<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended September 30, 1996
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange
Act of 1934
For the transition period from to
Commission File Number: 001-12910
STORAGE USA, INC.
(Exact name of registrant as specified in its charter)
Tennessee
(State or other jurisdiction of
incorporation or organization)
62-1251239
(IRS Employer
Identification Number)
10440 Little Patuxent Parkway, #1100, Columbia, MD
(Address of principal executive offices)
21044
(Zip Codes)
Registrant's telephone number, including area code: (410) 730-9500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. ( X) Yes ( ) NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $.01 par value, 24,649,537 shares outstanding at November 14,
1996
<PAGE> 2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
STORAGE USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Three months ended Nine months ended Nine months ended
September 30, 1996 September 30, 1995 September 30, 1996 September 30, 1995
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
PROPERTY REVENUES:
Rental income $28,806 $18,281 $73,396 $46,276
Management income 113 224 560 808
Other income 516 162 1,170 342
------------------- ------------------- ------------------- -------------------
Total property revenues 29,435 18,667 75,126 47,426
------------------- ------------------- ------------------- -------------------
PROPERTY EXPENSES:
Cost of property operations & maintenance 7,816 4,865 19,933 12,854
Taxes 2,419 1,376 6,163 3,356
General & administrative 1,318 697 3,067 1,806
Depreciation & amortization 3,380 2,273 8,813 5,677
------------------- ------------------- ------------------- -------------------
Total property expenses 14,933 9,211 37,976 23,693
------------------- ------------------- ------------------- -------------------
INCOME FROM PROPERTY OPERATIONS 14,502 9,456 37,150 23,733
------------------- ------------------- ------------------- -------------------
OTHER INCOME (EXPENSE):
Interest expense (2,626) (454) (5,848) (1,667)
Interest income 176 21 506 58
------------------- ------------------- ------------------- -------------------
INCOME BEFORE MINORITY INTEREST
AND GAIN ON INVESTMENT 12,052 9,023 31,808 22,124
Gain on investment 288 0 288 0
------------------- ------------------- ------------------- -------------------
Income before minority interest 12,340 9,023 32,096 22,124
Minority interest (690) (495) (1,915) (1,112)
------------------- ------------------- ------------------- -------------------
NET INCOME $11,650 $8,528 $30,181 $21,012
=================== =================== =================== ===================
NET INCOME PER SHARE $0.55 $0.49 $1.54 $1.40
=================== =================== =================== ===================
WEIGHTED AVERAGE SHARES OUTSTANDING 21,364 17,331 19,588 15,001
=================== =================== =================== ===================
</TABLE>
See notes to consolidated financial statements .
<PAGE> 3
STORAGE USA, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
as of as of
September 30, 1996 December 31, 1995
---------------------- ----------------------
(unaudited)
ASSETS
<S> <C> <C>
Investments in storage facilities, at cost:
Land $197,885 $139,603
Buildings and equipment 532,535 369,694
---------------------- ----------------------
730,420 509,297
Accumulated depreciation (22,880) (14,561)
---------------------- ----------------------
707,540 494,736
Cash & cash equivalents 3,169 3,006
Other assets 8,942 11,783
---------------------- ----------------------
TOTAL ASSETS $719,651 $509,525
====================== ======================
LIABILITIES & SHAREHOLDERS' EQUITY
Notes payable $66,138 $107,605
Mortgage notes payable 17,972 6,670
Accounts payable & accrued expenses 7,401 5,945
Dividends payable 11,987 -
Rents received in advance 4,651 3,680
Minority interest 36,485 27,438
---------------------- ----------------------
TOTAL LIABILITIES 144,634 151,338
---------------------- ----------------------
Commitments and contingencies
Shareholders' equity:
Common stock $.01 par value, 150,000,000 shares 246 176
authorized, 24,639,192 and 17,562,363
shares issued and outstanding
Paid-in capital 607,030 385,989
Notes receivable - officers (8,066) (6,727)
Accumulated deficit (15,831) (15,831)
Distributions in excess of net income (8,362) (5,420)
---------------------- ----------------------
TOTAL SHAREHOLDERS' EQUITY 575,017 358,187
---------------------- ----------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $719,651 $509,525
====================== ======================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
STORAGE USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 1996 September 30, 1995
----------------------- ----------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $30,181 $21,012
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,813 5,677
Minority interest 1,915 1,112
Gain on investment (288) -
Changes in assets and liabilities:
Other assets (2,495) (4,266)
Other liabilities 2,427 2,382
----------------------- ----------------------
Net cash provided by operating activities: 40,553 25,917
======================= ======================
INVESTING ACTIVITIES:
Acquisition and improvements of storage facilities (192,129) (177,638)
Developments placed in service (3,758) -
----------------------- ----------------------
Net cash used in investing activities (195,887) (177,638)
======================= ======================
FINANCING ACTIVITIES:
Net borrowings under lines of credit (41,467) 56,900
Mortgage principal payments (199) (35)
Mortgage principal borrowings 2,542
Cash dividends (21,136) (15,682)
Proceeds from issuance of stock 219,772 107,776
Distribution to minority interests (1,473) (725)
----------------------- ----------------------
Net cash provided by financing activities 155,497 150,776
======================= ======================
Net increase in cash and equivalents 163 (945)
Cash and equivalents, beginning of period 3,006 3,325
----------------------- ----------------------
Cash and equivalents, end of period $3,169 $2,380
======================= ======================
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Common Stock issued in exchange for notes receivable $1,345 -
Mortgages assumed on storage facilities acquired $11,501 -
Storage facilities acquired in exchange for Operating
Partnership Units $8,605 $14,427
======================= ======================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
Interim consolidated financial statements of Storage USA, Inc. (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 which ultimately may be achieved for the year. The interim
consolidated financial statements and notes thereto should be read in
conjunction with the financial statements and notes thereto included
in the Company's Form 10-K, as amended by Form 10-K/A, as filed with
the Securities and Exchange Commission.
2. ORGANIZATION
Storage USA, Inc. (the "Company"), 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 Company
completed an initial public offering (the "IPO") of 6,325,000 shares
of common stock at $21.75 per share.
Upon completion of the IPO, the Company contributed substantially all
of its net assets to SUSA Partnership, L.P. (the "Operating
Partnership") in exchange for an approximately 98.9% general
partnership interest in the Operating Partnership. In addition, the
Operating Partnership formed SUSA Management, Inc., ("SUSA
Management") to provide self-storage management to third parties and
certain ancillary services. The Operating Partnership owns 99% of the
economic interest of SUSA Management.
In June of 1996, the Company formed Storage USA Trust (the "Trust"), a
Maryland real estate investment trust, of which it is the sole
shareholder, and transferred approximately 99% of the Company's
interest in the Operating Partnership to the Trust. The Company
remains the sole general partner of the Operating Partnership.
1
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 1996
(THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. CAPITAL STOCK
FORMATION OF STRATEGIC ALLIANCE
On March 1, 1996, the Company entered into a Stock Purchase Agreement
with Security Capital U.S. Realty ("US Realty"), an affiliate of
Security Capital Group. Under the Stock Purchase Agreement, subject
to the terms and conditions thereof, US Realty invested a total of
$220,000 in the Company, placed two of its nominees on the Company's
Board of Directors, and continues to make available to the Company
certain strategic advice, research and related information and
expertise (the "Strategic Alliance"). On March 19, 1996, the Company
executed a Strategic Alliance Agreement and a Registration Rights
Agreement with US Realty. As part of the Strategic Alliance, the
Company agreed to amend the ownership limitations of the Company's
Charter to permit US Realty to acquire up to 37.5% of the Company's
capital stock. The Strategic Alliance, the amendment and certain
related transactions were approved by shareholders at the Company's
1995 annual meeting held June 5, 1996.
U.S. Realty made the following purchases of the Company's common stock
pursuant to the Stock Purchase Agreement during the nine months ended
September 30, 1996:
<TABLE>
<CAPTION>
# of Gross
Date shares Price Proceeds
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
March 19, 1996 1,948,882 $31.30 per share $ 61,000
July 8, 1996 1,916,933 plus an adjustment 60,000
September 30, 1996 3,162,939 for accrued dividends 99,000
----------
$ 220,000
</TABLE>
The proceeds of these sales were used to pay down the Company's credit
lines, for the acquisition and development of self-storage facilities,
and for working capital.
In addition to the purchases of common stock from the Company,
according to public filings, U.S. Realty acquired an additional
1,520,790 shares on the open market through October 25, 1996, and owned
a total of 8,549,544 shares, or 34.7%, of the Company's outstanding
common stock on that date. The Company did not receive any proceeds
from these open market purchases.
2
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 1996
(THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
EMPLOYEE STOCK PURCHASE AND LOAN PLAN
In the nine month period ending September 30, 1996, the Company issued
43,000 shares of its common stock under the 1995 Employee Stock
Purchase and Loan Plan. Pursuant to the terms of the plan, the
Company and certain officers entered into stock purchase agreements
whereby the officers purchased common stock at the then current stock
price. The Company provides 100% financing for the purchase of the
shares with interest at 7% per anum payable quarterly. The underlying
notes are secured by the shares and mature in November 2002. At
September 30, 1996, there are 273,000 shares of common stock issued
and outstanding under the plan.
4. INVESTMENT IN STORAGE FACILITIES
The following summarizes activity in storage facilities during the
period:
<TABLE>
<S> <C>
COST:
Balance on January 1, 1996 $ 509,297
Property acquisitions 195,668
Existing facility expansions 7,975
Developments placed in service 8,600
Land acquisition and
joint venture development 4,369
Improvements and other 4,511
----------
Balance on September 30, 1996 $ 730,420
==========
ACCUMULATED DEPRECIATION:
Balance on January 1, 1996 $ 14,561
Additions during the period 8,319
----------
Balance on September 30, 1996 $ 22,880
==========
</TABLE>
Unaudited pro forma combined results of operations of the Company for
the nine months ended September 30, 1996, are presented below. Such
pro forma presentation has been prepared assuming that the acquisition
of the 54 properties acquired during the nine month period ended
September 30, 1996, had been completed as of January 1, 1996.
3
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 1996
(THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. INVESTMENT IN STORAGE FACILITIES, CONTINUED
<TABLE>
<CAPTION>
PRO FORMA FOR
NINE MONTHS ENDED
SEPTEMBER 30, 1996
<S> <C>
Revenues $ 80,053
Net income $ 32,141
Earnings per share $ 1.59
</TABLE>
The unaudited pro forma information is not necessarily indicative of
what actual results of operations 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.
5. INTEREST RATE SWAP AGREEMENT
In anticipation of a debt offering in 1997, the Company entered into
an interest rate swap agreement in the third quarter of 1996, with the
objective of reducing its exposure to future interest rate
fluctuations. The agreement involved the exchange of a variable rate
for fixed rate interest payment obligation. The agreement had a
notional principle amount of $75,000, an effective date of March 1,
1997, and a maturity date of March 1, 2004.
6. NOTES PAYABLE
Notes payable at September 30, 1996 consist of $51,200 of borrowings
under a $75,000 line of credit with a group of commercial banks and
$14,938 of borrowings under a $30,000 line of credit with a commercial
bank. These lines of credit and the term loan bear interest at various
spreads over LIBOR. During the quarter ended September 30, 1996, the
weighted average borrowings were $144,651, and the weighted average
interest rate was 6.9%.
4
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEPTEMBER 30, 1996
(THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. SUBSEQUENT EVENTS
On November 7, 1996, the Operating Partnership completed the issuance
of $100,000 of 7.125% Notes due on November 1, 2003. The net proceeds
from the offering of $99,012 were used to repay borrowings under
outstanding lines of credit, to finance the acquisition of
self-storage facilities, and for working capital. $2,500 of the net
proceeds were used to settle an interest rate hedge agreement entered
into in the third quarter of 1996.
Subsequent to September 30, 1996, the Company has completed the
acquisition of 8 self-storage facilities for approximately $20,615.
These acquisitions were financed through operating cash flows and
borrowings under the available line of credit.
The Company has also entered into various property acquisition
contracts with an aggregate cost of approximately $76,193. These
acquisitions are subject to customary conditions to closing, including
satisfactory due diligence, and should close during the fourth
quarter. Should these contracts be disapproved, the costs incurred by
the Company would be immaterial.
5
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of the consolidated financial
condition and results of operations of the Company should be read in
conjunction with the Consolidated Financial Statements and Notes
thereto. References to the Company includes SUSA Partnership L.P.,
the Company's operating subsidiary (the "Operating Partnership").
Due to the substantial number of facilities acquired from September
30, 1995 to September 30, 1996, management believes that it is
meaningful and relevant in understanding the present and ongoing
operations of the Company to compare certain information using
occupancy, per square foot and pro forma data.
The following are definitions of terms used throughout this discussion
in analyzing the Company's business. Physical Occupancy is defined as
the total net rentable square feet rented as of the date computed
divided by the total net rentable square feet available. Gross
Potential Income is defined as the sum of all units available to rent
at a facility multiplied by the market rental rate applicable to those
units as of the date computed. Expected Income is defined as the sum
of the monthly rent being charged for the rented units at a facility
as of the date computed. Economic Occupancy is defined as the
Expected Income divided by the Gross Potential Income. Rent Per
Square Foot is defined as the annualized result of dividing Gross
Potential Income on the date computed by total net rentable square
feet available. Direct Property Operating Cost is defined as the
costs incurred in the operation of a facility, such as utilities, real
estate taxes, and on-site personnel. Indirect Property Operations
Cost is defined as costs incurred in the management of all facilities,
such as accounting personnel and management level operations
personnel. Net Operating Income ("NOI") is defined as total property
revenues less Direct Property Operating Costs.
RESULTS OF OPERATIONS- QUARTER ENDED SEPTEMBER 30, 1996 COMPARED TO
QUARTER ENDED SEPTEMBER 30, 1995.
In the second quarter of 1996, the Company reported growth in revenue,
NOI and net income, respectively, of $10.8 million, $6.8 million and
$3.1 million over the same quarter of 1995. Since September 30, 1995,
the Company has acquired 67 facilities and completed construction of
and opened 2 new facilities. These 69 facilities added 4.7 million
square feet, bringing the total square feet of the 215 facilities
owned by the Company at September 30, 1996 to 14.5 million. For the
third quarter of 1996, the 132 facilities owned during the entire
third quarter of 1995 provided 64.8% of the Company's rental income.
These same facilities' rental income grew 7.1% over 1995 results. The
majority of this growth was provided by an approximate 10.2% rate
increase, which was offset by discounts, and, to a lesser extent, by
vacancies. At September 30, 1996, the physical and economic occupancy
and rent per square foot of the 146 facilities owned at September 30,
1995, was 89%, 83%,
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<PAGE> 11
and $9.60, respectively, while the figures as of September 30, 1995,
were 90%, 84%, and $8.98, respectively. The Company's portfolio of
facilities as a whole had an average occupancy at September 30, 1996,
of 89% physical and 83% economic, with an average rent per square foot
of $9.46. Management income for the quarter ended September 30, 1996
declined due to the acquisition of 15 facilities which were managed by
the Company during the same period of 1995. Other income, which
reflects primarily sales of lock and packaging products and truck
rentals, increased primarily due to the increase in the number of
properties owned, and to a lesser extent, rental income on cellular
tower and billboard leases, and franchise seminar fees.
Cost of property operations and maintenance was $7.8 million for the
quarter ended September 30, 1996, representing a $3.0 million increase
over the third quarter of 1995. Cost of property operations and
maintenance was 26.6% of revenues for the quarter ended September 30,
1996, which is consistent with 26.1% of revenues for the quarter ended
September 30, 1995.
Tax expense increased from $1.4 million or 7.4 % of revenues for the
quarter ended September 30, 1995, to $2.4 million or 8.2% of revenue
for the quarter ended September 30, 1996. This growth as a percentage
of revenues reflects both the impact of reassessments on the
properties purchased during 1994 and 1995 and the increased state and
franchise taxes as the Company moves into new states and expands in
current states. The majority of the property tax increase is
attributable to reassessments on acquisitions with the remainder
attributable to increased tax rates or reassessments on properties
owned for a full year.
General and administrative expense increased from $0.7 million to $1.3
million for the third quarter of 1996 from the comparable quarter of
1995. As a percentage of revenues this category of expense increased
from 3.7% for the quarter ended September 30, 1995 to 4.5% for the
quarter ended September 30, 1996. The growth in this expense reflects
the Company's expansion of its administration, development and
acquisition, management information systems and human resource
departments in connection with its ongoing growth strategy.
Depreciation expense increased to $3.4 million for the quarter ended
September 30, 1996 from $2.3 million for the comparable period in
1995, reflecting the increase in the number of facilities owned. The
Company has acquired or placed in service approximately $256 million
in depreciable assets since October 1, 1995.
Interest expense for the quarter ended September 30, 1996, was $2.63
million as compared to $0.45 million for the comparable period in
1995. The 1996 third quarter interest expense represents weighted
average borrowings of $144.7 million under the Company's lines of
credit at a weighted average interest rate of 6.9%.
Interest income was $0.2 million for the quarter ended September 30,
1996 as compared to
7
<PAGE> 12
$0.02 million for the quarter ended September 30, 1995. Interest
income in 1996 represents earnings on overnight deposits and amounts
outstanding under the 1995 Employee Stock Purchase and Loan Plan.
The Company reported a gain of $0.3 million on the disposition of its
investment in a Jacksonville, Florida storage facility which was
exchanged for cash and two facilities located in Oklahoma.
Minority interest grew from $0.5 million for the quarter ended
September 30, 1995 to $0.7 million for the quarter ended September 30,
1996, as the Company issued approximately 375,000 Operating
Partnership units in connection with the acquisition of certain
facilities from October 1, 1995, to September 30, 1996.
RESULTS OF OPERATIONS- NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1995.
In the first nine months of 1996, the Company reported growth in
revenue, NOI and net income, respectively, of $27.7 million, $17.8
million and $9.2 million over the same period of 1995. Management
income for the nine months ended September 30, 1996 declined due to
the acquisition of 15 facilities which were managed by the Company in
the same period of 1995. Other income, which reflects primarily sales
of lock and packaging products and truck rentals, increased primarily
due to the increase in the number of properties owned, and to a lesser
extent, rental income on cellular tower and billboard leases, and
franchise seminar fees.
Cost of property operations and maintenance was $19.9 million for the
nine months ended September 30, 1996, representing a $7.1 million
increase over the first nine months of 1995. Cost of property
operations and maintenance was 26.5% of revenues for the nine months
ended September 30, 1996 and 27.1% for the nine months ended September
30, 1995. The higher costs as a percent of revenues during 1995 were
as a result of the Company implementing its facility operating cost
structure, along with the addition of area and district managers.
These costs preceded the revenue growth related to the implementation
of the Company's marketing and pricing strategies.
Tax expense increased from $3.4 million or 7.1% of revenues for the
nine months ended September 30, 1995, to $6.2 million or 8.2% of
revenue for the nine months ended September 30, 1996. This growth as
a percentage of revenue reflects both the impact of reassessments on
the properties purchased during 1994 and 1995 and the increased state
and franchise taxes as the Company moves into new states and expands
in current states. The majority of the real estate tax increase is
attributable to reassessments on acquisitions with the remainder
attributable to increased tax rates or reassessments on properties
owned for a
8
<PAGE> 13
full year.
General and administrative expense increased from $1.8 million to $3.1
million for the first nine months of 1996 from the comparable nine
months of 1995. As a percentage of revenues, this category of expense
grew from 3.8% for the nine months ended September 30, 1995, to 4.1%
for the nine months ended September 30, 1996. The Company expects
that the gross expense will grow as the Company expands its
administration, development and acquisition, management information
systems and human resource departments in connection with its ongoing
growth strategy.
Depreciation expense increased to $8.8 million for the nine months
ended September 30, 1996 from $5.7 million for the comparable period
in 1995, reflecting the increase in the number of facilities owned.
The Company has acquired or placed in service approximately $256
million in depreciable assets since October 1, 1995.
Interest expense for the nine months ended September 30, 1996 was $5.8
million as compared to $1.7 million for the comparable period in 1995.
For the nine months ended September 30, 1996, interest expense
represents weighted average borrowings of $108.1 million under the
Company's lines of credit at a weighted average interest rate of 7.0%.
Interest income was $0.5 million for the nine months ended September
30, 1996, as compared to $0.06 million for the nine months ended
September 30, 1995. Interest income in 1996 represents earnings on
overnight deposits and amounts outstanding under the 1995 Employee
Stock Purchase and Loan Plan.
The Company reported a gain of $0.3 million on the disposition of its
investment in a Jacksonville, Florida storage facility which was
exchanged for cash and two facilities located in Oklahoma.
Minority interest grew from $1.1 million for the nine months ended
September 30, 1995, to $1.9 million for the nine months ended
September 30, 1996, as the Company issued approximately 375,000
operating partnership units in connection with the acquisition of
certain facilities from October 1, 1995 to September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations grew to $40.6 million for the nine
months ended September 30, 1996 from $26.0 million for the nine months
ended September 30, 1995. This increase is primarily a result of the
Company's net income growing $9.2 million or 43.6%, over the prior
nine month period, primarily as a result of the increase in number of
facilities owned, and the improvement of operations at the facilities
acquired.
9
<PAGE> 14
During the first nine months of 1996, the Company acquired 54
facilities totaling 3,807,000 square feet for a cost of $195.3 million
including the issuance of 215,769 units of limited partnership
interest in the Operating Partnership ("units") valued at $8.6
million. In addition to its acquisitions during the period, the
Company opened a newly constructed 68,000 square foot facility in
Northern Virginia, a 28,000 square foot expansion in Sarasota,
Florida, a 35,000 square foot expansion in Memphis, Tennessee, and a
30,000 square foot expansion in Albuquerque, New Mexico. The Company
currently has plans to develop 21 new facilities, primarily in the
Washington, D.C., and Memphis, Tennessee areas. Of these, 9 projects
are under construction or are in construction planning, with expected
costs totaling $30 million and completion dates anticipated to be in
the third quarter of 1997. Expansions are planned for 19 existing
facilities, and of these, 13 are under way with planned completion
dates ranging from the first to the third quarters of 1997. Estimated
costs of the 13 expansions under way are $10.2 million.
On March 1, 1996, the Company entered into a Stock Purchase Agreement
with Security Capital U.S. Realty, an affiliate of Security Capital
Group. Under the Stock Purchase Agreement, and pursuant to the terms
and conditions thereof, US Realty invested a total of $220 million in
the Company, placed two of its nominees on the Company's Board of
Directors, and continues to make available to the Company certain
strategic advice, research and related information and expertise. As
part of the transaction, on March 19, 1996, July 8, 1996, and
September 30, 1996, the Company issued to US Realty 1,948,882,
1,916,333, and 5,079,872 shares of Common Stock, respectively, at a
price of $31.30 per share, plus a purchase price adjustment for
accrued dividends. The Company has also executed a Strategic Alliance
Agreement and a Registration Rights Agreement with US Realty. The
Company used the net proceeds of these sales to pay off borrowings
under the available lines of credit, for property acquisitions, and
for working capital.
At September 30, 1996, the Company had $66.1 million of borrowings
outstanding on its lines of credit, $3.4 million of fixed rate debt
maturing in 2001, $2.3 million of fixed rate debt maturing in 2006,
$0.9 million of fixed rate debt maturing in 2000, and $4.4 million of
fixed rate debt maturing in 1997. During the first nine months of
1996, the Company assumed two variable rate mortgages totaling $7.0
million and maturing in 2001. The weighted average balance and
interest rate on these mortgages were $7.0 million and 9.01%,
respectively. The Company had $38.9 million of unused borrowing
capacity under its lines of credit at September 30, 1996.
During the period, the Company issued approximately 18,000 Units
valued at approximately $0.6 million in connection with the
acquisition of facilities. The Company's acquisition of self-storage
facilities using Units as consideration may partially defer the
seller's tax liability.
As of September 30, 1996, there were 1,289,000 outstanding Units owned
by third parties. Beginning one year after their issuance, 910,621 of
these Units are redeemable for cash
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<PAGE> 15
equal to the market value of one share of Common Stock at the time of
redemption or, at the Company's option, one share of Common Stock per
Unit. The remaining 378,379 Units are redeemable for cash or, at the
Company's option, a two-year promissory note. Any shares of Common
Stock issued in redemption of Units are expected to be registered
under the Securities Act of 1933, as amended, and to be freely
tradeable.
Subsequent to September 30, 1996, the Company has completed the
acquisition of 8 self-storage facilities for approximately $20,615.
These acquisitions were financed through operating cash flows and
borrowings under the available line of credit.
The Company has entered into various property acquisition contracts
for facilities with an aggregate cost of approximately $76.2 million.
These acquisitions are subject to customary conditions to closing
including satisfactory due diligence and should close during the
fourth quarter. Should these contracts be disapproved, the costs
incurred by the Company would be immaterial.
The Operating Partnership has filed a shelf registration statement
relating to $250 million of unsecured non-convertible senior debt
securities. This registration statement was declared effective on
August 1, 1996, and, on November 7, 1996, the Operating Partnership
issued $100 million 7.125% Notes due November 1, 2003. The net
proceeds from the offering of $99,012 were used to repay borrowings
under outstanding lines of credit, to finance the acquisition of
self-storage facilities, and for working capital.
FUNDS FROM OPERATIONS ("FFO")
The Company believes that FFO should be considered in conjunction with
its net income and cash flows to facilitate a clear understanding of
its results of operations. FFO is defined as net income, computed in
accordance with GAAP, excluding gains (losses) from debt restructuring
and sales of property, plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures. FFO
should not be considered an alternative to net income as a measure of
the Company's performance or to cash flows as a measure of liquidity.
Effective January 1, 1996, the National Association of Real Estate
Investment Trusts amended its definition of FFO. The impact of
conforming to the amended definition was to reduce FFO available to
the Company's stockholders by approximately $154,000 and $425,000, and
$246,000 and $333,000 for the three and nine month periods ended
September 30, 1996 and September 30, 1995, respectively. Because of
the change in the definition of FFO, FFO for the Company may not be
comparable to similarly titled measures of operating performance
disclosed by other companies.
The following table illustrates the components of the Company's FFO
for the quarters ended September 30, 1996 and September 30, 1995.
11
<PAGE> 16
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
1996 1996 1996 1995
=====================================================================================
<S> <C> <C> <C> <C>
Net Income $ 11,362 $ 8,528 $ 29,885 $ 21,012
Depreciation of real property 3,224 1,945 8,235 4,726
Amortization of lease
guarantees 2 22 70 313
Amortization of non-compete 0 63 83 189
Consolidated FFO 14,588 10,558 38,273 26,240
-------------------------------------------------------------------------------------
Minority interest share of
Amortization of non-compete
Depreciation and amortization (158) (102) (467) (203)
-------------------------------------------------------------------------------------
FFO available to Company
shareholders $ 14,430 $ 10,456 $ 37,806 $ 26,037
=====================================================================================
</TABLE>
The Company, in order to qualify as a REIT, is required to distribute
a substantial portion of its net income as dividends to its
shareholders. While the Company's goal is to generate and retain
sufficient cash flow to meet its operating, capital, and debt service
needs, its dividend requirements may require the Company to utilize
its bank lines of credit to finance property acquisitions and
development and major capital improvements. For the year ended
December 31, 1995, distributions were approximately 85% of the
Company's FFO.
The Company has incurred approximately $0.75 million for regularly
scheduled maintenance and repairs during the nine months ended
September 30, 1996. For the year, the Company expects to incur
approximately $1.2 million for scheduled maintenance and repairs and
approximately $5.9 million to conform facilities acquired during 1995
and 1994 to Company standards.
The Company believes that its liquidity and capital resources are
adequate to meet its cash requirements relating to its existing
operations for the next twelve months.
INFLATION
The Company does not believe that inflation has had or will have a
direct effect on its operations. Substantially all of the leases at
the facilities allow for monthly rental increases which provide the
Company with the opportunity to achieve increases in rental income as
each lease matures.
SEASONALITY
12
<PAGE> 17
The Company's revenues typically have been higher in the third and
fourth quarter primarily because the Company increases its rental
rates on most of its storage units at the beginning of May, and to a
lesser extent because self-storage facilities tend to experience
greater occupancy during the late spring and early fall months due to
the greater incidence of residential moves during those periods. The
Company 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
Company does not expect seasonality to materially affect distributions
to shareholders.
RECENT ACCOUNTING DEVELOPMENTS
In October of 1995, Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("FAS 123") was issued.
The standard is effective for fiscal years beginning after December
15, 1995. The Company has elected to continue expense recognition
under APB 25, and disclosing pro forma net income, and earnings per
share information based on the FAS 123 fair value methodology.
13
<PAGE> 18
PART II- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 5, 1996, the Company held its Annual Meeting of
shareholders. Four matters were submitted to the shareholders for
consideration:
1. Proposal to approve the Strategic Alliance with U.S. Realty;
2. Proposal to approve the amendment of Paragraph 12 of the Company's
Charter;
3. Election of three Class II directors; and
4. Approval of Coopers & Lybrand L.L.P. as auditors for the Company for
1996.
The vote tabulation for each matter was as follows:
1. Proposal to approve the Strategic Alliance with US Realty:
For Against Abstained
--- ------- ---------
15,217,427 34,366 34,148
2. Proposal to approve the amendment of Paragraph 12 of the Company's Charter:
For Against Abstained
--- ------- ---------
15,208,838 36,127 40,976
3. Election of three Class II Directors:
Director For Withheld
- -------- --- --------
Harry J. Thie 17,051,071 13,370
Thomas E. Robinson 17,051,841 12,600
Mark Jorgensen 17,051,841 12,600
Continuing directors whose terms did not expire at the annual meeting
were: Dean Jernigan, John P. McCann, Howard P. Colhoun and Dennis A. Reeve.
4. Approval of Coopers & Lybrand L.L.P. as auditors for the Company for 1996:
For Against Abstained
--- ------- ---------
17,046,660 3,548 14,234
14
<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
On July 17, 1996, the Company filed a current report on Form
8-K/A to include historical and pro-forma financial information on 29
self storage facilities previously acquired and reported.
On August 2, 1996, the Company filed a Current Report on Form
8-K reporting the acquisition of 18 self storage facilities.
On September 16, 1996, the Company filed a current report on
Form 8-K/A to include historical and pro-forma financial information
on the 18 self storage facilities previously acquired and reported.
15
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 14, 1996
Storage USA, Inc.
By: /s/ Thomas E. Robinson
-------------------------
Thomas E. Robinson
President & Chief Financial Officer
(Principal Financial and Accounting
Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's unaudited consolidated financial statements as of September 30,
1996, and the nine months then ended, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,169
<SECURITIES> 0
<RECEIVABLES> 8,942
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,111
<PP&E> 730,420
<DEPRECIATION> 22,880
<TOTAL-ASSETS> 719,651
<CURRENT-LIABILITIES> 60,524
<BONDS> 84,110
0
0
<COMMON> 246
<OTHER-SE> 574,771
<TOTAL-LIABILITY-AND-EQUITY> 719,651
<SALES> 28,806
<TOTAL-REVENUES> 29,435
<CGS> 0
<TOTAL-COSTS> 14,933
<OTHER-EXPENSES> 226
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,626
<INCOME-PRETAX> 11,650
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,650
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,650
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
