outstanding.
Certain Operating Partnership Units are redeemable for an amount equal to their
fair market value ($3.1 million, based upon a price per Unit of $37.625 at
December 31, 1996) 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 ($35.5
million, based upon a price per Unit of $37.625 at December 31, 1996) 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. 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 has agreed to
register under the Securities Act of 1933 any shares of the Company's common
stock issued upon redemption of Units.
The Operating Partnership's investing activities consisted primarily of the
acquisition of 82 self-storage facilities for approximately $304 million, along
with new development and expansion of existing facilities. During 1996, the
Operating Partnership opened two newly constructed facilities in northern
Virginia totaling 123 thousand square feet for a cost of $9.3 million. The
Operating Partnership also completed five expansions to existing facilities
totaling 129 thousand square feet. The Operating Partnership generated cash flow
from operating activities of $ 60.04 million in 1996, an increase of $22.3
million over 1995, primarily as a result of the significant expansion of the
Operating Partnership's portfolio as discussed under "Results of Operations".
On February 19, 1997, the Company and the Operating Partnership filed a shelf
registration statement relating to $450 million of securities, as more fully
discussed under "Outlook- Capital Strategy". In March , 1997, the Company issued
2.5 million shares of its common stock for an aggregate purchase price of $90
million. The Company contributed the proceeds from the offering to the Operating
Partnership in exchange for additional units of partnership interest, which the
Operating Partnership used to repay debt incurred under its revolving lines of
credit to finance the acquisition of self-storage facilities, and for working
capital.
The Company anticipates, subject to prevailing market conditions and other
business economic factors, issuing preferred stock or debt securities through
the Operating Partnership to finance its liquidity requirements for the
remainder of 1997. In anticipation of a debt offering, the Operating Partnership
entered into a forward starting interest rate swap with a notional amount of $75
million, which had the effect of fixing the seven-year U.S. Treasury rate
starting May 1, 1997 at 6.87%. At December 31, 1996, the Operating Partnership
had an unrealized loss on this derivative instrument of $1.1 million.
The proceeds from any debt or equity offering by the Operating Partnership or
the Company would be used to repay borrowings under the Company's lines of
credit 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 Operating Partnership believes that the combination of the
Company's common stock issuance, and debt or equity issuances pursuant to the
shelf registration statements, in addition to borrowings under its credit
facilities and issuances of Units, as described above, will provide the
Operating Partnership with necessary liquidity and capital resources to meet the
requirements of its operating strategies in 1997.
The Operating Partnership expects to incur approximately $1.2 million for
scheduled maintenance and repairs during the next twelve months and
approximately $7.2 million to conform facilities acquired during 1996, 1995,
and 1994 to Operating Partnership standards.
The Operating Partnership at December 31, 1996, had Partners Capital of
approximately $632 million, a debt- to- partners' capital ratio of 31.4%, a
debt- to -total assets ratio of 23.5%, and a debt service coverage ration of
7:1. 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.
Funds from Operations ("FFO")
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, presented its 1996 FFO under the
amended method and restated prior years FFO. As such, the Operating
Partnership's FFO may not be comparable to similarly titled measures of other
REITs who may have not restated prior years FFO under the amended method. The
pro forma FFO was prepared as if the IPO and the related formation transactions,
including the acquisition of 26 facilities, had occurred on January 1, 1994.
The following table illustrates the components of the Operating Partnership's
FFO for the years ended December 31, 1996 and 1995, and pro forma for the year
ended December 31, 1994:
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------- --------------------- ---------------------- ----------------------
(Amounts in thousands) 1996 Historical 1995 Historical 1994 Pro Forma
- ------------------------------------------------- --------------------- ---------------------- ----------------------
Net Income $46,211 $30,420 $14,531
Depreciation of real property 11,865 6,996 2,984
Amortization of non compete 83 252 167
Amortization of lease guarantees 70 385 186
Consolidated FFO $58,229 $38,053 $17,868
- ------------------------------------------------- --------------------- ---------------------- ----------------------
</TABLE>
The Operating Partnership had weighted average units outstanding of 22,108
and16,294, for the years ended December 31, 1996, and 1995, respectively. The
Operating Partnership distributed $2.25 and $2.04 per unit in 1996 and 1995,
respectively.
The Company, as a qualified REIT, is required to distribute a substantial
portion of its net income as dividends to its shareholders. The Company's payout
ratio was 85.9% and 87.6% for 1996 and 1995, respectively. It is the intent of
the Operating Partnership that cash distributions will be made each fiscal year
to enable the Company to meet it's 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, 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. Portfolio
expansion and repayment of principal on Operating Partnership indebtedness
represent the Operating Partnership's primary long-term 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
proceeds contributed from Company 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 two of these markets (Dallas and
Albuquerque) the Operating Partnership may be required to reduce by 50% its
normal yearly rental rate increase, and in two markets (Atlanta and Las Vegas),
the Operating Partnership may experience a minimal reduction in Physical
Occupancy during 1997. 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 shareholders.
Recent Accounting Developments
In February of 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" was issued. The statement establishes standards for
computing and presenting earnings per share and is effective for financial
statements issued for periods ending after December 15, 1997. The Operating
Partnership has yet to assess the impact of this standard on the financial
statements.
Qualification as a REIT
The Company intends to operate so as to qualify as a REIT under the Internal
Revenue Code (the "Code"). Qualification as a REIT involves the application of
highly technical and complex rules for which there are only limited judicial or
administrative interpretations. The complexity of these rules is greater in the
case of a REIT that holds its assets in partnership form. Furthermore, there are
no controlling authorities that deal specifically with many tax issues affecting
a REIT that operates self-storage facilities. The determination of various
factual matters and circumstances not entirely within the Company's control may
affect its ability to qualify as a REIT. In addition, new regulations,
administrative interpretations or court decisions could have a substantial
adverse effect with respect to the qualifications as a REIT or the federal
income tax consequences of such qualification. If the Company were to fail to
qualify as a REIT in any taxable year, the Company would not be allowed a
deduction for distributions to shareholders in computing its taxable income and
would be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. Unless entitled
to relief under certain Code provisions, the Company also would be disqualified
from treatment as a REIT for the four taxable years following the year during
which qualification was lost. As a result, the cash available for distribution
to shareholders would be reduced for each of the years involved. Although the
Company currently intends to operate in a manner designed to qualify as a REIT
it is possible that future economic, market, legal, tax or other considerations
may cause the Board of Directors, with the consent of a majority of the
shareholders, to revoke the REIT election.
<PAGE>
SUSA Partnership, L.P.
Consolidated Balance Sheets
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
<S> <C>
as of as of
December 31, 1996 December 31, 1995
-------------------------- ------------------------
Assets
Investments in storage facilities, at cost:
Land $235,139 $139,603
Buildings and equipment 620,503 369,694
-------------------------- ------------------------
855,642 509,297
Accumulated depreciation (26,573) (14,561)
-------------------------- ------------------------
829,069 494,736
Cash & cash equivalents 1,349 2,802
Other assets 14,889 11,987
-------------------------- ------------------------
Total assets $845,307 $509,525
========================== ========================
Liabilities & shareholders' equity
Line of credit borrowings $52,730 $107,605
Mortgage notes payable 45,724 6,670
Notes payable 100,000 -
Accounts payable & accrued expenses 7,641 5,910
Rents received in advance 5,640 3,680
Minority interest 1,592 524
-------------------------- ------------------------
Total liabilities 213,327 124,389
-------------------------- ------------------------
Commitments and contingencies
Partners' Capital:
General partnership units 364,947
24,723,027 and 17,562,363
outstanding 585,419
Limited partnership units, 1,903,797
and 1,025,423 outstanding 56,814 26,916
Notes receivable - employees (10,253) (6,727)
-------------------------- ------------------------
Total partners' capital 631,980 385,136
-------------------------- ------------------------
Total liabilities & partners' equity $845,307 $509,525
========================== ========================
</TABLE>
See notes to consolidated financial statements
<PAGE>
SUSA Partnership, L.P. (the "Operating Partnership")
and
Storage USA, Inc.(the "Predecessor")
Consolidated Statements of Operations
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C>
PREDECESSOR
For the period March 24, For the period January
Year ended Year ended 1994(inception) through 1,1994 through
December 31, 1996 December 31, 1995 December 31, 1994 March 23, 1994
--------------- ----------------- ----------------------- ----------------------
Property Revenues:
Rental income $105,091 $66,455 $24,667 $2,358
Management income 701 1,072 707 188
Other income 1,517 480 460 52
--------------- ----------------- ----------------------- ----------------------
Total property revenues 107,309 68,007 25,834 2,598
--------------- ----------------- ----------------------- ----------------------
Property Expenses:
Cost of property operations & maintenance 28,029 18,471 6,851 792
Taxes 8,903 4,900 1,686 153
General & administrative 4,122 2,568 1,374 325
Depreciation & amortization 12,618 8,586 2,882 244
--------------- ----------------- ----------------------- ----------------------
Total property expenses 53,672 34,525 12,793 1,514
--------------- ----------------- ----------------------- ----------------------
Income from property operations 53,637 33,482 13,041 1,084
--------------- ----------------- ----------------------- ----------------------
Other income (expense):
Interest expense (8,244) (3,004) (1,404) (1,195)
Interest income 687 166 658 -------
--------------- ----------------- ----------------------- ----------------------
Income (loss) before minority interest
and gain on investment 46,080 30,644 12,295 (111)
Gain on Investment 288 0
--------------- ----------------- ----------------------- ----------------------
Income (loss) before minority interest 46,368 30,644 12,295 (111)
Minority interest (157) (224) (158) (54)
--------------- ----------------- ----------------------- ----------------------
Net income (loss) $46,211 $30,420 $12,137 ($165)
=============== ================= ======================= ======================
Net income per unit $2.09 $1.87 $1.28
=============== ================= =======================
Weighted average units outstanding 22,108 16,294 9,467
=============== ================= =======================
</TABLE>
See notes to consolidated financial statements
<PAGE>
SUSA Partnership, L.P. (the "Operating Partnership")
and
Storage USA, Inc.(the "Predecessor")
Consolidated Statements of Cash Flows
(Amounts in thousands)
<TABLE>
<CAPTION>
<S> <C>
Year ended Year ended
December 31, 1996 December 31, 1995
------------------ ------------------
Operating Activities:
Net Income $46,211 $30,420
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,618 8,586
Minority interest 157 224
Gain on investment (288)
Changes in assets and liabilities:
Other assets (2,631) (4,009)
Other liabilities 3,691 2,554
------------------ ------------------
Net cash provided by operating activities: 59,758 37,775
================== ==================
Investing Activities:
Acquisition and improvements of storage facilities (273,043) (212,326)
Development of storage facilities (3,837) (4,842)
------------------ ------------------
Net cash used in investing activities (276,880) (217,168)
================== ==================
Financing Activities:
Net borrowings (repayments) under line of credit (54,875) 103,605
Mortgage principal payments (298) (79)
Mortgage principal borrowings 2,063 2,376
Increase in payable to affiliates - -
Distributions to general partner (47,934) (33,414)
General partner contributions 220,721 108,169
Proceeds from issuance of notes payable 99,140 -
Distribution to limited partners (2,900) (1,483)
Distribution to minority interests (248) (257)
------------------ ------------------
Net cash provided by financing activities 215,669 178,917
================== ==================
Net increase (decrease) in cash and equivalents (1,453) (476)
Cash and equivalents, beginning of period 2,802 3,278
------------------ ------------------
Cash and equivalents, end of period $1,349 $2,802
================== ==================
Supplemental schedule of non-cash activities:
General partnership units issued in exchange for notes receivable $3,541 $6,727
Mortgages assumed on storage facilities acquired $37,289 -
Land contributed for minority interest $1,162
Exchange of Operating Partnership units for common shares $613
Storage facilities acquired in exchange for Limited
Partnership Units $30,726 $17,978
================== ==================
<CAPTION>
PREDECESSOR
For the period March 24, For the period January
1994(inception) through 1,1994 through
December 31, 1994 March 23, 1994
------------------------ ----------------------
Operating Activities:
Net Income $12,137 ($165)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,882 244
Minority interest 158 -
Gain on investment
Changes in assets and liabilities:
Other assets (4,385) (809)
Other liabilities 7,036 393
------------------------ ----------------------
Net cash provided by (used in) operating activities: 17,828 (337)
======================== ======================
Investing Activities:
Acquisition and improvements of storage facilities (264,561) -----
Development of storage facilities (327) -----
------------------------ ----------------------
Net cash used in investing activities (264,888) 0
======================== ======================
Financing Activities:
Net borrowings (repayments) under line of credit 4,000 450
Mortgage principal payments (40) (44)
Mortgage principal borrowings 4,413 -
Increase in payable to affiliates - 178
Distributions to general partner (13,070) (397)
General partner contributions 255,483 -
Proceeds from issuance of notes payable - -
Distribution to limited partners (271)
Distribution to minority interests (177) -
------------------------ ----------------------
Net cash provided by financing activities 250,338 187
======================== ======================
Net increase (decrease) in cash and equivalents 3,278 (150)
Cash and equivalents, beginning of period ---- 150
------------------------ ----------------------
Cash and equivalents, end of period $3,278 $0
======================== ======================
Supplemental schedule of non-cash activities:
General partnership units issued in exchange for notes receivable -
Mortgages assumed on storage facilities acquired
Land contributed for minority interest
Exchange of Operating Partnership units for common shares
Storage facilities acquired in exchange for Limited -
Partnership Units $9,611
========================
</TABLE>
See notes to consolidated financial statements
<PAGE>
SUSA PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS
OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
<S> <C>
General Limited Notes Total
Partnership Partnership Receivable- Partners'
Capital Capital Employees Capital
---------------------------------------------------
(amounts in thousands)
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
===================================================
Capital contribution 224,880 224,880
Contribution of self-storage facilities in
exchange for units 30,113 30,113
Issuance of units to employees in
exchange for notes receivable (3,526) (3,526)
Net income 43,526 2,685 46,211
Distributions (47,934) (2,900) (50,834)
---------------------------------------------------
Balance at December 31, 1996 585,419 56,814 (10,253) 631,980
===================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
SUSA Partnership, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except per unit data)
NOTE 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 13), 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 from January 1, 1994 through March 23, 1994 are
presented for the Predecessor and are labeled as such on the financial
statements related to predecessor activity.
On March 23, 1994, the Company contributed substantially all of its net assets
of $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 acquires 26 self-storage
facilities from unrelated third parties, to acquire the outstanding partnership
interest 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.
NOTE 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 13.
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, liabilities, revenues and expenses and
disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
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.
<PAGE>
SUSA Partnership, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except per unit data)
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.
Other Income
Other income consists primarily of sales of storage-related merchandise (locks
and packing supplies) and commissions from truck rentals.
Interest
Interest is capitalized on accumulated expenditures relating to the development
of certain qualifying properties. During 1996, 1995, and 1994, total cash paid
by the Operating Partnership for the interest was $7,636, $3,345, and $1,404
respectively, which includes $965, and $532, which was capitalized in 1996, and
1995, respectively. No interest was capitalized in 1994.
Deferred Financing Costs
Deferred financing costs are amortized over a period not to exceed the term of
the related debt. Amortization of deferred financing costs is classified as
amortization expense and included in the consolidated statement of operations in
the amount of $361, $705, and $115 in 1996, 1995, and 1994, respectively.
Interest Rate Management Agreements
The Operating Partnership enters into interest rate risk management agreements
to manage interest rate risk associated with anticipated debt transactions. The
Operating Partnership follows SFAS No. 80 "Accounting for Futures Contracts"
which permits hedge accounting for anticipatory transactions meeting certain
criteria. Gains and losses, if any, on these transactions are deferred and
amortized over the terms of the related debt as an adjustment to interest
expense. Changes in the fair value of the interest rate risk management
agreements are not recognized in the financial statements. In the event that the
anticipatory transaction is no longer likely to occur, the Operating Partnership
would mark the derivative to market and would recognize any adjustment in the
consolidated statement of operations. The Operating Partnership does not enter
into interest rate risk management agreements for trading or speculative
purposes.
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 that extend the useful
life of assets are capitalized. Repairs and maintenance costs are expensed as
incurred. Certain costs, principally payroll, directly related to real estate
acquisitions and development, are capitalized.
<PAGE>
SUSA Partnership, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except per unit data)
If there is an event or a change in circumstances that indicates that the basis
of the Operating Partnership's property may not be recoverable the Operating
Partnership's policy is to assess any impairment of value. 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 flow 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.
Minority Interest
The minority interest reflects the ownership interest of the limited partners in
three facilities in which the Operating Partnership is a 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.
Income Per Unit
Net income per unit is calculated using the weighted average number of units
outstanding during the period.
Reclassifications
Certain previously reported amounts have been reclassified to conform with the
current financial statement presentation.
<PAGE>
SUSA Partnership, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except per unit data)
NOTE 3
INVESTMENT IN STORAGE FACILITIES
The following summarizes activity in storage facilities during the period:
Cost
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
Property acquisitions 305,760
Land acquisitions and joint venture development 21,329
Facility expansions 8,986
Developments placed in service 8,679
Improvements 4,711
Property Exchange (3,120)
---------
Balance at December 31, 1996 855,642
Accumulated Depreciation
Balance at December 31, 1994 7,224
Additions during the year 7,337
---------
Balance at December 31, 1995 14,561
Additions during the year 12,012
---------
Balance at December 31, 1996 26,573
The aggregate cost of real estate facilities for federal income tax purposes was
approximately $797,352 and $479,037 at December 31, 1996 and 1995, respectively.
NOTE 4
MORTGAGE NOTES PAYABLE
Mortgage notes payable consist of the following at December 31:
1996 1995
---- ----
Conventional fixed rate $36,666 $6,670
Conventional variable rate 9,058 ---
------ -----
Total 45,724 6,670
------ -----
Conventional fixed-rate mortgage notes included 13 mortgages encumbering 13
properties with a cost basis of $68,572 at December 31, 1996 and three loans
encumbering three properties with a cost basis of $16,032
<PAGE>
SUSA Partnership, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except per unit data)
at December 31, 1995. Mortgage notes are generally due in monthly installments
of principal and interest and mature at various dates through 2021. At December
31, 1996 and 1995, this debt carried fixed rates of interest ranging from 6.8%
to 11.5% (10.14% weighted average) and 8.375% to 10.6% (9.67% weighted average),
respectively.
Conventional variable-rate mortgage notes consist of 4 loans encumbering four
properties with a cost basis of $13,500 at December 31, 1996. Two of the notes
require monthly principal and interest payments and mature in 2019. Two of the
notes require monthly payments of interest only and mature in 2001. At December
31, 1996 conventional variable rate debt had interest rates ranging from 7.81%
to 9.67% with a weighted average interest rate of 9. 2%.
The aggregate principal payments of mortgage notes (fixed and variable rate) for
the five years subsequent to December 31, 1996 are as follows:
1997 $10,802
1998 614
1999 677
2000 746
2001 824
Thereafter $32,061
NOTE 5
NOTES PAYABLE
On November 4, 1996, the Operating Partnership issued $100,000 of 7.125% senior
unsecured notes (the "Notes") due November 1, 2003. Interest on the Notes is
payable on May 1 and November 1 of each year, commencing May 1, 1997. The Notes
are redeemable at any time at the option of the Operating Partnership in whole
or in part, at a redemption price equal to the sum of: (a) the principal amount
of the Notes being redeemed plus accrued interest or (b) a make-whole amount as
more fully defined in the Notes prospectus. The Notes are not subject to any
mandatory sinking fund and are an unsecured obligation of the Operating
Partnership. The Notes contain various covenants restricting the amount of
secured and unsecured indebtedness the Operating Partnership may incur. The $979
offering discount and the approximately $353 of offering costs, net of
accumulated amortization, are included in other assets at December 31, 1996, and
are being amortized into interest expense over the term of the Notes.
NOTE 6
LINE OF CREDIT BORROWINGS
1996 1995
---- ----
Total lines of credit at December 31 $105,000 $123,000
Borrowings outstanding at December 31 $52,730 $107,605
Weighted average daily borrowing during the year $92,225 $47,135
Maximum daily borrowing during the year $150,153 $121,700
Weighted average daily interest rate during the year 6.99% 6.42%
<PAGE>
SUSA Partnership, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except per unit data)
At December 31, 1996, and 1995, the Operating Partnership had 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. The credit agreements mature annually in February, and are renewable
at the option of the Operating Partnership. On January 28, 1997, the Operating
Partnership exercised its option and extended the maturity to February 8, 1998.
At December 31, 1996, the Operating Partnership had a $30,000 line of credit
with a commercial bank. The line bears interest at spreads over LIBOR and is
payable on demand. None of these agreements have compensating balance
requirements.
During 1996 the Operating Partnership entered into a $50,000 bridge loan with
the same group of commercial banks as the $75,000 line of credit. The bridge
loan had a one-year term and bore interest at various LIBOR spreads, which
spreads increased with the passing of each four-month period. The Operating
Partnership borrowed the entire amount available under the bridge loan in June
of 1996, and repaid the amount in full in September 1996, and the facility was
terminated at that time.
At December 31, 1995, the Operating Partnership had a $25,000 term note with an
initial termination date of April 21, 1996. The note was issued by the same
group of commercial banks participating in the $75,000 line of credit, and bore
interest at 1.35% over 30 day LIBOR. The note was paid in full in March 1996,
and the facility was terminated at that time.
At December 31, 1995, the Operating Partnership had $23,000 line with a
commercial bank. The $23,000 line consisted of an $8,000 tranche that matured on
February 15, 1996, and a $15,000 tranche that matured on July 1, 1996. Both
tranches, at the option of the Operating Partnership, bore interest at prime or
LIBOR plus 2.25%, and were collateralized by mortgages on 13 facilities.
Subsequent to December 31, 1995, the commercial bank agreed to release the
mortgages and increase the line to $30,000.
NOTE 7
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following summary of unaudited pro forma combined financial information of
the Operating Partnership is presented as if: (a) the acquisition during 1996 of
82 properties totaling 5,401 square feet for a cost of approximately $304,000
and (b) the issuance of 7,029 shares of common stock for net proceeds of
approximately $220,528 had occurred on January 1, 1996. The unaudited combined
financial information is not necessarily indicative of what actual results of
operation of the company 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.
Year ended December 31, 1996
----
Pro Forma total revenues $133,039
Pro forma net income $ 54,767
Pro forma earnings per unit $ 2.11
<PAGE>
SUSA Partnership, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except per unit data)
NOTE 8
FINANCIAL INSTRUMENTS
The Operating Partnership's carrying amounts and fair value of its financial
instruments were as follows:
<TABLE>
<CAPTION>
<S> <C>
as of December 31, 1996 1995
Carrying value Fair value Carrying value Fair value
-------------- ---------- -------------- ----------
Cash and cash equivalents $ 1,349 $ 1,349 $ 2,802 $ 2,802
Line of credit borrowings 52,730 52,730 107,605 107,605
Mortgage notes payable 45,724 49,963 6,670 7,003
Notes payable 100,000 99,587 --- ---
Interest rate risk management agreements ---- (1,118) --- (3,547)
</TABLE>
The Operating Partnership, in determining the fair values set forth above, used
the following methods and assumptions:
Mortgage and Notes Payable and Line of Credit Borrowings
The Operating Partnership's line of credit borrowings bear interest at variable
rates and therefore cost approximates fair value. The fair value of the Mortgage
notes payable, and the Notes payable were estimated using discounted cash flow
analysis, based on the Operating Partnership's current incremental borrowing
rate at December 31, 1996 and 1995, for similar types of borrowing arrangements.
Interest Rate Risk Management Agreement
In 1996, the Operating Partnership entered into a $75 million (notional amount)
fixed pay forward starting swap agreement with a major Wall Street investment
banking firm in order to reduce the interest rate risk associated with the
anticipated issuance of fixed rate debt by the Operating Partnership in 1997.
The transaction allowed the Operating Partnership to lock- in a seven year
Treasury rate of 6.87% on or before May 1, 1997. The Operating Partnership
anticipates terminating the swap transaction upon the issuance of the fixed rate
debt. At December 31, 1996, the Operating Partnership had a $(1,118) unrealized
loss on this transaction. Any gain or loss from this transaction will be
deferred and amortized as an adjustment to interest expense over the term of the
fixed rate debt. This transaction exposes the Operating Partnership to credit
loss in the event of non-performance by the counterparty, however such
non-performance is not anticipated as the counterparty is a highly rated, credit
quality entity.
During 1996, the Operating Partnership entered into an interest rate swap
agreement in order to reduce the interest rate risk associated with the issuance
of the $100,000 Notes (see Note 5). The Operating Partnership terminated the
agreement on the date the Notes were issued and recognized a $(2,481) loss. This
loss, net of accumulated amortization, is included in other assets at December
31, 1996 and is being amortized into interest expense over the term of the
Notes.
During 1995, the Operating Partnership had entered into an interest rate swap
agreement 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. At December 31, 1995, the fair value of the agreement was ($3,547). On
March 8, 1996, the Operating Partnership closed the interest rate swap agreement
and received proceeds of approximately $50.
<PAGE>
SUSA Partnership, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except per unit data)
The gain from this contract was deferred and is being amortized over the life
of the Notes (see Note 5). The fair value of the interest rate management
agreements as of December 31, 1996 and 1995, represents the estimated amount the
Operating Partnership would have paid to terminate the agreements on those
dates.
NOTE 9
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 $451 in year one: $471
in year two through three, and $478 in year four, and $433 in year five.
Guarantees
The Operating Partnership is a limited guarantor on the financing of five
development projects in which the Operating Partnership has either a partnership
interest or an option to purchase the facility at various times after
completion. Under the terms of the guarantee, the Operating Partnership has the
option, upon notice by the financial institution of an event which would require
payment by the Operating Partnership under the guarantee, of (a) purchasing the
note and all related loan documents without recourse or (b) payment of the
guarantee. At December 31, 1996 the Operating Partnership had maximum exposure
under the guarantee arrangements of $18,250.
Redemption of Limited Partnership Units
At December 31, 1996, there were 1,903,797 Limited Partnership Units
outstanding. Certain Limited Partnership Units are redeemable for an amount
equal to their fair market value ($3.1 million, based upon a price per Unit of
$37.625 at December 31, 1996) payable by the Operating Partnership 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 ($35.5
million, based upon a price per Unit of $37.625 at December 31, 1996) payable by
the Company in cash or, at the option of the Company, in shares of the Company's
common stock at the exchange ration of one share for each Unit.
NOTE 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.
The Company applies APB25 and related interpretations in accounting for its
stock-based compensation plan. In accordance with SFAS123 "Accounting for
Stock-Based Compensation", the Company elected to continue to apply the
provisions of APB25. However, pro forma disclosures as if the Company adopted
the cost recognition provisions of SFAS123 in 1995 are required and are
presented below along with a summary of the Plan and awards.
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
<PAGE>
SUSA Partnership, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except per unit data)
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:
Number of Options Price per Share
----------------- ---------------
Options outstanding :
March 24, 1994 -- --
Granted 493,402 $21.75-$25.625
Exercised -- --
Cancelled -- --
---------
Options outstanding December 31,
1994 493,402 $21.75-$25.625
=========
Exercisable at end of year 382,402 $21.75-$25.625
=========
Granted 175,834 $21.75-$31.00
Exercised (4,500) $21.75-$24.75
Cancelled (3,000) $24.75
---------
Options outstanding December 31,
1995 661,736 $21.75-$31.00
=========
Exercisable at end of year 466,861 $21.75-$31.00
=========
Granted 385,614 $31.25-$36.75
Exercised (2,600) $24.75
Cancelled (44,750) $31.00
---------
Options outstanding December 31,
1996 1,000,000 $21.75-$36.75
=========
Exercisable at end of year 690,762 $21.75-$33.625
=========
The Company has utilized a Black-Scholes option-pricing model with the following
assumptions in order to estimate the fair value of its stock options:
1996 1995
---- ----
Risk free interest rates 6.8% 7.8%
Estimated dividend yields 6.5% 7.5%
Volatility factors of the expected market
price of the Company's Common Shares 25.8% 15.9%
Expected life of the options 9.2-10 yrs. 8.75-10 yrs.
Weighted average fair value $5.72 $3.13
The following pro-forma disclosures were computed assuming the fair value of the
options is amortized to compensation expense over the vesting period of the
options:
1996 1995
---- ----
Historic net income $43,526 $29,153
Historic net income per share $ 2.09 $ 1.87
Pro forma compensation expense (1) $ 858 $ 112
Pro forma net income (1) $42,668 $29,041
Pro forma net income per share (1) $ 2.05 $ 1.86
(1) Due to the inclusion on only 1996 and 1995 option grants, the effect of
applying SFAS123 in 1996 and 1995 may not be representative of the Pro Forma
impact in future years.
<PAGE>
SUSA Partnership, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except per unit data)
Employee Stock Purchase and Loan Plan
As of December 31, 1996, the Company has issued 333,000 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 anum 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 1996 and 1995, 2,022 and 653 shares, respectively, 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.
General Partner Contributions
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 certain terms and
conditions, US Realty invested a total of $220,000 in purchasing 7,028,754
shares of the Company's common stock, placed two of its nominees on the
Company's Board of Directors, and executed a Strategic Alliance Agreement and a
Registration Rights Agreement with the Company. At December 31, 1996, US Realty
owned approximately 34.6% of the outstanding common shares of the Company. The
proceeds received from US Realty were contributed by the Company to the
Operating Partnership in exchange for operating partnership units and were used
by the Operating Partnership to repay borrowings under the Operating
Partnership's lines of credit, to acquire self-storage facilities, and for
working capital.
NOTE 11
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 $382, $223, and $137 during 1996,
1995 and 1994, respectively.
<PAGE>
SUSA Partnership, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except per unit data)
NOTE 12
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 combined 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 controlled 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 interest in two of the Selling Partnerships in exchange for the satisfaction
of his indebtedness tot he 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 for period from
January 1, 1994 to March 23, 1994.
<PAGE>
SUSA Partnership, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except per unit data)
Other:
Total cash paid for interest related to the mortgages payable and notes payable
balances for the period from January 1, 1994 to March 23, 1994 was $1,017.
NOTE 13
SUBSEQUENT EVENTS
Property Acquisitions
Subsequent to December 31, 1996, the Operating Partnership has completed the
acquisition of 11 self-storage facilities for approximately $34,625 . These
acquisitions were financed through operating cash flows and borrowings under the
$30,000 line of credit.
On March 11, 1997, the Company issued 1,400 shares of common stock for an
aggregate purchase price of $50,739. On March 17, 1997, the underwriters
exercised their option to purchase 210 additional shares of common stock for an
aggregate purchase price of $7,610. U.S. Realty currently owns 34.6% of the
outstanding common stock of the Company and has indicated it intends to purchase
approximately 851 thousand shares of common stock directly from the Company
prior to March 31, 1997. Net proceeds from U.S. Realty will be approximately
$32,019.
The proceeds from the issuances are contributed to the Operating Partnership in
exchange for additional Operating Partnership units. The Operating Partnership
will use the net proceeds to repay debt incurred under its revolving lines of
credit to finance the acquisitions of self-storage facilities and for working
capital.
NOTE 14
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly results of operations for 1996 and 1995:
<TABLE>
<CAPTION>
<S> <C>
1996
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Revenue $21,333 $24,356 $29,435 $32,185
Net Income $8,886 $10,749 $12,327 $14,249
Per Unit Net Income $0.47 $0.52 $0.55 $0.54
<CAPTION>
1995
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
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>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Storage USA, Inc.
We have audited the accompanying consolidated balance sheets
of SUSA Partnership, L.P. (the "Operating Partnership") as of December 31, 1996
and 1995, and the related consolidated statements of operations, partners'
capital, and cash flows for each of the two years in the period ended December
31, 1996 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. 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, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1996 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, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 29, 1997, except for Note 13,
as to which the date is
March 17, 1997
<PAGE>
SUSA Partnership, L.P., Facilities
Schedule III
Real Estate and Accumulated Depreciation
as of December 31, 1996
<TABLE>
<CAPTION>
Initial Cost to REIT Cost of
-------------------------- Improvements
Buiding & Subsequent
State Property Name Encumbrances Land Fixtures to Acquisition
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
AL Vestavia 652,309 1,771,282 48,781
AL Birmingham/Hwy 280 348,919 953,148 0
AZ 24th Street 500,232 1,362,657 31,565
AZ Oracle 587,844 1,595,864 42,192
AZ 22nd Street 529,702 1,439,965 33,363
AZ East Phoenix 370,586 1,021,566 42,203
AZ Tempe 878,690 2,389,598 49,705
AZ Cave Creek 824,369 2,244,177 69,566
AZ Alma School 785,504 2,162,032 0
AZ Metro-21st/Peoria-Phoenix 599,712 1,638,042 0
AZ 7th St/Indian Sch-Phoenix 518,977 1,418,677 0
AZ Phoenix/32nd Street 4,440,000 1,352,332 3,670,885 0
AZ Mesa/Country Club 554,688 1,503,241 0
AZ Mesa/East Main St 1,482,225 913,783 2,479,293 0
AZ Phoenix/Bell Road 1,312,139 3,547,636 0
CA Miramar Self 387,430 1,059,395 43,165
CA Miramar Business 1,225,124 3,344,676 155,871
CA Marina Del Rey 1,954,097 5,293,255 89,201
CA Covina 1,234,592 3,356,433 179,300
CA Norwalk 1,529,221 4,152,897 124,870
CA Campbell 1,045,526 2,834,735 57,993
CA Monterey I & II 1,612,187 4,374,059 73,734
CA Palo Alto 654,944 1,780,329 37,677
CA San Jose 1,270,652 3,443,410 46,436
CA Santa Cruz 1,092,783 2,963,688 40,264
CA Scotts Valley 654,945 1,779,847 28,220
CA Santa Clara 1,362,331 3,738,431 75,299
CA Watsonville 483,703 1,316,251 29,433
CA Panorama City 961,128 2,608,919 45,806
CA Westminster 975,304 2,641,287 68,585
CA Point Loma 2,135,347 5,777,511 153,438
CA Rialto 695,327 1,921,602 103,328
CA Yucaipa 411,580 1,130,757 9,567
CA Fallbrook 418,763 1,154,513 15,982
CA Hemet 455,585 1,252,504 3,655
CA Victorville 491,597 1,347,613 17,994
CA San Bernardino/Baseline 1,220,837 3,325,258 18,479
CA Colton 514,276 1,425,550 22,070
CA San Marcos 318,260 879,411 19,487
CA Capitola 827,352 2,283,337 18,353
CA Oceanside 1,236,627 3,383,435 9,782
CA San Bernardino/Waterman 708,661 1,941,602 49,045
CA Santee 879,599 2,382,970 84,050
CA Santa Ana 1,273,489 3,456,542 18,862
CA Garden Grove 1,137,544 3,087,956 21,067
CA City of Industry 899,709 2,453,012 65,130
CA Chatsworth 1,740,975 4,744,309 41,104
CA Palm Springs/Tamarisk 816,416 2,229,985 96,439
CA Moreno Valley 413,759 1,142,629 55,335
CA San Bern/23rd St 655,883 1,803,082 78,881
CA San Bern/Mill Ave 368,526 1,023,905 60,662
CA Highlands 626,794 1,718,949 34,049
CA Redlands 673,439 1,834,612 248,932
CA Palm Springs/Gene Autry 784,589 2,129,022 21,881
CA Thousand Palms 652,410 1,831,765 0
CA Salinas 622,542 1,731,104 0
CA Whittier 919,755 2,516,477 0
CA Florin/Freeport-Sacrament 824,241 2,262,310 0
CA Sunrise/Sacramento 819,025 2,231,500 0
CA Santa Rosa 1,351,168 3,669,084 0
CA Huntington Beach 838,648 2,309,309 0
CA La Puente/Valley Blvd 992,211 2,710,041 0
CA Pacheco/First Ave North 1,198,654 3,257,766 0
CA Huntington Bch II/McFadden 1,050,495 2,846,043 0
CA Hawaiian Gardens/Norwalk 1,956,411 5,353,015 0
CA Sacramento/Auburn Blvd 666,995 1,808,847 0
CA Sacramento/Perry 452,480 1,225,139 0
CT Wethersfield 472,831 1,294,408 880,667
CT Enfield 506,875 1,395,631 55,945
CT East Hartford 992,547 2,700,212 3,256
CT Waterbury 746,487 2,036,915 0
CT Rocky Hill 1,327,857 3,608,978 0
CT Farmington 1,272,203 3,454,995 0
DC U Street 1,388,564 3,769,506 44,584
DE Wilmington 610,689 2,512,985 32,263
FL Kendall 1,838,903 3,870,318 19,020
FL Ives Dairy 1,061,776 4,306,278 50,006
FL Longwood 862,849 2,387,142 22,238
FL Sarasota 1,281,966 2,007,843 1,772,379
FL WPB Southern 875,804 226,524 922,193 2,877,838
FL WPB II 572,284 2,365,372 21,371
FL Port Richey 605,850 1,668,041 60,725
FL Ft. Myers 489,609 1,347,207 273,981
FL North Lauderdale 1,050,449 2,867,443 695,949
FL Naples 636,051 1,735,211 43,837
FL Hallandale 1,696,519 4,625,578 17,257
FL Davie 2,005,938 5,452,384 67,675
FL Tampa/Adamo 837,180 2,291,714 14,334
FL SR 84 (Southwest) 1,903,782 5,187,373 47,755
FL Quail Roost 2,193,219 1,663,641 4,533,384 11,171
FL Tamiami 1,962,917 5,371,139 5,562
FL Highway 441 (2nd Avenue) 1,734,958 4,760,420 10,342
FL Miami Sunset 2,205,018 6,028,210 9,105
FL Doral (Archway) 1,633,500 4,464,103 47,801
FL Boca Raton 1,505,564 4,123,885 0
FL Ft Lauderdale 1,063,136 2,949,236 0
FL Coral Way 3,501,163 1,574,578 4,314,468 0
FL Miller Rd. 3,501,163 1,409,474 3,898,643 0
FL Harborview/Port Charlotte 883,344 2,400,333 0
FL Miami Gardens/441 540,649 1,469,557 0
FL Miramar/State Rd 7 1,797,370 4,892,278 0
FL Delray Bch/W Atlantic Blvd 388,538 1,059,895 0
FL Okeechobee Partners, LP 1,134,363 0 0
GA South Cobb 161,509 1,349,816 77,109
GA Lilburn 634,879 1,724,697 27,775
GA Eastpoint 937,618 2,194,489 103,745
GA Acworth 493,504 917,825 685,678
GA Western Hills 842,094 1,855,712 92,569
GA Stone Mountain 1,053,620 2,908,080 0
IL Brickyard 713,079 1,935,999 42,991
IL Cermak 948,679 2,582,566 139,489
IL Schaumburg 1,159,033 3,158,017 57,901
KS Shawnee 546,118 1,490,460 23,250
KS Olathe 429,808 1,176,442 44,729
KS Overland Park 561,549 1,530,969 26,053
KS State Avenue 448,025 1,224,381 41,991
LA Tchoup (New Orleans) 920,987 2,501,147 122,851
MA Worcester 661,235 1,541,427 82,380
MA Haverhill 573,068 1,568,047 5,743
MA New Bedford 768,959 2,099,751 9,609
MA Whitman 544,178 1,487,628 36,918
MA Brockton 1,134,761 3,104,615 0
MA Northborough 822,364 2,279,586 0
MA Nashua/Tyngsboro 1,211,930 3,293,838 0
MA South Easton 909,912 2,465,382 0
MA North Attleboro 908,949 2,460,427 0
MA Fall River 773,781 2,097,333 0
MA Salisbury 771,078 2,096,159 0
MD Annapolis/Route 50 3,377,572 1,565,664 4,324,670 26,895
MD Silver Spring 2,776,490 4,455,110 36,572
MD Essex 1,015,773 2,396,462 12,907
MD Columbia 1,057,034 3,289,952 29,901
MD Rockville 1,376,588 3,765,848 21,495
MD Annapolis/Trout 1,635,928 4,430,887 44,756
MD Montgomery Village 1,287,176 3,537,609 31,460
MD Millersville 1,501,123 4,101,854 30,274
MD Waldorf 1,168,869 3,175,314 12,727
MD Rt 3/Millersville 546,011 1,493,533 0
MD Balto City/E Pleasant St 1,547,767 4,185,072 0
MD SUSA Partnership/Management 3,531,744 650,997 15,150,726
MI Lincoln Park 761,209 2,097,502 338,822
MI Tel-Dixie 595,495 1,646,723 26,643
MI Troy/Coolidge Highway 1,264,541 3,425,505 0
MI Grand Rapids/28th St SE 598,182 1,621,080 0
MI Grandville/Spartan Ind Dr 579,599 1,840,838 0
MO Grandview 511,576 1,396,230 48,466
MO Raytown 427,056 1,171,397 59,940
NC Charlotte/Tryon St 1,003,418 2,731,345 0
NC Raleigh/Hillsborough St 753,296 2,051,496 0
NC Charlotte/Amity Rd 947,871 2,583,190 0
NJ Pennsauken 914,938 2,484,553 43,261
NJ Lawnside 1,095,126 2,972,032 17,123
NJ Cherry Hill/Cuthbert 720,183 1,894,545 6,407
NJ Cherry Hill/Route 70 693,314 1,903,413 13,564
NJ Pomona 529,657 1,438,132 0
NJ Mays Landing 386,592 1,051,300 0
NJ Hackensack/S River St 7,630,393 3,646,649 9,863,617 0
NJ Secaucus/Paterson Plank 5,629,669 2,851,097 7,712,681 0
NJ Harrison/Harrison Ave 1,273,522 822,192 2,227,121 0
NJ Orange/Oakwood Ave 4,033,027 2,408,877 6,517,030 0
NJ Flanders/Bartley Flanders 645,486 1,749,362 0
NM Lomas 251,018 691,453 40,482
NM San Mateo 524,982 1,436,128 62,004
NM Montgomery 606,860 1,651,611 35,985
NM Legion 0 1,873,666 40,527
NM Ellison 620,366 1,715,897 33,808
NM Hotel Circle 277,101 766,547 749,538
NM Eubank 577,099 1,568,266 106,954
NM Coors 494,400 1,347,792 32,358
NM Osuna 696,685 1,891,849 83,264
NM East Central 292,031 801,475 46,511
NV Rainbow 892,753 2,419,779 55,293
NV Oakey 663,607 1,825,505 20,380
NV Tropicana 815,085 2,211,925 75,947
NV Sunset 947,534 2,569,938 60,172
NV Sahara 1,217,565 3,373,622 18,761
NV Charleston 557,678 1,520,140 10,145
NV Las Vegas-Sahara/Pioneer 1,040,367 2,842,388 0
NY Coram/Bald Hill 1,976,332 5,352,301 0
OK Sooner Road 453,185 1,252,031 46,494
OK 10th Street 621,413 743,356 126,516
OK Moore 281,912 776,815 60,142
OK NW Expressway 353,735 977,978 70,659
OK Midwest City 443,545 1,216,512 15,455
OK Meridian 252,963 722,040 293,353
OK Air Depot 347,690 965,923 59,545
OK Peoria 540,318 1,488,307 35,994
OK 11th & Mingo 757,054 2,071,799 53,964
OK Skelly 173,331 489,960 16,334
OK Lewis 642,511 1,760,304 20,599
OK Sheridan 531,978 1,509,718 34,615
OK OKC/Roxbury Blvd 241,220 671,753 0
OK OKC/33rd Street 267,059 741,710 0
OR Hillsboro/229th Ave 1,198,358 3,249,301 0
OR Beaverton/Murray Ave 1,086,999 2,948,220 0
OR Aloha/185th Ave 1,337,157 3,624,573 0
PA Philadelphia 1,574,064 2,838,049 20,927
PA King of Prussia 1,354,359 3,678,011 20,207
PA Warminster 891,048 2,446,648 72,092
PA Allentown 578,632 1,583,744 34,281
PA Bethlehem 843,324 2,317,298 23,507
PA Norristown 868,586 2,405,332 0
PA Storage Partners of Paoli 433,482 849,584 0
SC Charleston/Ashley River Rd 475,367 1,298,593 0
SC Columbia/Broad River Rd 461,455 1,267,675 0
TN Summer 172,093 2,663,644 21,959
TN Union 286,925 1,889,030 44,303
TN Memphis/Mt Moriah 1,024,669 1,598,722 816,229
TN Antioch/Nashville 822,125 2,239,684 97,707
TN Keyport (Gateway) 403,492 1,100,184 49,041
TN Chattanooga 484,457 1,360,998 39,828
TN Memphis/Ridgeway 638,757 1,141,414 149,116
TN Winchester 774,069 974,471 0
TN Nashville/Lebanon Pike 1,366,208 3,748,062 0
TN Nashville/Haywood 1,131,359 423,170 1,166,891 0
TN Nashville/Murfreesboro 845,495 344,720 950,811 0
TN SUSA/Poplar Partners, LP 1,750,000 10,635 0
TN Nashville/Trousdale 1,440,860 3,901,994 0
TN Nashville/Murfreesboro 1,222,229 3,309,033 0
TN Nashville/Old Hickory Rd 1,271,786 3,444,402 0
TN Antioch/Bell Road 841,235 2,280,513 0
TN Franklin/Liberty Pike 844,335 2,287,937 0
TX Ft. Worth Avenue 393,893 1,076,836 142,867
TX Euless 359,330 979,859 125,238
TX North Freeway 687,758 1,867,833 63,901
TX South Freeway 441,599 1,202,291 94,184
TX White Settlement 1,347,379 2,531,920 605,479
TX Airport Freeway 616,535 1,678,683 172,303
TX Midway 1,125,514 2,344,420 601,450
TX Dallas/Preston 1,194,744 3,245,423 17,346
TX Bedford 923,948 2,525,303 0
TX Spring/I-45 North 1,110,728 3,005,855 0
TX Sugarland/Old Mill Rd 675,660 1,830,545 0
UT Orem 629,867 1,722,550 27,132
UT Sandy 949,065 2,573,696 36,645
UT West Valley 576,248 1,579,605 12,697
VA Fairfax Station 1,019,015 2,115,385 111,899
VA Chantilly 882,257 2,395,841 119,234
VA Clarendon 37,575 0 6,351,724
VA Reston 551,285 0 2,326,986
VA Falls Church 1,226,409 3,348,761 49,935
VA Willow Lawn 1,516,115 4,105,846 0
VA Stafford/Jefferson Davis 751,398 2,035,961 0
VA Fredericksburg/Jefferson 983,000 668,526 1,812,040 0
VA Charlottesville/Seminole 2,763,000 748,988 2,029,716 0
VA Fredericksburg/Plank Rd 846,358 2,287,063 0
WA Vancouver/78th St 753,071 2,045,377 0
======================================================================
$43,660,611 $224,812,344 $588,937,361 $41,892,598
======================================================================
<CAPTION>
Gross Amount at Close of Period Depreciable
---------------------------------------------- Life of
Buiding & Accumulated Year Placed Building
State Property Name Land Fixtures Total Depreciation in Service Component
- -------------------------------------- -------------------------------------------------------------------------------------------
<S> <C>
AL Vestavia 652,309 1,820,064 2,472,372 (128,858) 1994 40
AL Birmingham/Hwy 280 348,919 953,148 1,302,067 (2,259) 1996 40
AZ 24th Street 500,232 1,394,222 1,894,454 (97,662) 1994 40
AZ Oracle 587,844 1,638,056 2,225,900 (112,352) 1994 40
AZ 22nd Street 529,702 1,473,328 2,003,030 (103,352) 1994 40
AZ East Phoenix 370,586 1,063,770 1,434,355 (48,131) 1995 40
AZ Tempe 879,017 2,438,975 3,317,993 (81,714) 1995 40
AZ Cave Creek 824,369 2,313,742 3,138,112 (63,841) 1995 40
AZ Alma School 785,504 2,162,032 2,947,535 (54,707) 1996 40
AZ Metro-21st/Peoria-Phoenix 599,712 1,638,042 2,237,754 (24,283) 1996 40
AZ 7th St/Indian Sch-Phoenix 518,977 1,418,677 1,937,654 (21,007) 1996 40
AZ Phoenix/32nd Street 1,352,332 3,670,885 5,023,217 (30,725) 1996 40
AZ Mesa/Country Club 554,688 1,503,241 2,057,929 (6,404) 1996 40
AZ Mesa/East Main St 913,783 2,479,293 3,393,075 (5,223) 1996 40
AZ Phoenix/Bell Road 1,312,139 3,547,636 4,859,776 0 1996 40
CA Miramar Self 387,430 1,102,560 1,489,990 (75,500) 1994 40
CA Miramar Business 1,225,124 3,500,547 4,725,671 (247,934) 1994 40
CA Marina Del Rey 1,954,097 5,382,456 7,336,553 (368,168) 1994 40
CA Covina 1,234,592 3,535,733 4,770,325 (194,323) 1994 40
CA Norwalk 1,529,221 4,277,767 5,806,988 (238,040) 1994 40
CA Campbell 1,041,860 2,896,392 3,938,253 (151,443) 1994 40
CA Monterey I & II 1,613,922 4,446,057 6,059,979 (246,313) 1994 40
CA Palo Alto 651,280 1,821,670 2,472,950 (101,932) 1994 40
CA San Jose 1,266,988 3,493,510 4,760,498 (181,548) 1994 40
CA Santa Cruz 1,092,718 3,004,016 4,096,734 (168,191) 1994 40
CA Scotts Valley 651,281 1,811,732 2,463,012 (101,440) 1994 40
CA Santa Clara 1,362,331 3,813,730 5,176,061 (145,696) 1995 40
CA Watsonville 480,039 1,349,348 1,829,387 (70,021) 1994 40
CA Panorama City 961,128 2,654,725 3,615,853 (151,370) 1994 40
CA Westminster 975,304 2,709,871 3,685,176 (135,644) 1994 40
CA Point Loma 2,139,342 5,926,953 8,066,296 (295,551) 1994 40
CA Rialto 695,327 2,024,930 2,720,257 (84,644) 1995 40
CA Yucaipa 411,580 1,140,324 1,551,904 (51,750) 1995 40
CA Fallbrook 418,763 1,170,495 1,589,258 (52,107) 1995 40
CA Hemet 455,585 1,256,159 1,711,744 (56,049) 1995 40
CA Victorville 491,597 1,365,607 1,857,204 (59,287) 1995 40
CA San Bernardino/Baseline 1,220,837 3,343,738 4,564,574 (148,114) 1995 40
CA Colton 514,276 1,447,620 1,961,896 (63,699) 1995 40
CA San Marcos 318,260 898,898 1,217,158 (40,048) 1995 40
CA Capitola 827,352 2,301,690 3,129,042 (88,529) 1995 40
CA Oceanside 1,236,627 3,393,217 4,629,844 (150,885) 1995 40
CA San Bernardino/Waterman 708,988 1,990,320 2,699,308 (67,139) 1995 40
CA Santee 879,599 2,467,019 3,346,619 (65,212) 1995 40
CA Santa Ana 1,273,816 3,475,077 4,748,893 (116,112) 1995 40
CA Garden Grove 1,137,871 3,108,696 4,246,567 (104,180) 1995 40
CA City of Industry 900,036 2,517,815 3,417,851 (84,011) 1995 40
CA Chatsworth 1,738,243 4,788,145 6,526,388 (158,904) 1995 40
CA Palm Springs/Tamarisk 816,743 2,326,096 3,142,840 (79,125) 1995 40
CA Moreno Valley 414,614 1,197,109 1,611,723 (37,450) 1995 40
CA San Bern/23rd St 655,883 1,881,963 2,537,846 (55,401) 1995 40
CA San Bern/Mill Ave 370,043 1,083,050 1,453,093 (32,564) 1995 40
CA Highlands 627,594 1,752,198 2,379,792 (51,411) 1995 40
CA Redlands 731,365 2,025,619 2,756,983 (58,366) 1995 40
CA Palm Springs/Gene Autry 784,589 2,150,904 2,935,492 (54,706) 1995 40
CA Thousand Palms 652,410 1,831,765 2,484,175 (46,563) 1996 40
CA Salinas 622,542 1,731,104 2,353,646 (32,309) 1996 40
CA Whittier 919,755 2,516,477 3,436,232 (47,328) 1996 40
CA Florin/Freeport-Sacrament 824,241 2,262,310 3,086,551 (33,232) 1996 40
CA Sunrise/Sacramento 819,025 2,231,500 3,050,525 (28,379) 1996 40
CA Santa Rosa 1,351,168 3,669,084 5,020,251 (46,240) 1996 40
CA Huntington Beach 838,648 2,309,309 3,147,957 (25,398) 1996 40
CA La Puente/Valley Blvd 992,211 2,710,041 3,702,252 (28,883) 1996 40
CA Pacheco/First Ave North 1,198,654 3,257,766 4,456,420 (27,593) 1996 40
CA Huntington Bch II/McFadden 1,050,495 2,846,043 3,896,538 (17,858) 1996 40
CA Hawaiian Gardens/Norwalk 1,956,411 5,353,015 7,309,426 (34,128) 1996 40
CA Sacramento/Auburn Blvd 666,995 1,808,847 2,475,841 (3,860) 1996 40
CA Sacramento/Perry 452,480 1,225,139 1,677,619 0 1996 40
CT Wethersfield 472,831 2,175,076 2,647,906 (88,274) 1994 40
CT Enfield 506,875 1,451,577 1,958,451 (89,857) 1994 40
CT East Hartford 992,547 2,703,468 3,696,015 (118,612) 1995 40
CT Waterbury 746,487 2,036,915 2,783,402 (26,436) 1996 40
CT Rocky Hill 1,327,857 3,608,978 4,936,834 (45,453) 1996 40
CT Farmington 1,272,203 3,454,995 4,727,198 (44,188) 1996 40
DC U Street 1,388,564 3,814,090 5,202,654 (261,647) 1994 40
DE Wilmington 610,689 2,545,248 3,155,937 (489,344) 1989 40
FL Kendall 1,838,903 3,889,338 5,728,241 (791,879) 1988 40
FL Ives Dairy 1,061,776 4,356,283 5,418,060 (859,355) 1988 40
FL Longwood 862,849 2,409,380 3,272,229 (471,711) 1988 40
FL Sarasota 2,007,894 3,054,294 5,062,188 (433,573) 1988 40
FL WPB Southern 996,405 3,030,150 4,026,555 (173,421) 1991 40
FL WPB II 572,284 2,386,742 2,959,027 (201,144) 1991 40
FL Port Richey 605,850 1,728,767 2,334,616 (119,947) 1994 40
FL Ft. Myers 645,219 1,465,579 2,110,797 (97,264) 1994 40
FL North Lauderdale 1,282,769 3,331,072 4,613,841 (201,113) 1994 40
FL Naples 636,051 1,779,048 2,415,099 (99,882) 1994 40
FL Hallandale 1,696,519 4,642,835 6,339,354 (196,603) 1995 40
FL Davie 2,005,938 5,520,059 7,525,997 (222,970) 1995 40
FL Tampa/Adamo 837,180 2,306,048 3,143,228 (92,383) 1995 40
FL SR 84 (Southwest) 1,903,782 5,235,128 7,138,910 (164,351) 1995 40
FL Quail Roost 1,663,641 4,544,555 6,208,196 (142,233) 1995 40
FL Tamiami 1,962,917 5,376,701 7,339,618 (213,171) 1995 40
FL Highway 441 (2nd Avenue) 1,734,958 4,770,762 6,505,720 (188,956) 1995 40
FL Miami Sunset 2,205,018 6,037,315 8,242,333 (239,647) 1995 40
FL Doral (Archway) 1,633,500 4,511,904 6,145,404 (180,162) 1995 40
FL Boca Raton 1,505,564 4,123,885 5,629,449 (77,657) 1996 40
FL Ft Lauderdale 1,063,136 2,949,236 4,012,371 (55,535) 1996 40
FL Coral Way 1,574,578 4,314,468 5,889,045 (73,458) 1996 40
FL Miller Rd. 1,409,474 3,898,643 5,308,117 (67,744) 1996 40
FL Harborview/Port Charlotte 883,344 2,400,333 3,283,677 (35,513) 1996 40
FL Miami Gardens/441 540,649 1,469,557 2,010,206 (18,293) 1996 40
FL Miramar/State Rd 7 1,797,370 4,892,278 6,689,647 (61,244) 1996 40
FL Delray Bch/W Atlantic Blvd 388,538 1,059,895 1,448,433 (9,003) 1996 40
FL Okeechobee Partners, LP 1,134,363 0 1,134,363 0 1996 40
GA South Cobb 161,509 1,426,924 1,588,434 (141,428) 1992 40
GA Lilburn 634,879 1,752,471 2,387,351 (123,132) 1994 40
GA Eastpoint 937,618 2,298,234 3,235,852 (154,466) 1994 40
GA Acworth 520,032 1,576,975 2,097,007 (62,376) 1994 40
GA Western Hills 846,462 1,943,913 2,790,375 (108,755) 1994 40
GA Stone Mountain 1,053,620 2,908,080 3,961,700 (55,241) 1996 40
IL Brickyard 716,443 1,975,626 2,692,069 (122,000) 1994 40
IL Cermak 949,042 2,721,692 3,670,734 (155,573) 1994 40
IL Schaumburg 1,159,033 3,215,918 4,374,951 (134,255) 1995 40
KS Shawnee 546,118 1,513,710 2,059,828 (105,054) 1994 40
KS Olathe 429,808 1,221,171 1,650,979 (86,147) 1994 40
KS Overland Park 561,549 1,557,022 2,118,571 (108,698) 1994 40
KS State Avenue 448,025 1,266,372 1,714,397 (69,415) 1994 40
LA Tchoup (New Orleans) 920,987 2,623,998 3,544,985 (178,744) 1994 40
MA Worcester 661,235 1,623,807 2,285,042 (94,723) 1994 40
MA Haverhill 573,068 1,573,790 2,146,858 (89,595) 1994 40
MA New Bedford 768,959 2,109,361 2,878,319 (120,038) 1994 40
MA Whitman 544,178 1,524,546 2,068,724 (85,554) 1994 40
MA Brockton 1,134,761 3,104,615 4,239,376 (59,023) 1996 40
MA Northborough 822,364 2,279,586 3,101,950 (43,203) 1996 40
MA Nashua/Tyngsboro 1,211,930 3,293,838 4,505,768 (42,580) 1996 40
MA South Easton 909,912 2,465,382 3,375,294 (31,173) 1996 40
MA North Attleboro 908,949 2,460,427 3,369,376 (30,882) 1996 40
MA Fall River 773,781 2,097,333 2,871,114 (26,379) 1996 40
MA Salisbury 771,078 2,096,159 2,867,236 (27,170) 1996 40
MD Annapolis/Route 50 1,565,664 4,351,566 5,917,229 (712,851) 1989 40
MD Silver Spring 2,776,490 4,491,681 7,268,172 (832,466) 1989 40
MD Essex 1,015,773 2,409,368 3,425,142 (383,806) 1990 40
MD Columbia 1,057,034 3,319,853 4,376,887 (477,431) 1991 40
MD Rockville 1,376,588 3,787,342 5,163,931 (238,545) 1994 40
MD Annapolis/Trout 1,635,928 4,475,643 6,111,571 (260,670) 1994 40
MD Montgomery Village 1,287,176 3,569,068 4,856,245 (201,500) 1994 40
MD Millersville 1,501,123 4,132,128 5,633,251 (126,679) 1995 40
MD Waldorf 1,169,197 3,187,713 4,356,910 (107,308) 1995 40
MD Rt 3/Millersville 546,011 1,493,533 2,039,544 (18,984) 1996 40
MD Balto City/E Pleasant St 1,547,767 4,185,072 5,732,839 (8,718) 1996 40
MD SUSA Partnership/Management 10,427,038 8,906,429 19,333,467 (335,988) 1989 5
MI Lincoln Park 1,028,677 2,168,856 3,197,533 (92,200) 1995 40
MI Tel-Dixie 595,495 1,673,366 2,268,861 (71,627) 1995 40
MI Troy/Coolidge Highway 1,264,541 3,425,505 4,690,046 (14,324) 1996 40
MI Grand Rapids/28th St SE 598,182 1,621,080 2,219,261 (6,770) 1996 40
MI Grandville/Spartan Ind Dr 579,599 1,840,838 2,420,437 (7,686) 1996 40
MO Grandview 511,576 1,444,696 1,956,272 (100,201) 1994 40
MO Raytown 427,056 1,231,337 1,658,393 (68,659) 1994 40
NC Charlotte/Tryon St 1,003,418 2,731,345 3,734,763 (34,209) 1996 40
NC Raleigh/Hillsborough St 753,296 2,051,496 2,804,791 (25,935) 1996 40
NC Charlotte/Amity Rd 947,871 2,583,190 3,531,061 (32,365) 1996 40
NJ Pennsauken 914,938 2,527,814 3,442,752 (169,533) 1994 40
NJ Lawnside 1,095,126 2,989,156 4,084,281 (131,160) 1995 40
NJ Cherry Hill/Cuthbert 720,183 1,900,951 2,621,135 (84,236) 1995 40
NJ Cherry Hill/Route 70 693,641 1,916,650 2,610,291 (64,479) 1995 40
NJ Pomona 529,657 1,438,132 1,967,790 (18,233) 1996 40
NJ Mays Landing 386,592 1,051,300 1,437,892 (13,410) 1996 40
NJ Hackensack/S River St 3,646,649 9,863,617 13,510,266 (20,529) 1996 40
NJ Secaucus/Paterson Plank 2,851,097 7,712,681 10,563,778 (16,065) 1996 40
NJ Harrison/Harrison Ave 822,192 2,227,121 3,049,313 (4,637) 1996 40
NJ Orange/Oakwood Ave 2,408,877 6,517,030 8,925,907 (13,574) 1996 40
NJ Flanders/Bartley Flanders 645,486 1,749,362 2,394,848 (3,641) 1996 40
NM Lomas 251,018 731,936 982,953 (47,970) 1994 40
NM San Mateo 524,982 1,498,132 2,023,114 (97,359) 1994 40
NM Montgomery 606,860 1,687,596 2,294,456 (111,549) 1994 40
NM Legion 0 1,914,193 1,914,193 (121,526) 1994 40
NM Ellison 620,366 1,749,705 2,370,071 (115,271) 1994 40
NM Hotel Circle 255,163 1,538,023 1,793,186 (49,355) 1994 40
NM Eubank 577,099 1,675,220 2,252,319 (88,654) 1994 40
NM Coors 494,400 1,380,150 1,874,550 (74,264) 1994 40
NM Osuna 696,685 1,975,113 2,671,798 (102,833) 1994 40
NM East Central 292,031 847,986 1,140,017 (46,882) 1994 40
NV Rainbow 892,753 2,475,071 3,367,825 (131,642) 1994 40
NV Oakey 663,607 1,845,885 2,509,492 (94,641) 1995 40
NV Tropicana 815,085 2,287,872 3,102,957 (120,012) 1994 40
NV Sunset 947,534 2,630,111 3,577,644 (139,850) 1994 40
NV Sahara 1,217,565 3,392,383 4,609,948 (162,599) 1995 40
NV Charleston 558,006 1,529,957 2,087,963 (51,586) 1995 40
NV Las Vegas-Sahara/Pioneer 1,040,367 2,842,388 3,882,755 (53,821) 1996 40
NY Coram/Bald Hill 1,976,332 5,352,301 7,328,633 (67,340) 1996 40
OK Sooner Road 453,185 1,298,525 1,751,710 (90,560) 1994 40
OK 10th Street 621,413 869,872 1,491,285 (53,202) 1994 40
OK Moore 281,912 836,956 1,118,869 (58,369) 1994 40
OK NW Expressway 353,735 1,048,637 1,402,372 (72,390) 1994 40
OK Midwest City 443,545 1,231,967 1,675,512 (85,931) 1994 40
OK Meridian 244,143 1,024,213 1,268,356 (55,885) 1994 40
OK Air Depot 347,690 1,025,468 1,373,158 (70,357) 1994 40
OK Peoria 540,318 1,524,301 2,064,619 (58,023) 1995 40
OK 11th & Mingo 757,054 2,125,763 2,882,817 (80,906) 1995 40
OK Skelly 173,331 506,294 679,625 (20,454) 1995 40
OK Lewis 642,511 1,780,903 2,423,414 (67,987) 1995 40
OK Sheridan 531,978 1,544,333 2,076,311 (56,703) 1995 40
OK OKC/Roxbury Blvd 241,220 671,753 912,972 (6,175) 1996 40
OK OKC/33rd Street 267,059 741,710 1,008,769 (6,678) 1996 40
OR Hillsboro/229th Ave 1,198,358 3,249,301 4,447,659 (40,650) 1996 40
OR Beaverton/Murray Ave 1,086,999 2,948,220 4,035,219 (36,886) 1996 40
OR Aloha/185th Ave 1,337,157 3,624,573 4,961,730 (45,342) 1996 40
PA Philadelphia 1,574,064 2,858,975 4,433,040 (522,705) 1990 40
PA King of Prussia 1,354,359 3,698,219 5,052,577 (159,123) 1995 40
PA Warminster 891,048 2,518,740 3,409,788 (106,125) 1995 40
PA Allentown 578,632 1,618,025 2,196,657 (72,028) 1995 40
PA Bethlehem 843,324 2,340,805 3,184,129 (104,295) 1995 40
PA Norristown 868,586 2,405,332 3,273,918 (50,835) 1996 40
PA Storage Partners of Paoli 433,482 849,584 1,283,065 0 1996 40
SC Charleston/Ashley River Rd 475,367 1,298,593 1,773,960 (16,293) 1996 40
SC Columbia/Broad River Rd 461,455 1,267,675 1,729,130 (15,995) 1996 40
TN Summer 172,093 2,685,603 2,857,696 (615,157) 1986 40
TN Union 286,925 1,933,333 2,220,258 (412,368) 1987 40
TN Memphis/Mt Moriah 1,034,883 2,404,737 3,439,620 (317,408) 1989 40
TN Antioch/Nashville 822,125 2,337,391 3,159,516 (163,330) 1994 40
TN Keyport (Gateway) 403,492 1,149,225 1,552,717 (67,663) 1994 40
TN Chattanooga 484,457 1,400,826 1,885,283 (40,530) 1995 40
TN Memphis/Ridgeway 638,849 1,290,438 1,929,287 (49,378) 1995 40
TN Winchester 774,069 974,471 1,748,539 0 1996 40
TN Nashville/Lebanon Pike 1,366,208 3,748,062 5,114,270 (47,170) 1996 40
TN Nashville/Haywood 423,170 1,166,891 1,590,061 (5,164) 1996 40
TN Nashville/Murfreesboro 344,720 950,811 1,295,530 (4,263) 1996 40
TN SUSA/Poplar Partners, LP 1,750,000 10,635 1,760,635 0 1996 40
TN Nashville/Trousdale 1,440,860 3,901,994 5,342,853 (8,223) 1996 40
TN Nashville/Murfreesboro 1,222,229 3,309,033 4,531,263 (6,932) 1996 40
TN Nashville/Old Hickory Rd 1,271,786 3,444,402 4,716,188 (7,271) 1996 40
TN Antioch/Bell Road 841,235 2,280,513 3,121,747 (4,854) 1996 40
TN Franklin/Liberty Pike 844,335 2,287,937 3,132,272 (9,607) 1996 40
TX Ft. Worth Avenue 393,893 1,219,703 1,613,596 (71,018) 1994 40
TX Euless 359,330 1,105,097 1,464,427 (58,295) 1994 40
TX North Freeway 687,758 1,931,734 2,619,492 (105,869) 1994 40
TX South Freeway 441,599 1,296,475 1,738,074 (68,112) 1994 40
TX White Settlement 1,370,309 3,114,469 4,484,778 (169,012) 1994 40
TX Airport Freeway 616,535 1,850,985 2,467,521 (98,519) 1994 40
TX Midway 1,169,859 2,901,525 4,071,384 (129,345) 1994 40
TX Dallas/Preston 1,194,744 3,262,768 4,457,513 (95,509) 1995 40
TX Bedford 923,948 2,525,303 3,449,251 (32,439) 1996 40
TX Spring/I-45 North 1,110,728 3,005,855 4,116,583 (18,795) 1996 40
TX Sugarland/Old Mill Rd 675,660 1,830,545 2,506,205 (7,636) 1996 40
UT Orem 629,867 1,749,682 2,379,549 (100,127) 1994 40
UT Sandy 949,065 2,610,341 3,559,406 (147,269) 1994 40
UT West Valley 576,248 1,592,302 2,168,550 (44,482) 1995 40
VA Fairfax Station 1,019,015 2,227,285 3,246,299 (164,583) 1993 40
VA Chantilly 882,257 2,515,075 3,397,332 (160,743) 1994 40
VA Clarendon 1,187,575 5,201,724 6,389,299 (70,764) 1996 40
VA Reston 551,285 2,326,986 2,878,271 (40,304) 1996 40
VA Falls Church 1,226,736 3,398,369 4,625,105 (114,597) 1995 40
VA Willow Lawn 1,516,115 4,105,846 5,621,961 (34,258) 1996 40
VA Stafford/Jefferson Davis 751,398 2,035,961 2,787,359 (8,523) 1996 40
VA Fredericksburg/Jefferson 668,526 1,812,040 2,480,566 (7,592) 1996 40
VA Charlottesville/Seminole 748,988 2,029,716 2,778,704 (8,502) 1996 40
VA Fredericksburg/Plank Rd 846,358 2,287,063 3,133,422 (9,566) 1996 40
WA Vancouver/78th St 753,071 2,045,377 2,798,447 (25,602) 1996 40
=============================================================
$235,139,274 $620,503,025 $855,642,289 ($26,572,972)
=============================================================
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Storage USA, Inc.
Our report on the consolidated financial statements of SUSA
Partnership, L.P. is included in this Form 10-K of SUSA Partnership, L.P. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule included in this Form 10-K.
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.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 29, 1997
