<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended September 30, 2000
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission File Number: 001-12403
SUSA PARTNERSHIP L.P.
(Exact name of registrant as specified in its charter)
Tennessee
(State or other jurisdiction of
incorporation or organization)
62-1554135
(IRS Employer
Identification Number)
175 Toyota Plaza, Suite 700, Memphis, TN
(Address of principal executive offices)
38103
(Zip Codes)
Registrant's telephone number, including area code: (901) 252-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ( X) Yes ( ) NO
<PAGE>
<TABLE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
SUSA Partnership, L.P.
Consolidated Statements of Operations
(unaudited)
(amounts in thousands, except per unit data)
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
---------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Operating Revenues:
Rental and other property income $ 68,046 $ 62,816 $ 191,335 $185,624
Service income 886 636 3,759 1,355
Other income 1,669 1,015 2,986 1,967
---------------- --------------- ---------------- -----------------
Total operating revenues 70,601 64,467 198,080 188,946
---------------- --------------- ---------------- -----------------
Operating Expenses:
Cost of property operations & maintenance 16,776 14,817 48,004 45,229
Taxes 5,950 5,408 16,587 15,684
Costs of providing services 1,020 485 3,284 1,195
General & administrative 4,091 3,500 10,003 11,022
Depreciation & amortization 10,113 8,673 29,403 26,046
---------------- --------------- ---------------- -----------------
Total operating expenses 37,950 32,883 107,281 99,176
---------------- --------------- ---------------- -----------------
Income from property operations 32,651 31,584 90,799 89,770
Other income (expense):
Interest expense, net (12,189) (10,532) (34,714) (31,795)
---------------- --------------- ---------------- -----------------
Income before gain(loss) on exchange, minority
interest and distribution to Preferred Unitholders 20,462 21,052 56,085 57,975
Gain/(Loss) on sale of assets (15) 481 873 344
---------------- --------------- ---------------- -----------------
Income before minority interest and
distribution to Preferred Unitholders 20,447 21,533 56,958 58,319
Minority interest (21) (208) (59) (300)
---------------- --------------- ---------------- -----------------
Income before distributions to Preferred Unitholders 20,426 21,325 56,899 58,019
Distributions to Preferred Unitholders (1,442) (1,609) (4,327) (4,160)
---------------- --------------- ---------------- -----------------
Net Income attributable to Common Unitholders $ 18,984 $ 19,716 $ 52,572 $ 53,859
================ =============== ================ =================
Basic net income per unit $ 0.62 $ 0.62 $ 1.70 $ 1.71
================ =============== ================ =================
Diluted net income per unit $ 0.62 $ 0.62 $ 1.69 $ 1.70
================ =============== ================ =================
See Notes to Consolidated Financial Statements
</TABLE>
2
<PAGE>
<TABLE>
SUSA Partnership, L.P.
Consolidated Balance Sheets
(amounts in thousands, except unit data)
<CAPTION>
as of as of
September 30, 2000 December 31, 1999
-------------------- -------------------
(unaudited)
Assets
<S> <C> <C>
Investments in storage facilities, at cost:
Land 431,332 $ 441,080
Buildings and equipment 1,270,727 1,229,812
-------------------- -------------------
1,702,059 1,670,892
Accumulated depreciation (122,844) (94,538)
-------------------- -------------------
1,579,215 1,576,354
Cash & cash equivalents 4,350 1,699
Advances and investments in real estate 124,880 120,246
Other assets 70,474 56,620
-------------------- -------------------
Total assets $1,778,919 $1,754,919
==================== ===================
Liabilities & partners' capital
Notes payable $ 600,000 $600,000
Line of credit borrowings 172,323 105,500
Mortgage notes payable 67,431 70,163
Other borrowings 38,511 42,453
Accounts payable & accrued expenses 29,560 21,982
Dividends payable 18,602 18,831
Rents received in advance 11,746 10,869
Deferred gain from contribution of self-storage facilities 37,076 37,125
Minority Interest 954 959
-------------------- -------------------
Total liabilities 976,203 907,882
-------------------- -------------------
Limited common partnership units
3,422,434 and 3,655,093 outstanding
at redemption value 104,384 110,567
Commitments and contingencies
Partners' capital:
Preferred Partnership units
650,000 outstanding 65,000 65,000
Deferred compensation (300) (517)
General Common Partnership units
27,017,824 and 27,865,932 outstanding 645,413 683,355
Notes receivable - officers (11,781) (11,368)
-------------------- -------------------
Total partners' capital 698,332 736,470
-------------------- -------------------
Total liabilities & partners' capital $1,778,919 $ 1,754,919
==================== ===================
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
SUSA Partnership, L.P.
Consolidated Statements of Cash Flows
(unaudited)
(amounts in thousands)
Nine months ended Nine months ended
September 30, 2000 September 30, 1999
--------------------- --------------------
<S> <C> <C>
Operating activities:
Net income attributable to Common Unitholders $ 52,572 $ 53,859
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 29,403 26,046
Minority interest and preferred unit dividends 4,386 4,460
(Gain)/Loss on exchange of self-storage facilities (873) (344)
Changes in assets and liabilities:
Other assets (18,041) (11,552)
Other liabilities 9,244 11,379
--------------------- --------------------
Net cash provided by operating activities 76,691 83,848
===================== ====================
Investing activities:
Acquisition and improvements of storage facilities (23,774) (83,317)
Proceeds from sale/exchange of storage facilities 21,682 140,799
Development of storage facilities (29,699) (48,169)
Advances and investments in real estate (13,443) (26,980)
Change in restricted escrow funds - (26,109)
Proceeds from liquidation and distributions from advances
and investments in real estate 11,558 20,769
Issuances of notes receivable (2,533) (3,892)
Payments on notes receivable 4,571 1,479
--------------------- --------------------
Net cash used in investing activities (31,638) (25,420)
===================== ====================
Financing activities:
Net borrowings under line of credit 66,823 16,554
Mortgage principal payments (1,948) (3,713)
Other borrowings principal payments/payoffs (4,200) (6,131)
Payment of debt issuance costs (4) (1,185)
Distributions to general partner (56,860) (55,175)
Preferred unit dividends (4,327) (3,894)
Limited partner distributions (7,281) (7,253)
Distributions to minority interests (64) (57)
Repurchase of units from general partner (34,860) -
Payments on notes receivable - officers 183 91
Other financing transactions, net 136 1,649
--------------------- --------------------
Net cash used in financing activities (42,402) (59,114)
===================== ====================
Net increase in cash and equivalents 2,651 (686)
Cash and equivalents, beginning of period 1,699 2,358
--------------------- --------------------
Cash and equivalents, end of period $ 4,350 $ 1,672
===================== ====================
Supplemental schedule of non-cash activities:
Equity share of joint venture received for disposition of assets $ 6,526 $ 5,900
Note received in consideration for facility sold 2,200 875
Common Stock in exchange for notes receivable and contributed
to the Partnership in exchange for Partnership units 1,057 -
Partnership units received in payment of notes receivable 466 -
Common stock issued to Directors and contributed to the Partnership
in exchange for Partnership units 160 160
Storage facilities acquired in exchange for Partnership units - 4,238
Partnership units issued in accordance with deferred Partnership
Unit agreement 1,000 1,000
Restricted stock issued by GP - 246
Assumption of company-issued mortgages in acquisition 13,673 -
Exchange of Partnership units for shares of GP common stock 8,776 7,276
===================== ====================
See Notes to Consolidated Financial Statements
</TABLE>
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(amounts in thousands, except unit/share and per unit/share data)
1. Unaudited Interim Financial Statements
--------------------------------------
References to the "Company" and the "Partnership" refer to SUSA
Partnership, L.P. References to the "GP" refer to Storage USA, Inc.,
general partner and holder of approximately 89% of the interest
therein. Interim consolidated financial statements of the Company are
prepared pursuant to the requirements for reporting on Form 10-Q.
Accordingly, certain disclosures accompanying annual financial
statements prepared in accordance with generally accepted accounting
principles are omitted. In the opinion of management, all adjustments,
consisting solely of normal recurring adjustments, necessary for the
fair presentation of consolidated financial statements for the interim
periods have been included. The current period's results of operations
are not necessarily indicative of results that ultimately may be
achieved for the year. The interim consolidated financial statements
and notes thereto should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for
the year ended December 31, 1999 as filed with the Securities and
Exchange Commission.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could vary from these
estimates.
2. Organization
------------
The Company was formed by the GP in 1985 to acquire, develop,
construct, franchise, own and operate self-storage facilities
throughout the United States. On March 23, 1994, the GP completed an
initial public offering (the "IPO") of 6,325,000 shares of common stock
at $21.75 per share. The GP is structured as an umbrella partnership
real estate investment trust ("UPREIT") in which substantially all of
the GP's business is conducted through the Partnership. Under this
structure, the Company is able to acquire self-storage facilities in
exchange for units of limited partnership interest in the Partnership
("Units"), permitting the sellers to at least partially defer taxation
of capital gains. At September 30, 2000 and December 31, 1999,
respectively, the GP owned approximately 88.8% and 88.4% of the
partnership interest in the Partnership.
In 1996, the Company formed Storage USA Franchise Corp ("Franchise"), a
Tennessee corporation. The Partnership owns 100% of the non-voting
common stock of Franchise. The Partnership accounts for Franchise under
the equity method and includes its 97.5% share of the profit or loss of
Franchise in Other Income.
3. Summary of Significant Accounting Policies
------------------------------------------
Rental and Other Property Income
Rental and other property income consists of rental income plus other
income from property specific activities (rental of floor and storage
space for locks and packaging material, truck rentals and ground rents
for cellular telephone antenna towers and billboards). Below is a
summary of rental and other property income for the third quarter and
for the nine months ended September 30, 2000:
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rental Income $ 66,926 $ 61,824 $ 188,177 $ 182,671
Other Property Specific Income 1,120 992 3,158 2,953
-------------------------------------------------------------------
Total Rental and Other Property Income $ 68,046 $ 62,816 $ 191,335 $ 185,624
===================================================================
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 2000
(amounts in thousands, except unit/share and per unit/share data)
Service Income
Service income consists of revenue derived from providing services to
third parties and related joint ventures. These services include the
management of self-storage facilities, as well as general contractor,
development and acquisition services provided to the GE Capital Corp
Development and Acquisition Ventures ("GE Capital Ventures").
Commencing with the third quarter of 2000, general contractor fees were
recognized as income to Franchise. Below is a summary of service income
for the third quarter and for the nine months ended September 30, 2000:
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 772 $ 636 $ 2,070 $ 1,355
General Contractor fees - - 633 -
Development fees 114 - 779 -
Acquisition fees - - 277 -
-------------------------------------------------------------------
Total service income $ 886 $ 636 $ 3,759 $ 1,355
===================================================================
</TABLE>
Other Income
Other income consists solely of the Company's proportionate share of
the net income of equity investments including joint ventures and
Franchise, as outlined below:
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity joint venture $ 400 $ 418 $ 1,039 $ 567
GE joint ventures (9) - (182) -
Franchise 1,154 424 1,766 1,047
Other ventures 124 173 363 353
-------------------------------------------------------------------
$ 1,669 $ 1,015 $ 2,986 $ 1,967
===================================================================
</TABLE>
Interest Expense, net
Interest income and expense are netted together and the breakout of
income and expense is as follows:
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 3,372 $ 3,485 $ 10,046 $ 9,787
Interest expense (15,561) (14,017) (44,760) (41,582)
----------------------------------------------------------------------
Interest expense, net $ (12,189) $ (10,532) $ (34,714) $ (31,795)
======================================================================
</TABLE>
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 2000
(amounts in thousands, except unit/share and per unit/share data)
Reclassifications
Certain previously reported amounts have been reclassified to conform
to the current financial statement presentation with no impact on
previously reported net income or partners' capital.
4. Investment in Storage Facilities
--------------------------------
The following table summarizes the activity in storage facilities
during the period:
Cost:
Balance on January 1, 2000 $ 1,670,892
Property Acquisitions 18,879
Development spending 29,699
Disposition of Property (29,532)
Improvements and other 12,121
------------------
Balance on September 30, 2000 $ 1,702,059
==================
Accumulated Depreciation:
Balance on January 1, 2000 $ 94,538
Additions during the period 28,351
Disposition of Property (45)
------------------
Balance on September 30, 2000 $ 122,844
==================
The preceding cost balances include facilities acquired through capital
leases of $31,471 at September 30, 2000 and $31,334 at December 31,
1999 and construction in progress of $52,893 at September 30, 2000 and
$89,870 at December 31, 1999. Also included above is $15,200 at
September 30, 2000 and $11,800 at December 31, 1999 of corporate office
furniture and fixtures. Accumulated depreciation associated with the
facilities acquired through capital leases was $1,274 at September 30,
2000 and $771 at December 31, 1999.
The Company acquired four self-storage facilities for $22,200 during
the third quarter. Two of these purchases were customary acquisition
transactions. The other two involved the purchase of a 51% equity
interest in a Franchisee joint venture for $1,300 plus the assumption
of $13,700 in debt. For the nine months ended September 30, 2000, a
total of five facilities have been acquired, at a cost of $25,300. No
new developed properties were placed into service in the third quarter.
For the year, however, three developed facilities have opened,
representing a $15,100 investment.
5. Advances and Investments in Real Estate
---------------------------------------
Advances
As of September 30, 2000 and December 31, 1999, $112,070 and $117,022
respectively of advances had been made by the Company to franchisees of
Franchise to fund the development and construction of franchised
self-storage facilities. The loans are collateralized by the property.
Joint Ventures
Fidelity Venture
On June 7, 1999, the Company formed a joint venture with Fidelity
Management Trust Company (the "Fidelity Venture"). The Company
contributed 32 self-storage facilities with a fair value of $144,000 to
the Fidelity Venture in return for a 25% interest and cash proceeds of
approximately $131,000. The Company recognized $400 in equity earnings
from the Fidelity Venture and $363 in management fees for operating the
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 2000
(amounts in thousands, except unit/share and per unit/share data)
venture's properties in the third quarter of 2000, compared to $418 and
$342, respectively, in the third quarter of 1999. For the nine months
ended September 30, 2000, $1,039 in equity earnings has been
recognized, as well as $1,027 in management fees. For the same period
in 1999, there was $567 in equity earnings and $438 in management fees.
As of September 30, 2000, the Company had a recorded negative
investment balance in the Fidelity Venture of $246. The following table
summarizes certain financial information related to the Fidelity
Venture:
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income Statement:
Property revenues $ 6,010 $ 5,632 $ 17,123 $ 7,233
Property expenses 1,944 1,582 5,613 1,953
Net Operating Income 4,066 4,050 11,510 5,280
Net income 1,601 1,670 4,157 2,269
Balance Sheet:
Total assets $149,337 $150,300
Total debt 91,994 93,189
</TABLE>
GE Capital Ventures
On December 1, 1999, the Company formed two joint ventures with GE
Capital Corp ("GE Capital"), the "Acquisition Venture" and "Development
Venture," providing for a total investment capacity of $400,000 for
acquisitions and development of self-storage facilities. The Company
has a 25% interest in the $160,000 Development Venture and a 16.7%
interest in the $240,000 Acquisition Venture. During the first quarter
of 2000, the Company transferred nine projects that were in various
stages of development into the GE Capital Development Venture,
representing projected aggregate total costs of $53,000. The projects
were transferred to the Development Venture at the Company's cost of
$26,030. The Company received $19,856 in cash, and recorded an
investment in the venture of $6,526, representing a 25% interest.
On February 14, 2000, the Development Venture closed on a debt facility
with a commercial bank. Under the facility, the Development Venture can
borrow up to 50% of the cost of each project. The borrowings are
supported by mortgages which are non-recourse to the joint venture
partners, except for an environmental indemnification and construction
completion guaranty that SUSA Partnership, L.P. will provide. The
facility bears interest at various spreads over the Eurodollar Rate. As
of September 30, 2000, the Development Venture had three properties
open and operating and six in design and construction.
During the second quarter, the Acquisition Venture closed on a debt
facility with a group of commercial banks. Under this facility, the
Acquisition venture can borrow up to 50% of the lesser of the cost or
appraised value of the acquired properties. The facility is secured by
those properties, and bears interest at various spreads over LIBOR. The
Acquisition Venture has acquired five self-storage facilities during
2000, all in the second quarter, for a cost of approximately $32,400.
Four of the properties are located in Chicago with the fifth in New
York City.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 2000
(amounts in thousands, except unit/share and per unit/share data)
The Company, including Franchise, has recognized certain fees related
to the GE Capital Ventures as summarized below:
Three months Nine months
ended ended
September 30, 2000 September 30, 2000
-------------------------------------------
General contractor fees $ 81 $ 714
Development fees 114 779
Acquisition fees - 277
Management fees 63 86
-------------------------------------------
$ 258 $ 1,856
-------------------------------------------
The Company has recognized a $22 loss in equity earnings from the GE
Capital Ventures for the third quarter, and a $19 loss for the nine
months ended September 30, 2000. The Company has also recognized $163
in amortization expense for the nine months ended September 30, 2000
for costs relating to the amortization of the difference between the
Company's cost and the underlying equity in the Ventures' net assets.
As of September 30, 2000, the Company had a combined recorded
investment of $13,058 in the GE Capital Ventures. The following table
summarizes certain financial information related to the Ventures for
the quarter and the nine months ended September 30, 2000:
<TABLE>
<CAPTION>
Quarter ended September 30, 2000 | Nine months ended September 30, 2000
Development Acquisition | Development Acquisition
Venture Venture | Venture Venture
------------------------------------|--------------------------------------
<S> <C> <C> <C> <C>
Income Statement: |
Property revenues 128 1,027 | 160 1,361
Property expenses 172 388 | 247 456
Net Operating Income (44) 639 | (87) 905
Net income (237) 220 | (320) 365
Balance Sheet: |
Total assets | 37,720 36,945
Total third party debt | 14,624 5,525
</TABLE>
Other Ventures
The Company has equity interests in several single facility joint
ventures. As of September 30, 2000, the Company had a combined recorded
negative investment balance in the other joint ventures of $2.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 2000
(amounts in thousands, except unit/share and per unit/share data)
6. Other Assets
------------
As of As of
September 30, December 31,
2000 1999
----------------------------------
Deposits $ 5,308 $ 4,147
Deferred costs of issuances of
unsecured notes 8,603 10,006
Accounts receivable 4,127 4,855
Mortgages receivable 4,282 4,449
Notes receivable 8,052 7,445
Other receivables 7,061 4,988
Advancements and investments
in Franchise 25,518 13,906
Other 7,523 6,824
-------------------------------
Total Other Assets $ 70,474 $ 56,620
-------------------------------
7. Lines of credit, Mortgages payable, and other borrowings
--------------------------------------------------------
The Company can borrow under a $200,000 line of credit with a group of
commercial banks and under a $40,000 line of credit with a commercial
bank. The lines bear interest at various spreads of LIBOR. The
following table lists additional information about the lines of credit.
As of
Line of Credit Borrowings September 30, 2000
------------------------------------------------------------
Total lines of credit $ 240,000
Borrowings outstanding $ 172,323
Weighted average daily interest
rate year-to-date 7.60%
The Company from time to time assumes mortgages on facilities acquired.
Certain mortgages were assumed at above market interest rates. Premiums
were recorded upon assumption and amortized using the interest method
over the terms of the related debt. The following table provides
information about the mortgages:
Mortgage Notes Payable
as of September 30, 2000 Face Amount Maturity Range
------------------------------------------------------------------
Fixed rate $ 56,450 2000-2021
Variable rate 5,251 2006-2016
-----------------------------------
$ 61,701
Premiums 5,730
----------------
Mortgage notes payable $ 67,431
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 2000
(amounts in thousands, except unit/share and per unit/share data)
The Company has other borrowings used in the financing of property
acquisitions. The following table provides information about the other
borrowings.
Other Borrowings
as of September 30, 2000 Face Amount Carry Value Imputed Rate
--------------------------------------------------------------------------------
Non-interest bearing notes $ 5,150 $ 4,819 7.50%
Deferred units 11,000 9,830 7.50%
Capital Leases - 23,862 7.50%
--------------------------------------------
$ 38,511
==========
A $4,000 payment was made in the third quarter of 2000, reducing the
balance for non-interest bearing notes. Also in the third quarter,
$1,000 of deferred units were issued. During the nine months ended
September 30, 2000, total interest paid on all debt was $44,543 and
total interest capitalized for construction costs was $3,923.
8. Income per Unit
---------------
Basic and diluted income per unit is calculated as presented in the
following table:
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic net income per Unit:
Net income attributable to common unitholders $ 18,984 $ 19,716 $ 52,572 $ 53,859
Basic weighted average Units outstanding 30,537 31,694 30,968 31,578
-----------------------------------------------------------------------------------------------------------------
Basic net income per Unit $ 0.62 $ 0.62 $ 1.70 $ 1.71
Diluted net income per Unit:
Net income attributable to common unitholders $ 18,984 $ 19,716 $ 52,572 $ 53,859
Basic weighted average Units outstanding 30,537 31,694 30,968 31,578
Dilutive effect of stock options 52 47 52 68
-----------------------------------------------------------
Diluted weighted average Units outstanding 30,589 31,741 31,020 31,646
-----------------------------------------------------------------------------------------------------------------
Diluted net income per Unit $ 0.62 $ 0.62 $ 1.69 $ 1.70
</TABLE>
9. Commitments
-----------
As of September 30, 2000, the Company is committed to advance an
additional $7,156 to franchisees of Franchise for the construction of
self-storage facilities. These advances are collateralized by the
facility. The Company is a limited guarantor on $8,780 of loan
commitments made by third party lenders to franchisees of Franchise.
This entire amount has been funded as of September 30, 2000.
10. Capital Stock
-------------
During the nine months ended September 30, 2000, the GP repurchased
1.152 million shares of its common stock at a total cost of $34.9
million, under its stock repurchase plan, announced in December 1999.
The plan was completed during the quarter, with a total of 1.402
million shares purchased under the plan. The 1.402 million shares were
purchased at an average price of $30 per share, representing a total
purchase price of $42.1 million. The GP funded the repurchases with
proceeds from the repurchase of a similar amount of its General Common
Partnership Units by the Company.
11. Subsequent Events
-----------------
On October 13, 2000, the Company opened a newly developed facility in
Falls Church, Virginia, adding 53 thousand to the Company's total
combined square footage, at an approximate cost of $4.1 million. The
Company has entered into no further property acquisition contracts to
date.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 2000
(amounts in thousands, except unit/share and per unit/share data)
12. Legal Proceedings
-----------------
On July 22, 1999, a purported statewide class action was filed against
the REIT and Partnership in the Circuit Court of Montgomery County,
Maryland, under the style Ralph Grunewald v. Storage USA, Inc. and SUSA
Partnership, L.P., Case No. 201546V, seeking recovery of certain late
fees paid by tenants and an injunction against further assessment of
similar fees. The Company filed a responsive pleading on September 17,
1999, setting out its answer and affirmative defenses. The Company
believes that it has defenses to the claims in the suit and intends to
vigorously defend it. Plaintiff filed a Motion for Partial Summary
Judgment and a Motion for Class Certification, but before Storage USA
was required to respond to these motions, the case was stayed
indefinitely. The stay was entered in part because of a new statute
passed by the Maryland legislature relating to late fees. The
constitutionality of that statute has been challenged in an unrelated
litigation not involving the Company.
On November 15, 1999, a purported nationwide class action was filed
against the REIT and Partnership in the Supreme Court of the State of
New York, Ulster County, under the style West 125th Street Associates,
L.L.C. v. Storage USA, Inc. and SUSA Partnership, L.P., Case No
99-3278, seeking the recovery of certain late and administrative fees
paid by tenants and an injunction against similar fees. The Company
filed a responsive pleading on January 28, 2000 and the case has been
transferred to New York County, Index No. 401589/00. On July 6, 2000
the Plaintiff filed an Amended Complaint and a Motion for Class
Certification. The Company believes that it has defenses to the suit
and intends to vigorously defend it. The Company has opposed the Motion
for Class Certification filed by the Plaintiff, but as of November 14,
2000, the Court has not ruled on the Motion.
On March 28, 2000, separate actions (now consolidated) were commenced
in the Supreme Court of the State of New York, New York County styled
SMB Hochman Partners, et al. v. Goldman, et al., Index No. 601346/00
and Kramer, et al. v. Goldman, et al., Index No. 601347/00, by certain
limited partnerships and their limited partners relating to the sale to
the Partnership of two storage facilities located in Westchester
County, New York. The consolidated action alleges fraud and breach of
fiduciary duty by the general partners of the limited partnerships in
connection with their negotiation of the sale of the facilities on
behalf of the limited partnerships. It further alleges that the REIT
and the Partnership aided and abetted the breach of fiduciary duty. The
consolidated action seeks unspecified compensatory damages and $25
million in punitive damages. The Company believes it has defenses to
the suit, which is in the early stages of discovery, and intends to
vigorously defend it.
While the ultimate resolution of these cases will not have a material
adverse effect on the Company's financial position, if during any
period the potential contingency should become probable, the results of
operations in such period could be materially affected.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the consolidated financial condition
and results of operations should be read together with the Consolidated
Financial Statements and Notes thereto. References to "we," "our" or "the
Company" or "the Partnership" refer to SUSA Partnership, L.P. References to "the
GP" refer to Storage USA, Inc., general partner and holder of approximately 88%
of the interest in the Partnership.
The following are definitions of terms used throughout this discussion that will
be helpful in understanding our business.
o Physical Occupancy means the total net rentable square feet rented as of
the date (or period if indicated) divided by the total net rentable square
feet available.
o Scheduled Rent Per Square Foot means the average market rate per square
foot of rentable space.
o Net Rental Income means income from self-storage rentals less discounts.
o Realized Rent Per Square Foot means the annualized result of dividing
rental income, less discounts by total square feet rented.
o Direct Property Operating Cost means the costs incurred in the operation of
a facility, such as utilities, real estate taxes, and on-site personnel.
Costs incurred in the management of all facilities, such as accounting
personnel and management level operations personnel are excluded.
o Net Operating Income ("NOI") means total property revenues less Direct
Property Operating Costs.
o Annual Capitalization Rate ("Cap Rate")/ Yield means NOI of a facility
divided by the total capitalized costs of the facility.
o Funds from Operations ("FFO") means net income, computed in accordance with
generally accepted accounting principles ("GAAP"), excluding gains (losses)
from debt restructuring and sales of property, plus depreciation and
amortization of revenue-producing property, and after adjustments for
unconsolidated partnerships and joint ventures.
o Same-Store Facilities include all facilities that we owned for the entire
period of both comparison periods. Development properties and expansions
are removed from these groups to avoid skewing the results.
Overview
As of September 30, 2000, we owned, managed and franchised 528 facilities
containing 35.7 million square feet in 31 states and the District of Columbia.
Internal Growth
The following table compares Same-Store Facilities for the quarter (345
properties owned since July 1, 1999) and for the first nine months of 2000 (326
properties owned since January 1, 1999). Newly developed and expanded facilities
are removed from the same-store pool to avoid skewing the results.
13
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended September 30, Nine Months Ended September 30,
-----------------------------------------------------------------------------------
Same-Store Results 2000 1999 Growth % 2000 1999 Growth %
-----------------------------------------------------------------------------------------------------------------------
(amounts in thousands except occupancy and per square foot figures)
<S> <C> <C> <C> <C> <C> <C>
Revenues excluding late fees $56,387 $53,004 6.4% $153,022 $145,089 5.5%
Expenses
Operating Expenses 10,259 9,582 7.1% 28,085 26,695 5.2%
Property Tax & Other 6,575 6,275 4.8% 17,407 16,837 3.4%
-----------------------------------------------------------------------------------
Total Expenses 16,834 15,857 6.2% 45,492 43,532 4.5%
-----------------------------------------------------------------------------------
NOI excluding late fees $39,553 $37,147 6.5% $107,530 $101,557 5.9%
-----------------------------------------------------------------------------------
Late fee Income 2,068 3,479 (40.6%) 5,090 9,235 (44.9%)
NOI including late fees $41,621 $40,626 2.4% $112,620 $110,792 1.6%
===================================================================================
Physical Occupancy 87.3% 87.6% (0.3%) 85.7% 86.3% (0.6%)
Scheduled Rent per Square Foot $ 12.06 $ 11.41 5.7% $ 11.92 $ 11.31 5.4%
Realized Rent per Square Foot $ 11.11 $ 10.36 7.2% $ 10.81 $ 10.15 6.5%
</TABLE>
o Our Same-Store Facilities achieved 6.5% NOI growth excluding late fees in
the third quarter of 2000, and a 2.4% NOI growth including late fees, as
compared to the same quarter in 1999. The 6.5% NOI growth without late fees
resulted from revenue increases of 6.4%, offset by expense growth of 6.2%.
For the nine months ended September 30, 2000, same-store NOI excluding late
fees grew 5.9%, due to revenue increases of 5.5% offset by expense growth
of 4.5%.
o The revenue increase of 6.4% for the quarter was driven by an increase in
realized rent per square foot of 7.2% partially offset by a 0.3 percentage
point decrease in physical occupancy. For the nine months ending September
30, there was a 5.5% increase in revenues over the same period last year,
caused by a 6.5% increase in realized rent per square foot, partially
offset by a 0.6 percentage point decrease in physical occupancy.
o Our operating expenses grew 7.1% over the second quarter of 1999 and 5.2%
over the first nine months of 1999. This growth is primarily attributable
to increases in repairs and maintenance expense, health insurance and
utilities. Meanwhile, property tax and other expenses increased 4.8% over
the third quarter of 1999 and increased 3.4% over the first nine months of
1999. These increases are primarily due to property tax growth through
reassessment at a number of our larger facilities. Also, property and
liability insurance premiums increased commencing July 1, generally
eliminating any year to year savings experienced in the first two quarters
of the year.
The following table lists changes in the 10 largest same-store markets (on a
percentage of year to date same-store NOI basis, excluding late fees) and the
change in net rental income, realized rent per square foot, and occupied square
feet for the third quarter of 2000 versus the same period in 1999, as well as
for the nine months ended September 30. The largest 10 markets in total
represent 68.5% of the total same-store NOI.
14
<PAGE>
<TABLE>
<CAPTION>
% of | Change in Net Rental | % Change in | % Change in
# of YTD same- | Income (1) | Realized RPSF (2) | Occupied sq. ft.
Market Facilities store NOI | QTD YTD | QTD YTD | QTD YTD
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Los Angeles-Riverside-Orange County, CA 46 18.4% | 10.5% 9.4% | 11.3% 9.7% | (0.7%) (0.3%)
New York-N. New Jersey-Long Island, NY 25 14.9% | 6.9% 7.0% | 7.5% 8.7% | (0.6%) (1.6%)
Washington-Baltimore, DC-MD-VA-WV 19 9.5% | 5.3% 4.6% | 6.0% 6.3% | (0.7%) (1.6%)
Miami-Fort Lauderdale, FL 15 6.5% | 9.1% 7.1% | 6.1% 8.6% | 2.8% (1.4%)
Philadelphia-Wilm-Atlantic City, PA-NJ 14 4.1% | 4.0% 3.7% | 5.3% 5.7% | (1.2%) (1.9%)
San Francisco-Oakland-San Jose, CA 8 3.2% | 5.4% 3.2% | 6.0% 5.7% | (0.6%) (2.4%)
Detroit, Ann Arbor-Flint, MI 11 3.1% | 7.8% 8.6% | 7.0% 7.8% | 0.7% 0.8%
Dallas-Forth Worth, TX 10 3.1% | 8.0% 4.5% | 8.6% 4.3% | (0.5%) 0.2%
Phoenix,-Mesa, AZ 14 3.0% | 4.0% 4.1% | 5.4% 6.1% | (1.3%) (1.9%)
San Diego, CA 6 2.7% | 11.3% 8.2% | 10.9% 9.4% | 0.3% (1.1%)
</TABLE>
(1) The percentage change in Realized Rent per Square Foot plus the percent
change in occupied square feet approximates the percentage change in net
rental income.
(2) Rent Per Square Foot.
External Growth
Acquisitions
We acquired four self-storage facilities for $22.2 million during the third
quarter of 2000. Three of the facilities acquired were formerly franchised
properties located in Memphis, Tennessee, Queens, New York, and Brandon,
Florida. The fourth facility acquired was from an unrelated third party, and is
located in Chicago, Illinois. For the nine months ended September 30, 2000, a
total of five self-storage facilities have been acquired at a cost of $25.3
million. Although we own these facilities, we expect that the majority of
property acquisitions transacted throughout the remainder of the year, and in
2001, will be through the General Electric Capital Corporation ("GE Capital")
Acquisition Venture.
New Development and Expansion
The following newly developed and expanded facilities were opened in the first
three quarters of 2000:
<TABLE>
<CAPTION>
Developments Expansions
Number of Expected Net Rentable Number of Expected Net Rentable
Quarter ended Facilities Investment Square Feet Facilities Investment Square Feet
----------------------------------------------------------------------------------------------------------------------
(amounts in thousands except number of facilities)
<S> <C> <C> <C> <C> <C> <C>
March 31, 2000 - $ - - 4 $ 4,814 86
June 30, 2000 3 15,059 206 3 3,702 53
September 30, 2000 - - - 1 1,434 23
----------------------------------------------------------------------------------------
Total year-to-date 3 $ 15,059 206 8 $ 9,950 162
========================================================================================
</TABLE>
In addition to these projects, we are continuing with the development and
expansion of other facilities within the REIT. The following chart summarizes
the details of these projects as well as our expansion projects under
construction or in construction planning as of September 30, 2000:
<TABLE>
<CAPTION>
Square Expected Investment Remaining
# of Prop. Feet Investment to Date Investment
--------------------------------------------------------------------------------------------------------
(amounts in thousands except for number of facilities)
<S> <C> <C> <C> <C> <C>
Total development in process 7 613 $ 51,231 $ 32,018 $ 19,213
Total expansions in process 20 507 31,337 8,649 22,688
---------------------------------------------------------------
Total 27 1,120 $ 82,568 $ 40,667 $ 41,901
===============================================================
</TABLE>
15
<PAGE>
The following table presents the anticipated timing of completion and the total
expected dollar amounts invested in opening the facilities in the process of
being newly developed or expanded.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
4th Qtr 00 1st Qtr 01 2nd Qtr 01 3rd Qtr 01 4th Qtr 01 Thereafter Total
--------------------------------------------------------------------------------------------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Development $ 4,077 $ 23,786 $ 10,068 $ - $ - $ 13,300 $ 51,231
Expansions 880 2,337 11,249 6,108 10,763 - 31,337
--------------------------------------------------------------------------------------------
Total $ 4,957 $ 26,123 $ 21,317 $ 6,108 $10,763 $ 13,300 $ 82,568
============================================================================================
</TABLE>
With the GE Capital Development Venture in place, we are not anticipating
starting a significant number of new development projects within the REIT for
the remainder of this year, or in 2001.
Financing
As previously noted, during the fourth quarter of 1999, we formed two joint
ventures with GE Capital, providing a total investment capacity of $400 million
for acquisitions and development of self-storage properties. We plan to fund
substantially all of our new acquisition and development through 2001 through
the GE Ventures. We transferred nine projects in various stages of development
into the GE Capital Development Venture during the first quarter of 2000. These
projects had a total projected cost of $53.0 million, $26.0 million of which
represented the Company's total costs as of March 31, 2000. We received $19.9
million in cash, and recorded an investment in the venture of $6.5 million,
representing a 25% interest. As of September 30, 2000, the GE Development
Venture had invested $34.8 million, of which $6.6 was funded through advances
and investments by the Company. The GE Acquisition Venture had invested $33.9
million as of September 30, 2000, of which $6.5 was funded through advances and
investments by the Company.
In December of 1999, the GP announced a Board authorized plan to repurchase up
to 5% of its common shares outstanding through open market and private
purchases. In the third quarter of 2000, the GP completed the repurchase
program. A total of 1.402 million common shares have been repurchased, or
approximately 5% of the outstanding common shares at December 1, 1999, at an
average price of approximately $30 per share, representing a total purchase
price of $42.1 million. The GP funded the repurchases with proceeds from the
repurchase of a similar amount of its General Common Partnership Units by the
Company.
Other Initiatives
On May 8, 2000, we announced the formation of a strategic alliance with Access
Storage, S.A. and Millers Storage, S.A., the leading self-storage operators in
Europe and Australia, respectively, to provide management advisory services. As
part of the agreement, we received an option to purchase convertible debt and
also to acquire up to a 20% interest in these companies, which are indirect
affiliates of Security Capital Group Incorporated. We do not expect to exercise
such option in 2000.
Commencing on May 1, 2000, we began offering our customers direct access to
tenant insurance, which insures their goods against described perils, in all
Storage USA facilities except those located in the states of Florida and North
Carolina. The net profits from the premiums written during 2000 will ultimately
accrue to the benefit of a charitable trust established by the Company. We are
anticipating that profits from premiums written subsequent to 2000 will
ultimately accrue to the benefit of a taxable REIT subsidiary that will be
formed and wholly owned by the Partnership pursuant to the Ticket to Work and
Work Incentives Improvement Act of 1999.
16
<PAGE>
Results of Operations
The following table reflects the profit and loss statement for the quarter ended
September 30, 2000 and September 30, 1999, and for the nine months ended
September 30, 2000 and September 30, 1999, based on a percentage of total
revenues and is used in the discussion that follows:
Three months ended | Nine months ended
September 30, | September 30,
2000 1999 | 2000 1999
--------------------------------------------------------------------------------
|
Revenue |
Rental and other property income 96.4% 97.4% | 96.6% 98.2%
Service income 1.2% 1.0% | 1.9% 0.7%
Other income 2.4% 1.6% | 1.5% 1.1%
--------------------------------------------
Total Income 100.0% 100.0% | 100.0% 100.0%
Expenses |
Property operations 23.8% 23.0% | 24.2% 24.0%
Taxes 8.4% 8.4% | 8.4% 8.3%
Cost of Providing Services 1.4% 0.8% | 1.7% 0.6%
General and administrative 5.8% 5.5% | 5.0% 5.8%
Rental and other property income consists of rental income plus other income
from property specific activities (rental of floor and storage space for locks
and packaging material, truck rentals and ground rents for cellular telephone
antenna towers and billboards). Following is a summary of rental and other
property income for the third quarter and for the nine months ended September
30, 2000.
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rental Income $ 66,926 $ 61,824 $ 188,177 $ 182,671
Other Property Specific Income 1,120 992 3,158 2,953
-------------------------------------------------------------------
Total Rental and Other Property Income $ 68,046 $ 62,816 $ 191,335 $ 185,624
===================================================================
</TABLE>
Rental and other property income increased $5.2 million, or 8.3%, in the quarter
ended September 30, 2000 compared to the same period in 1999, and increased $5.7
million, or 3.1%, in the nine months ended September 30, 2000 compared to the
same nine months in 1999. The primary contributors to the increase in rental and
other property income are summarized in the following table.
17
<PAGE>
Rental Income Growth in 2000 over 1999 for comparable periods
ended September 30 (in thousands)
<TABLE>
<CAPTION>
Three months ended September 30 | Nine months ended September 30
------------------------------------------------------------------------------
Before | Before
Late fees Late fees Total | Late fees Late fees Total
------------------------------------------------------------------------------
<S> <C> <C> <C> | <C> <C> <C>
2000 acquisitions $ 703 $ 33 $ 736 | $ 716 $ 33 $ 749
2000 developments 194 3 197 | 244 3 247
|
1999 acquisitions 630 (22) 608 | 6,073 78 6,151
1999 developments 812 16 828 | 2,118 40 2,158
1999 dispositions (264) (9) (273) | (10,740) (75) (10,815)
Same-store facilities 3,383 (1,411) 1,972 | 7,933 (4,145) 3,788
|
Other lease-up, expansion and |
and development facilities |
1,225 (63) 1,162 | 4,333 (899) 3,434
------------------------------------------------------------------------------
$ 6,683 $ (1,453) $ 5,230 | $ 10,677 $(4,965) $ 5,712
------------------------------------------------------------------------------
</TABLE>
The one-time impact of our change in late fee policy, as described in our Form
10-K for the year ended 1999, produced an unfavorable $1.5 million variance in
late fee revenue in the third quarter of 2000, as compared to the same period in
1999, or approximately a 38.1% decrease. For the nine months ended September 30,
2000 compared to the same period in 1999, there was an unfavorable change of
$5.0 million in late fee revenue, or a 45.0% decrease. We expect third quarter
trends in late fees to continue into the fourth quarter of 2000. Rental and
other property income also declined as compared to the same period in 1999 due
to 1999 property dispositions, most notably the 32 properties contributed to the
joint venture with Fidelity Management Trust Company in the second quarter of
1999. Revenues lost from these disposed properties totaled $264 thousand for the
quarter and $10.7 million for the nine months ended September 30.
These reductions in rental and other property income were partially offset by
increases due to acquisition and development activity. Rental and other property
income was generated by 2000 acquisitions, $703 thousand for the quarter and
$716 thousand for the nine months ended September 30, 2000, and 2000 developed
properties, $194 thousand for the quarter and $244 thousand for the nine months
ended September 30, 2000. There were also revenue increases relating to 1999
acquisitions, $630 thousand for the quarter and $6.1 million for the nine months
ended September 30, and to 1999 developments, $812 thousand for the quarter and
$2.1 million for the nine months ended September 30. These two groups of
properties were held for the full quarter and nine months in 2000, versus
partial periods in 1999. Growth in rental and other property income also
occurred due to occupancy increases at our facilities currently in lease-up
(including expansions and pre-1999 developments): $1.2 million for the quarter
and $4.3 million for the nine months ended September 30.
The remaining $3.4 million growth for the quarter and $7.9 million for the nine
months ended September 30 occurred in Same-Store Facilities. For the quarter,
this was caused by an approximate 7.2% increase in realized rent per square
foot, from $10.36 in 1999 to $11.11 in 2000, partially offset by a slight
decrease in physical occupancy, from 87.6% in 1999 to 87.3% in 2000. For the
nine months ended September 30, this Same-Store growth was caused by an
approximate 6.5% increase in realized rent per square foot, from $10.15 in 1999
to $10.81 in 2000, partially offset by a slight decrease in physical occupancy,
from 86.3% in 1999 to 85.7% in 2000.
Service income increased by $250 thousand from the third quarter of 1999 to the
same period in 2000, and by $2.4 million from the first nine months of 1999 to
the same period in 2000. Service income also grew as a percentage of total
revenue: from 1.0% in 1999 to 1.2% in 2000 in the third quarter; and from 0.7%
in 1999 to 1.9% in 2000 for the nine months ended September 30. The bulk of the
increases, $114 thousand for the quarter and $1.7 million for the nine months
ended September 30, is due to the service fees received from the GE Capital
Ventures. The ventures had no activity until March 2000, so there are no
comparable general contractor, development or acquisition fees for 1999. The
remaining increase is due to management fees, $136 thousand for the quarter and
$715 thousand for the nine months ended September 30, as a result of an
increased number of managed and franchised facilities paying fees to the
Company. There were 96 such properties as of September 30, 1999, compared to 119
as of September 30, 2000.
18
<PAGE>
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 772 $ 636 $ 2,070 $ 1,355
General Contractor fees - - 633 -
Development fees 114 - 779 -
Acquisition fees - - 277 -
-------------------------------------------------------------------
Total service income $ 886 $ 636 $ 3,759 $ 1,355
===================================================================
</TABLE>
Other income consists solely of our proportionate share of the net income of
equity investments including joint ventures and Franchise. Other income
increased by $654 thousand from the third quarter of 1999 to the same period in
2000, and increased by $1.0 million from the first nine months of 1999 to the
same period in 2000. The quarterly change is primarily due to a gain recorded by
Franchise from the sale of a development land parcel during the third quarter of
2000, approximately $791 thousand after accrued taxes. The year to date increase
of $1.0 million is due to this gain on Franchise coupled with increased income
arising from our investment in the Fidelity Venture. As the Fidelity Venture was
formed in June 1999, only four month's income was recorded as of September 1999,
compared to a full nine months in 2000.
As a percentage of revenues, cost of property operations and maintenance
increased from the third quarter of 1999 to the same period in 2000, from 23.0%
to 23.8%, and increase of 0.8%. Actual expenses rose $2.0 million, from $14.8
million in 1999 to $16.8 million in 2000. For the nine months ended September
30, cost of property operations and maintenance as a percentage of revenues
increased slightly, from 23.9% in 1999 to 24.2% in 2000, reflecting a $2.8
million expense increase, from $45.2 million in 1999 to $48.0 million in 2000.
The trend for the cost of property operations as a percentage of revenues is to
decrease over time due to Same-Store Facility revenue growth outpacing expense
growth. This was generally the case here, except for a few notable exceptions.
Salary expense increased between the two periods, primarily due to two strategic
initiatives commencing in 1999: the national reservation center and the internal
information technology help desk. These departments started operations in 1999,
and had gradually increasing expenses as staffing progressed. Comparatively,
year 2000 contains expenses for two mature departments for a full quarter and
for a full nine months. Health insurance expense also showed a significant
increase, due to increased claims and participating employees, following what we
believe is a national trend. We expect this trend to continue, and estimate a
15% to 20% increase in health insurance costs for 2001. 2000 property and
liability insurance costs were also significantly higher than in 1999. Effective
July 1, 2000, higher premiums went into effect relating to our renewal of this
coverage for the policy period July 1, 2000 through June 30, 2001. Premiums over
the twelve month period will be approximately $500 thousand higher that those
that were in place under the previous policy. Finally, 2000 utility expenses
exceeded those of 1999 due to the unusually mild winter in 1999.
Tax expense as a percentage of revenues remained constant at 8.4% for the third
quarter of 1999 and 2000, but showed a slight increase for the nine months ended
September 30, 2000 as compared to the same nine months in 1999, 8.4% versus
8.3%. Tax expense as a percentage of revenues tends to trend down as a result of
Same-Store Facility revenue growth outpacing tax expense growth. This trend has
been negated throughout the first nine months of 2000 by the impact of property
tax reassessments on a number of our larger facilities.
During the second quarter of 2000, the State of Tennessee passed legislation
that granted REITs relief from a 1999 enacted law that subjected limited
partnerships and limited liability corporations to the state's excise and
franchise tax (the "Tennessee Tax"). The legislation is retroactive to the
beginning of the year and will substantially eliminate the applicability of the
Tennessee Tax to us. During 1999, we incurred approximately $600 of expense
associated with such tax.
Costs of providing services increased from $485 thousand in the third quarter of
1999 to $1.0 million in the same period in 2000, and increased as a percentage
of revenues from 0.8% to 1.4%. For the nine months ended September 30, costs of
providing services increased from $1.2 million in 1999 to $3.3 million in 2000,
19
<PAGE>
and increased as a percentage of revenues from 0.6% to 1.7%. This was due
primarily to the new services provided in 2000, general contracting, development
and acquisition services, and their corresponding costs. The costs of providing
management services also increased as 23 more managed properties were added to
the Storage USA system between September 30 of 1999 and 2000.
General and administrative expenses ("G&A") as a percentage of revenues
increased from 5.5% in the third quarter of 1999 to 5.8% for the same period of
2000, indicative of a G&A expense increase from $3.5 to $4.1 million between the
two periods. Consulting fees relating to our e-commerce initiative impacted the
third quarter G&A growth. We moved into our new corporate offices in Memphis,
Tennessee in October. As a result, we anticipate a quarterly increase in rent
expense of approximately $300 thousand, commencing with the fourth quarter of
2000, and continuing throughout the term of the lease. G&A expenses as a
percentage of revenues decreased from 5.8% for the first nine months of 1999 to
5.0% for the comparable period in 2000, indicative of an expense decrease from
$11.0 to $10.0 million between the two periods. Contributing substantially to
these decreases in expense was the classification in 2000 of development,
construction and acquisition department overhead as part of the cost of
providing services, as well as continued benefits in 2000 from various cost
containment programs and lower management bonus accruals in 2000 compared to
1999.
Depreciation and amortization expense increased from $8.7 million in the third
quarter of 1999 to $10.1 million for the same period in 2000. For the nine
months ended September 30, depreciation and amortization expense increased from
$26.0 in 1999 to $29.4 million in 2000. This was due to a $71.1 million increase
in depreciable assets since September 30, 1999.
Interest income and expense are netted together for presentation. The breakout
of income and expense follows:
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 3,372 $ 3,485 $ 10,046 $ 9,787
Interest expense (15,561) (14,017) (44,760) (41,582)
----------------------------------------------------------------------
Interest expense, net $ (12,189) $ (10,532) $ (34,714) $ (31,795)
======================================================================
Capitalized interest: $ 1,339 $ 925 $ 3,923 $ 3,086
</TABLE>
Interest expense grew $1.6 million from the third quarter of 1999, $14.0
million, to the same period in 2000, $15.6 million. For the nine months ended
September 30, interest expense increased $3.2 million, from $41.6 in 1999 to
$44.8 million in 2000. The interest expense increase was primarily from the
sources listed in the table below and was offset by capitalized interest of $925
thousand in the third quarter of 1999 and $3.1 million for the nine months ended
September 30, 1999, and $1.3 million and $3.9 million for the comparable periods
in 2000.
<TABLE>
<CAPTION>
Three months ended September 30, | Nine months ended September 30,
---------------------------------------------------------------------------------------
2000 1999 | 2000 1999
---------------------------------------------------------------------------------------
Wtd Avg Wtd Avg | Wtd Avg Wtd Avg
Wtd Avg Interest Wtd Avg Interest | Wtd Avg Interest Wtd Avg Interest
Debt Borrowing Rate Borrowing Rate | Borrowing Rate Borrowing Rate
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> | <C> <C> <C> <C>
Notes payable 600,000 7.37% 600,000 7.37% | 600,000 7.37% 600,000 7.37%
Lines of credit 170,629 7.88% 85,508 6.51% | 146,285 7.60% 92,963 6.81%
Mortgages payable 68,119 7.50% 64,114 7.50% | 69,043 7.50% 65,885 7.50%
Leases & other borrowings 42,528 7.50% 47,126 7.50% | 42,714 7.50% 47,486 7.50%
</TABLE>
Interest income decreased $113 thousand from the third quarter of 1999 to the
same period in 2000, from $3.5 million in 1999 to $3.4 million in 2000. For the
nine months ended September 30, interest income increased $259 thousand, from
$9.8 million in 1999 to $10.0 million in 2000. The third quarter decrease was
due to $460 thousand in interest income recorded in 1999 relating to restricted
escrow funds from the Fidelity transaction. This decrease was partially offset
by interest income growth resulting from additional advances to Franchisees
since September 30, 1999. For the nine months ended September 30, a portion of
20
<PAGE>
the $259 thousand increase from 1999 to 2000 is due an increase in the prime
rate, and consequently the interest rates on any Franchisee loans tied to the
prime rate. The remainder of the increase is from interest earned on amounts
outstanding under the GP's 1995 Employee Stock Purchase and Loan Plan and
earnings on overnight deposits.
We recorded an $890 thousand gain on the sale of storage facilities in the first
quarter of 2000. $415 thousand of that gain relates to the sale of two Columbus,
Indiana storage facilities; $295 thousand to the sale of a non-operating
development project in White Marsh, Maryland to a franchisee; and the remaining
$180 to adjustments from the resolution of contingencies on prior period
dispositions.
Liquidity and Capital Resources
Cash provided by operating activities was $76.7 million during the nine months
ended September 30, 2000 as compared to $83.8 million during the same period in
1999. The items affecting the operating cash flows are discussed more fully in
the "Results of Operations" section.
We invested $23.8 million during the first nine months of 2000 for the
acquisition and improvement of self-storage facilities compared to $83.3 million
during the same period in 1999. $11.6 million of the $23.8 million for 2000
represents our five acquired facilities. An additional $203 thousand in
Partnership Units and $13.7 million in assumed loans to former Franchisees
consummated the acquisitions. The remaining $12.2 million reflects improvements
to existing self-storage facilities. The 1999 acquisition activity reflects the
reinvestment of proceeds from the Fidelity transaction discussed below. We also
received $21.7 million in proceeds from the sale/exchange of storage facilities
in the first nine months of 2000 consisting of: $1.0 million from the sale of
two self-storage facilities in Indiana; $19.9 million from the transfer of nine
development projects to the GE Capital Development Venture; $463 thousand from
the sale of another non-operating development project to a franchisee; and $332
thousand from the sale of vacant land adjacent to one of our operating
facilities. As part of the GE Capital transaction, we also received a 25% equity
interest in the Development Venture valued at $6.5 million. In the sale of the
non-operating project to one of our franchisees, we accepted a $2.2 million note
and received the balance of the sales price in cash. In the first nine months of
1999, we received $140.8 million in proceeds from the sale/exchange of storage
facilities, mostly from the Fidelity transaction.
In addition to improvements, we invested $29.7 million for the development and
construction of self-storage facilities in the nine months ended September 30,
2000, compared to $48.2 million for the same time period in 1999. There were 7
newly developed facilities and 20 expansions of existing facilities in processs.
The total budget for these facilities is $82.6 million, of which $41.9 million
remains to be invested. We invested $13.4 million in advances and investments in
real estate during the first nine months of 2000, compared to $27.0 million one
year ago. In 2000, we have invested $8.2 million in cash in the GE Capital
Ventures, and provided $5.2 million in financing to franchisees of Franchise.
Proceeds were also received from certain franchisees, as five repaid their loans
during the nine months ended September 30, 2000, generating $7.9 million in
cash. We received an additional $3.7 million from the GE Acquisition Venture,
reflecting reimbursement for previous advances made to that Venture. We have
$7.2 million of loan commitments to franchisees to fund as of September 30,
2000. Additionally, we expect to invest approximately $650 thousand as part of
our required equity contributions in the GE Capital Joint Ventures during the
remainder of 2000.
Sometimes we acquire facilities in exchange for Partnership Units. The
Partnership Units are redeemable after one year for cash or, at our option,
shares of the GP's common stock. Sellers taking Partnership Units instead of
cash are able to defer recognizing a taxable gain on the sale of their
facilities until they sell or redeem their Partnership Units. At September 30,
2000 we had 3.4 million Partnership Units outstanding, of which the following
Partnership Units were redeemable:
o 82 thousand Partnership Units for an amount equal to the fair market value
($2.5 million, based upon a price per Partnership Unit of $30.50 at
September 30, 2000) payable in cash or, at our option, by a promissory note
payable in quarterly installments over two years with interest at the prime
rate.
o 3.3 million Partnership Units for amounts equal to the fair market value
($101.9 million, based upon a price per Partnership Unit of $30.50 at
September 30, 2000) payable by us in cash or, at our option, in shares of
the GP's common stock at the initial exchange ratio of one share for each
Partnership Unit.
21
<PAGE>
We anticipate that the source of funds for any cash redemption of Units will be
retained cash flow or proceeds from the future sale of our securities or other
indebtedness. We have agreed to register any shares of the GP's common stock
issued upon redemption of Partnership Units under the Securities Act of 1933.
Between November 1996 and July 1998, the Partnership issued $600 million of
notes payable. The notes are unsecured obligations of the Partnership, and may
be redeemed at any time at the option of the Partnership, subject to a premium
payment and other terms and conditions. The combined notes carry a weighted
average interest rate of 7.37% and were issued at a price to yield a weighted
average of 7.42%. The terms of the notes are staggered between seven and thirty
years, maturing between 2003 and 2027.
During the nine months ended September 30, 2000, the GP repurchased 1.152
million shares of its common stock at a total cost of $34.9 million, under its
stock repurchase plan. The plan was completed during the quarter, with a total
of 1.402 million shares purchased under the plan. The 1.402 million shares were
purchased at an average price of $30 per share, representing a total purchase
price of $42.1 million.
We initially fund our capital requirements primarily through the available lines
of credit with the intention of refinancing these with long-term capital in the
form of equity and debt securities when we determine that market conditions are
favorable. At September 30, 2000, the GP can issue under currently effective
shelf registration statements up to $650 million of common stock, preferred
stock, depository shares and warrants and can also issue $250 million of
unsecured, non-convertible senior debt securities of the Partnership. Our lines
of credit bear interest at various spreads over LIBOR. We had net borrowings in
the nine months ended September 30, 2000 of $66.8 million, compared to $16.6
million for the same period in 1999. We currently have a $200 million unsecured
revolving credit line with a group of commercial banks, bearing interest at a
spread of 120 basis points over LIBOR, based on our current debt rating, and
maturing on March 31, 2002. We also have a $40 million line of credit with a
commercial bank. The line bears interest at spread over LIBOR, matures on July
1, 2001, and is renewable at that time.
We paid approximately $64.2 million in distributions during the first nine
months of 2000, $56.9 million to the general partner, $7.3 million to limited
partners and $64 thousand to minority interests. This compares to a total $62.5
million in distributions for the same period in 1999, $55.2 million to the
general partner, $7.3 million to limited partners and $57 thousand to minority
interests. The GP increased its dividend to common shareholders 3% between the
two periods, from $.67 to $.69 per share. Distributions to common unitholders
are made at the same rate used by the GP for common stock dividends. Preferred
unit dividends also increased from 1999 to 2000, from $3.9 million to $4.3
million for the nine months ended September 30.
Through the first nine months of 2000, we incurred approximately $1.4 million
for scheduled maintenance and repairs and approximately $2.5 million to conform
facilities acquired from 1994 to 1999 to our standards. In the fourth quarter of
2000, we expect to incur an additional $600 thousand for scheduled maintenance
and repairs plus an additional $800 thousand to conform facilities to our
standards. In the second quarter of 2000, we committed to several new leases
relating to our corporate headquarters office space in Memphis. The leases have
a term of fifteen years with estimated annual payments of $2.7 million. We have
rented a portion of this space to others under several subleases at the same
rent and substantially similar terms to our primary leases and expect to receive
approximately $0.8 million annually from such subleases.
We believe that borrowings under our current credit facilities combined with
cash from operations will provide us with necessary liquidity and capital
resources to meet the funding requirements of our remaining development and
expansion pipeline, commitments to provide financing to franchisees, equity
commitments of the GE Capital Joint Ventures, and dividend and distribution
requirements. Additionally, no significant maturities are scheduled under any of
our borrowings until 2003.
Qualitative and Quantitative Disclosure About Market Risk
We are exposed to certain financial market risks, the most predominant being
fluctuations in interest rates on existing variable rate debt and the repricing
of fixed rate debt upon maturity. We monitor interest rate fluctuations as an
integral part of our overall risk management program, which recognizes the
unpredictability of financial markets and seeks to reduce the potentially
adverse effect on our results. The effect of interest rate fluctuations
historically has been small relative to other factors affecting operating
results, such as rental rates and occupancy.
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<PAGE>
Our operating results are affected by changes in interest rates primarily as a
result of borrowing under our lines of credit. If interest rates increased by 25
basis points, our interest expense for the nine months ended September 30, 2000
would have increased by approximately $274 thousand, based on average
outstanding balances during that period.
Funds from Operations ("FFO")
We believe FFO should be considered in conjunction with net income and cash
flows to facilitate a clear understanding of our operating results. FFO should
not be considered as an alternative to net income, as a measure of our 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. We follow the current National Association of Real
Estate Investment Trust's (NAREIT) definition of FFO which effective January 1,
2000, includes non-recurring results of operations, except those defined as
"extraordinary items" under GAAP. Since we have historically not added back
non-recurring items to our calculation, we were not required to restate prior
period FFO amounts. Our FFO may not be comparable to similarly titled measures
of other REITs that calculate FFO differently. In calculating FFO, we add back
only depreciation and amortization of revenue-producing property. As such, Our
FFO and FFO per share may not be comparable to other REITs that may add back
total depreciation and amortization.
The following table illustrates the components of our FFO for the three months
and nine months ended September 30, 2000 and September 30, 1999.
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Funds from Operations Attributable September 30, September 30, September 30, September 30,
to Common Unit holders: 2000 1999 2000 1999
----------------- ---------------- ---------------- ---------------
(in thousands, except per unit data)
<S> <C> <C> <C> <C>
Net Income Attributable to Common Unitholders $ 18,984 $ 19,716 $ 52,572 $ 53,859
Loss/(Gain) on Sale of Assets* 15 (481) (578) (344)
Total Depreciation and Amortization 10,113 8,673 29,403 26,046
Depreciation from Unconsolidated Entities 350 143 686 191
Less Depreciation of Non-Revenue Producing
Property (1,060) (768) (2,972) (1,932)
----------------- ---------------- ---------------- ---------------
FFO attributable to common unitholders $ 28,402 $ 27,283 $ 79,111 $ 77,820
================= ================ ================ ===============
</TABLE>
*Excludes $295 gain on sale of undepreciated land in the first quarter of 2000.
During the third quarter of 2000, the GP declared a dividend per share of $0.69,
which is an increase of 3.0% over the second quarter 1999 dividend of $0.67. To
date, $2.07 per share in dividends have been declared, compared to $2.01 in
1999, again a 3.0% increase. The Company has declared a quarterly distribution
per unit at the same rate as the GP's quarterly dividend. As a qualified REIT,
the GP is required to distribute a substantial portion of its net taxable income
as dividends to its shareholders. While our goal is to generate and retain
sufficient cash flow to meet our operating, capital and debt service needs, the
GP's dividend requirements may require us to utilize our bank lines of credit
and other sources of liquidity to finance property acquisitions and development,
and major capital improvements. See "Liquidity and Capital Resources" section.
Legal Proceedings
On July 22, 1999, a purported statewide class action was filed against the REIT
and Partnership in the Circuit Court of Montgomery County, Maryland, under the
style Ralph Grunewald v. Storage USA, Inc. and SUSA Partnership, L.P., Case No.
201546V, seeking recovery of certain late fees paid by tenants and an injunction
against further assessment of similar fees. The Company filed a responsive
pleading on September 17, 1999, setting out its answer and affirmative defenses.
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<PAGE>
The Company believes that it has defenses to the claims in the suit and intends
to vigorously defend it. Plaintiff filed a Motion for Partial Summary Judgment
and a Motion for Class Certification, but before Storage USA was required to
respond to these motions, the case was stayed indefinitely. The stay was entered
in part because of a new statute passed by the Maryland legislature relating to
late fees. The constitutionality of that statute has been challenged in an
unrelated litigation not involving the Company.
On November 15, 1999, a purported nationwide class action was filed against the
REIT and Partnership in the Supreme Court of the State of New York, Ulster
County, under the style West 125th Street Associates, L.L.C. v. Storage USA,
Inc. and SUSA Partnership, L.P., Case No 99-3278, seeking the recovery of
certain late and administrative fees paid by tenants and an injunction against
similar fees. The Company filed a responsive pleading on January 28, 2000 and
the case has been transferred to New York County, Index No. 401589/00. On July
6, 2000 the Plaintiff filed an Amended Complaint and a Motion for Class
Certification. The Company believes that it has defenses to the suit and intends
to vigorously defend it. The Company has opposed the Motion for Class
Certification filed by the Plaintiff, but as of November 14, 2000, the Court has
not ruled on the Motion.
On March 28, 2000, separate actions (now consolidated) were commenced in the
Supreme Court of the State of New York, New York County styled SMB Hochman
Partners, et al. v. Goldman, et al., Index No. 601346/00 and Kramer, et al. v.
Goldman, et al., Index No. 601347/00, by certain limited partnerships and their
limited partners relating to the sale to the Partnership of two storage
facilities located in Westchester County, New York. The consolidated action
alleges fraud and breach of fiduciary duty by the general partners of the
limited partnerships in connection with their negotiation of the sale of the
facilities on behalf of the limited partnerships. It further alleges that the
REIT and the Partnership aided and abetted the breach of fiduciary duty. The
consolidated action seeks unspecified compensatory damages and $25 million in
punitive damages. The Company believes it has defenses to the suit, which is in
the early stages of discovery, and intends to vigorously defend it.
While the ultimate resolution of these cases will not have a material adverse
effect on the Company's financial position, if during any period the potential
contingency should become probable, the results of operations in such period
could be materially affected.
Forward Looking Statements and Risk Factors
Certain information included in this Form 10-Q that is not historical fact is
based on our current expectations. This includes statements regarding: (a)
anticipated future development, acquisition and expansion activity, (b) the
impact of anticipated rental rate increases and our recently revised late fee
policy on our revenue growth, (c) our 2000 and 2001 anticipated revenues,
expenses and returns, (d) future capital requirements, (e) sources of capital,
and (f) sources of funds for payment of our indebtedness. Words such as
"believes", "expects", "anticipate", "intends", "plans" and "estimates" and
variations of such words and similar words also identify forward looking
statements. Such statements are forward looking in nature and involve a number
of risks and uncertainties. Actual results may differ materially. The following
factors, among others, could cause actual results to differ materially from the
forward-looking statements:
o Changes in the economic conditions in the markets in which we operate could
negatively impact the financial resources of our customers, impairing our
ability to raise rents.
o Certain of our competitors with substantially greater financial resources
than us could reduce the number of suitable acquisition opportunities
offered to us and increase the price necessary to consummate the acquisition
of particular facilities.
o Competition for development sites could drive up costs, making it
unfeasible for us to develop properties in certain markets.
o Increased development of new facilities in our markets could result in
over-supply and lower rental rates. o Amounts that we charge for late fees
have been and are the subject of litigation against us and are, in some
states, the subject of governmental regulation. Consequently, such amounts
could change, materially affecting the results of operations.
o The conditions affecting the bank, debt and equity markets could change.
o The availability of sufficient capital to finance our business plan on
satisfactory terms could decrease.
o Competition could increase, adversely affecting occupancy and rental rates,
thereby reducing our revenue.
o Costs related to compliance with laws, including environmental laws could
increase, reducing our net income.
o General business and economic conditions could change, adversely affecting
occupancy and rental rates, thereby reducing our revenue.
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<PAGE>
o Other risk factors exist as described in our Annual Report on Form 10-K for
the year ended December 31, 1999 and other reports filed from time to time
with the Securities and Exchange Commission.
We caution you not to place undue reliance on any such forward-looking
statements. We assume no obligation to update any forward-looking statements as
a result of new information, subsequent events or any other circumstances. Such
statements speak only as of the date that they are made.
25
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
See disclosure in the section entitled "Qualitative and Quantitative Disclosure
About Market Risk" in Management's Discussion and Analysis of Financial
Condition and Results of Operations.
26
<PAGE>
Part II- OTHER INFORMATION
Item 1. Legal Proceedings
See disclosure in the section entitled "Legal Proceedings" in Management's
Discussion and Analysis of Financial Condition and Results of Operations on page
24.
Item 2. Changes in Securities and Use of Proceeds
During the nine months ended September 30, 2000, we issued units of limited
partnership interest in exchange for interest in self-storage facilities. The
date, amount and value of the issuances are summarized in the following table:
Date of Units Approximate
Issuance Issued Value
------------------------------------------------------------------
July 10, 2000 5,704 $ 203,233.52
September 25, 2000 34,070 999,955.00
----------------------------------
Total 39,774 $ 1,203,188.52
==================================
The Units were issued in private placements exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933 to various owners of self-storage
facilities. Beginning one year after their issuance, each Partnership Unit is
redeemable for cash equal to the market value of one share of Common Stock in
the GP at the time of redemption or, at our option, one share of Common Stock in
the GP.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibit 10.1 Letter Agreement, dated July 7, 2000, between Security
Capital Group Incorporated and the GP.
Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
None
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 14, 2000
SUSA Partnership, L.P.
By Storage USA, Inc.,
General Partner
By: /s/ Christopher P. Marr
--------------------------------------
Christopher P. Marr
Chief Financial Officer
(Principal Financial and Accounting Officer)
28
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 Letter Agreement, dated July 7, 2000, between Security
Capital Group Incorporated and the GP.
27 Financial Data Schedule
29
