<PAGE>
________________________________________________________________________________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-1
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 001-12910
STORAGE USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Tennessee 62-1251239
STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION
10440 Little Patuxent Parkway, Suite 1100, 21044
Columbia, MD (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (410) 730-9500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock $.01 par value New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section229.405 of this chapter) is not contained herein,
and will not be contained, to the best of this registrant's knowledge, in a
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $635,594,000 as of March 29, 1996, based on
18,490,007 shares held by non-affiliates of the registrant. (For this
computation, the registrant has excluded the market value of all shares of its
Common Stock reported as beneficially owned by executive officers and directors
of the registrant and certain other stockholders; such an exclusion shall not be
deemed to constitute an admission that any such person is an "affiliate" of the
registrant.)
19,552,645
(NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK,
AS OF MARCH 29, 1996)
DOCUMENTS INCORPORATED BY REFERENCE
Part II and Part III incorporate certain information by reference from the
registrant's 1995 Annual Report to Shareholders and from the registrant's
definitive proxy statement to be filed with respect to the 1996 Annual Meeting
of Shareholders.
- --------------------------------------------------------------------------------
________________________________________________________________________________
<PAGE>
NOTE: The purpose of this form 10K/A-1 is to amend the Form 10K filed March
31, 1996. Part I Item 2 has been amended to include definitions of terms used
in the analysis. Part II Items 6-8 have been amended to include Predecessor
Financial Statements.
PART I
Item 2. Properties
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. ECONOMIC OCCUPANCY is determined by dividing
the expected income by the gross potential income. Economic occupancy is an
important measure to the Company of the growth potential of a facility. GROSS
POTENTIAL INCOME is defined as the sum of all units available to rent at a
facility multiplied by the market rental rate applicable to those units as of
the date computed. EXPECTED INCOME is defined as the sum of the monthly rent
being charged for the rented units at a facility as of the date computed. RENT
PER SQUARE FOOT is defined as the annualized result of dividing gross potential
income on the date computed by total net rentable square feet.
<TABLE>
<CAPTION>
Property Square Physical Rent Per Economic
Location/Name Units Feet Occupancy Square Foot Occupancy
------------- ----- ------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
BIRMINGHAM VESTAVIA 616 74,262 95% $7.27 92%
ARIZONA 22ND ST/TUSCON 469 47,350 91% $8.27 84%
TEMPE 645 66,198 93% $8.04 86%
24TH ST/YUMA 483 48,450 95% $6.97 87%
ORACLE/TUCSON 488 50,150 94% $9.41 83%
CAVE CREEK 731 61,024 78% $9.03 72%
E. PHOENIX 460 45,520 99% $6.58 93%
Sub-total-Arizona 3,276 318,692 91% 83%
CALIFORNIA, NORTHERN
CAMPBELL 478 28,285 97% $18.70 94%
CAPITOLA 511 46,752 96% $11.11 93%
MONTEREY 1,158 75,341 94% $14.51 84%
SANTA CRUZ 720 48,732 92% $13.51 86%
SANTA CLARA 1,050 94,145 97% $10.83 87%
PALO ALTO 611 45,975 82% $12.82 75%
SAN JOSE 790 70,753 97% $12.03 93%
SCOTT'S VALLEY 337 31,706 97% $12.51 89%
WATSONVILLE 306 33,167 94% $9.89 86%
Sub-total-Cal.Northern 5,961 474,856 94% $12.60 87%
CALIFORNIA, SOUTHERN
NORWALK 917 80,660 96% $10.38 90%
COVINA 713 76,663 91% $9.33 83%
OCEANSIDE 1,197 75,175 89% $11.54 77%
SANTEE 817 82,050 72% $7.54 68%
SAN MARCOS 280 37,200 97% $6.29 83%
PANORAMA CITY 789 80,687 86% $9.39 80%
RIALTO 582 58,274 84% $6.67 73%
YUCAIPA 389 38,518 94% $6.18 87%
HEMET 358 45,590 92% $5.25 88%
FALLBROOK 494 48,650 89% $7.15 77%
MARINA DEL REY 1,233 114,261 85% $15.04 79%
VICTORVILLE 447 54,323 85% $5.28 79%
SAN BERN./BASELINE 1,239 112,201 79% $6.16 72%
COLTON 488 45,184 90% $6.64 77%
<PAGE>
Property Square Physical Rent Per Economic
Location/Name Units Feet Occupancy Square Foot Occupancy
------------- ----- ------ --------- ----------- ---------
WESTMINSTER 678 65,907 91% $9.43 80%
SAN DIEGO/PT. LOMA 1,537 140,899 71% $10.45 67%
GARDEN GROVE 782 78,443 76% $9.68 71%
HIGHLAND 536 62,339 98% $6.02 95%
MORENO 524 44,981 95% $7.07 91%
MIRAMAR CABOT 450 37,476 97% $9.82 85%
MIRAMAR ARJONS 851 120,307 87% $8.47 79%
TAMARISK 874 74,939 91% $7.72 80%
SAN BERN./23RD ST 778 79,420 81% $6.23 76%
SAN BERN./MILL AVE 601 56,675 73% $6.38 63%
REDLANDS 653 71,150 87% $6.05 83%
SAN BERN./WATERMAN 1,199 133,384 67% $4.92 59%
CHATSWORTH 830 103,928 84% $10.25 74%
PALM-GENE AUTRY 639 72,875 92% $6.88 85%
SANTA ANA 795 86,395 70% $11.01 60%
CITY OF INDUSTRY 813 81,647 84% $7.35 75%
Sub-total-Cal. Southern 22,483 2,260,201 84% $8.32 76%
FLORIDA, WESTERN
LONGWOOD 621 65,575 91% $9.75 87%
TAMPA-ADAMO 650 81,775 96% $6.80 92%
PT RICHEY - HWY 19 499 80,459 89% $5.73 84%
FT. MEYERS - SAN CARLOS 413 52,175 94% $7.56 94%
SARASOTA 616 74,595 88% $10.10 80%
OLD US41-NAPLES 632 71,725 92% $6.70 87%
Sub-total-Fla.Western 3,431 426,304 92% $7.71 87%
FLORIDA, SOUTHERN
WPB SOUTH 703 62,050 95% $10.38 90%
WPB II 745 69,985 86% $9.36 80%
SOUTHSIDE BLVD. 789 90,300 96% $5.59 89%
IVES DAIRY 707 76,687 89% $12.47 80%
KENDALL 891 80,670 83% $13.67 77%
N. LAUDERDALE - MCNAB 690 64,552 91% $10.78 87%
ANSIN BLVD-HALLANDALE 1,139 99,017 91% $9.74 89%
TAMIAMI-MIAMI 985 77,512 90% $12.43 87%
HWY 441-MIAMI 936 80,541 89% $11.21 85%
Sw 84 1,134 87,251 94% $12.46 90%
QUAIL roost 947 78,033 78% $11.33 73%
MIAMI-SUNSET 947 78,884 94% $13.36 92%
DORAL-MIAMI 881 82,813 83% $10.85 81%
DAVIE 1,260 117,266 75% $10.96 71%
Sub-total-Fla.Southern 12,754 1,145,561 88% $11.00 83%
ATLANTA AREA
EASTPOINT 689 65,634 97% $9.24 88%
WESTERN HILLS 590 70,425 84% $6.65 81%
LILBURN 554 66,140 97% $6.82 94%
SOUTH COBB 578 54,750 93% $8.14 87%
ACWORTH 302 39,753 91% $7.08 82%
Sub-total-Atlanta Area 2,713 296,702 92% $7.59 87%
<PAGE>
Property Square Physical Rent Per Economic
Location/Name Units Feet Occupancy Square Foot Occupancy
------------- ----- ------ --------- ----------- ---------
CHICAGO AREA
BRICKYARD 905 91,850 90% $8.00 88%
SCHAUMBURG 602 80,736 94% $10.32 93%
CERMAK 790 63,324 89% $10.04 89%
Sub-total-Chicago Area 2,297 235,910 91% $9.34 90%
KANSAS CITY AREA
OLATHE - KSC 437 47,300 93% $7.29 89%
OVERLAND PK - KSC 381 47,075 94% $8.82 87%
SHAWNEE - KSC 487 56,255 88% $7.97 78%
STATE AVENUE-KSC 391 50,125 90% $6.65 85%
GRANDVIEW 507 70,460 93% $5.22 92%
RAYTOWN-350 HWY 455 51,050 92% $5.85 93%
Sub-total-KC Area 2,658 322,265 91% $6.85 87%
TCHOUPITOULAS - N.O. 680 68,622 95% $9.85 88%
NEW ENGLAND
E. HARTFORD 842 85,370 84% $8.69 70%
WETHERSFLD 467 70,250 87% $7.86 81%
ENFIELD 559 66,100 77% $7.71 65%
WHITMAN 337 34,625 97% $10.79 86%
HAVERHILL 545 53,545 96% $8.73 90%
NEW BEDFORD 567 65,675 61% $8.64 50%
WORCESTER 475 65,150 80% $8.51 74%
Sub-total-NE 3,792 440,715 82% $8.55 73%
DC/BALTIMORE AREA
14TH & U ST. 1,406 107,152 74% $14.66 69%
WALDORF 680 75,875 97% $8.67 90%
MILLERSVILLE 858 82,325 96% $9.09 92%
ANNAPOLIS/TROUT 751 65,377 89% $15.20 77%
SILVER SPRING 984 88,990 86% $17.72 75%
ANNAPOLIS/RTE 50 633 70,880 95% $14.09 84%
COLUMBIA 735 71,285 89% $15.43 77%
ESSEX 530 60,490 90% $11.78 79%
MONT. VILLAGE 663 74,633 84% $12.30 70%
ROCKVILLE 948 57,648 94% $17.24 86%
FALLS CHURCH 664 60,763 86% $13.30 71%
CHANTILLY 596 49,400 90% $14.11 80%
FAIRFAX STATION 780 64,165 87% $13.06 80%
Sub-total-DC/Balt. Area 10,228 928,983 88% $13.58 78%
DETROIT AREA
TEL DIXIE 470 46,350 97% $7.35 96%
LINCOLN PARK 527 63,650 98% $8.24 96%
Sub-total-Detroit Area 997 110,000 98% $7.86 96%
ALBUQUERQUE
ELLISON/NM 562 54,635 80% $8.59 79%
SAN MATEO/NM 447 44,285 71% $8.40 66%
LOMAS/NM 413 31,650 83% $9.59 75%
ALBUQ.-OSUNA 665 70,960 84% $6.52 78%
MONTGOMERY/NM 546 49,245 78% $9.49 72%
LEGION/NM 495 44,350 87% $10.15 80%
ALBUQ.-E. CENTRAL 340 35,750 93% $6.30 75%
HOTEL CIRCLE 130 24,972 37% $6.23 30%
ALBUQ.-EUBANK 878 74,025 78% $6.35 74%
ALBUQ.-COORS/CENTRAL 388 52,500 89% $6.08 87%
Sub-total-Albuquerque 4,864 482,372 80% $7.66 74%
<PAGE>
Property Square Physical Rent Per Economic
Location/Name Units Feet Occupancy Square Foot Occupancy
------------- ----- ------ --------- ----------- ---------
LAS VEGAS
TROPICANA 512 57,465 99% $8.49 90%
STORTITE/CHARLESTON 520 55,850 94% $7.51 80%
DECATUR/OAKEY 553 52,305 98% $9.16 86%
LORENZI 563 56,500 100% $9.30 91%
SUNSET SAFSTO 683 69,274 98% $8.58 89%
SAHARA 729 127,370 96% $6.46 84%
Sub-total-Las Vegas 3,560 418,764 97% $7.95 87%
OKLAHOMA CITY
10TH ST - OKC 530 58,000 79% $4.89 70%
AIR DEPOT - OKC 490 54,100 93% $4.90 88%
MERIDIAN - OKC 602 82,600 80% $3.92 72%
MIDWEST CITY - OKC 522 61,415 96% $5.28 92%
NW EXPRESSWAY - OKC 461 51,000 97% $5.52 91%
SOONER ROAD/OKC 577 59,900 97% $5.31 90%
MOORE - OKC 418 51,900 92% $4.82 89%
Sub-total-OK City 3,600 418,915 90% $4.88 84%
TULSA
S. LEWIS-TULSA 559 46,538 90% $7.05 86%
SKELLY-TULSA 366 44,660 60% $5.29 54%
SHERIDAN-TULSA 560 66,610 94% $6.33 88%
MINGO-TULSA 768 72,875 83% $7.31 75%
PEORIA-TULSA 499 62,475 77% $5.91 69%
Sub-total-Tulsa 2,752 293,158 82% $6.44 76%
PHILADELPHIA AREA
PENNSAUKEN 722 80,750 79% $10.95 76%
LAWNSIDE 638 55,200 91% $11.30 88%
CHERRY HILL/CUTHBERT 443 49,120 93% $10.56 86%
CHERRY HILL/RTE 70 476 60,676 98% $10.38 88%
PHILADELPHIA 596 70,225 90% $11.23 86%
ALLENTOWN 772 59,900 90% $8.21 84%
KING OF PRUSSIA 723 81,900 97% $9.38 95%
BETHLEHEM 795 71,740 90% $8.69 83%
WARMINSTER 545 56,660 90% $9.42 86%
WILMINGTON 633 71,925 91% $10.49 88%
Sub-total-Phil. Area 6,343 658,096 91% $10.06 86%
MEMPHIS
MEMPHIS-MT. MORIAH 564 53,580 97% $11.36 93%
UNION 529 57,585 92% $10.45 81%
GATEWAY 464 50,875 95% $6.46 93%
SUMMER 577 60,870 90% $10.81 83%
MEMPHIS-RIDGEWAY 543 51,750 85% $7.28 68%
Sub-total-Memphis 2,677 274,660 92% $9.37 84%
NASHVILLE 944 109,800 91% $7.52 85%
CHATTANOOGA 463 46,875 92% $6.65 81%
<PAGE>
Property Square Physical Rent Per Economic
Location/Name Units Feet Occupancy Square Foot Occupancy
------------- ----- ------ --------- ----------- ---------
DALLAS/FT WORTH AREA
EULESS BLVD. 798 103,276 93% $6.50 88%
IRVING-ARPT FREEWAY 827 85,147 87% $6.47 78%
S. FREEWAY-FT.WORTH 757 78,118 83% $5.25 79%
N. FREEWAY-FT.WORTH 641 87,744 85% $4.91 80%
PRESTON 725 86,775 92% $9.01 83%
MIDWAY-DALLAS 480 53,850 92% $9.05 88%
FT. WORTH AVE - DALLAS 479 48,202 92% $6.62 86%
W. SETTLEMENT-HWY 183 1,640 169,148 88% $6.32 77%
Sub-total Dallas/Ft.Worth 6,347 712,260 89% $6.63 82%
SALT LAKE CITY/UTAH
OREM 563 59,500 71% $6.42 84%
SANDY 563 83,760 84% $7.03 72%
WEST VALLEY CITY 472 53,275 52% $6.51 40%
Sub-total-Salt Lake City 1,598 196,535 71% $6.70 67%
TOTALS 105,034 10,714,508 88% $8.93 81%
</TABLE>
<PAGE>
PART II
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated herein by reference to page 39 of the Company's 1995
Final Financial Statements, which pages are attached hereto as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
Incorporated herein by reference from the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing on pages 1 through 18 of the Company's 1995 Final Financial
Statements, which pages are attached hereto as Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's Financial Statements and Supplementary Data for the
year ended December 31, 1995, are incorporated herein by reference from
pages 19 through 38 of the Company's 1995 Final Financial Statements, which
pages are attached hereto as Exhibit 13.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report
and are hereby incorporated by reference:
<TABLE>
<CAPTION>
FINAL FINANCIALS FOR FORM 10-K/A-1
-------------------- -------------
1995 REPORT (EXHIBIT 13)
------------------------
PAGE NUMBERS
(MANUALLY SIGNED ORIGINAL)
--------------------------
<S> <C> <C>
1. FINANCIAL STATEMENTS:
Report of Coopers & Lybrand L.L.P. 38 __
Balance sheets as of December 31, 1995 and 1994 19 __
Statements of operations for the year ended December 31, 1995,
and for the period March 24, 1994 (inception) through
December 31, 1994, for the period January 1, 1994 through
March 23, 1994 and for the year ended December 31, 1993 20 __
Statements of cash flows for the year ended
December 31, 1995 and for the period March 24, 1994
(inception) through December 31, 1994, for the period
January 1, 1994 through March 23, 1994 and for the
year ended December 31, 1993. 21 __
Statement of shareholders' equity (Predecessor) 22
Statements of shareholders' equity for the year ended
December 31, 1995 and for the period March 24, 1994
(inception) through December 31, 1994 23 __
Notes to financial statements 24 __
Supplementary information -- Quarterly financial data
(unaudited) 37 __
Selected Financial Data 39 __
</TABLE>
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.
3. EXHIBITS
The following exhibits are filed as part of this report:
EXHIBIT NO. DESCRIPTION
---------- -----------
3.1* Amended Charter of Storage USA, Inc. (the "Company").
3.2* Restated and Amended Bylaws of the Company.
4* Specimen Common Stock Certificate.
10.1* Agreement between the Company and certain executive officers
prohibiting conflicting self-storage interest.
10.2* 1993 Omnibus Stock Option Plan
10.3* Deed of Trust Promissory Note made by Severn River Associates
Limited Partnership ("Severn River") in favor of Aid
Association of Lutherans ("AAL")
10.4* First Deed of Trust made by Severn River in favor of AAL
10.5* SUSA Partnership, L.P. 401(k) Savings Plan
<PAGE>
10.6** Form of Registration Rights Agreement relating to Operating
Partnership unit issuances in 1994
10.7** Loan Agreement of the Partnership in favor of First Tennessee
National Bank ("FTNB")
10.8** Revolving Credit Note of the Partnership in favor of FTNB
10.9*** Credit Agreement, dated February 8, 1995, among SUSA
Partnership, L.P., Storage USA, Inc. And The First National
Bank of Chicago, Crestar Bank, and Signet Bank/Virginia
10.10*** First Amendment to Credit Agreement, dated as of October 31,
1995, by and among SUSA Partnership, L.P., Storage USA, Inc.,
The First National Bank of Chicago, Crestar Bank, Signet
Bank/Virginia and The First National Bank of Chicago
10.11*** Amended and Restated Promissory Note, dated October 31, 1995,
in the amount of $45,000,000 executed by SUSA Partnership,
L.P. to The First National Bank of Chicago
10.12*** Promissory Note dated February 8, 1995, in the amount of
$15,000,000 executed by SUSA Partnership, L.P. payable to
Crestar Bank.
10.13*** Promissory Note dated February 8, 1995, in the amount of
$15,000,000 executed by SUSA Partnership, L.P. payable to
Signet Bank/Virginia
10.14*** Credit Agreement, dated as of December 21, 1995, by and among
SUSA Partnership, L.P., Storage USA, Inc., and The First
National Bank of Chicago
10.15*** Promissory Note, dated December 21, 1995, in the amount of
$25,000,000 executed by SUSA Partnership, L.P., payable to The
First National Bank of Chicago
10.16+++ Form of Agreement of General Partners relating to certain
Operating Partnership issuances in 1995 and schedule of
beneficiaries
10.17+++ Promissory Note, dated March 23, 1995, in the original
principal amount of $2,400,000 executed by the Partnership
payable to the order of
10.18+++ Form of Registration Rights Agreement relating to certain
issuances of Operating Partnership units in 1995 and schedule
of beneficiaries
10.19++ Form of stock purchase agreement in connection with the 1995
Employee Stock Purchase and Loan Plan, and schedule of
participants
10.20++ Form of Promissory Note in connection with the 1995 Employee
Stock Purchase and Loan Plan and Schedule of issuers
10.21++++ Second Amended and Restated Agreement of Limited Partnership
of SUSA Partnership, L.P., dated as of September 21, 1994 (the
"Partnership Agreement")
10.22 Stock Purchase Agreement, dated as of March 1, 1996, between
the Company and Security Capital Holdings S.S. and Security
Capital U.S. Realty (filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K, filed March 7, 1996, and
incorporated by reference herein).
10.23 Strategic Alliance Agreement, dated as of March 1, 1996,
between the Company and Security Capital Holdings S.A. and
Security Capital U.S. Realty (filed as Exhibit 2.1 to
Amendment No. 1 to the Schedule 13D filed March 21, 1996, by
Security Capital U.S. Realty and Security Capital Holdings
S.A. with respect to the Common Stock of the Company, and
incorporated by reference herein).
10.24 Registration Rights Agreement, dated as of March 19, 1996,
between the Company, Security Capital Holdings, S.A. and
Security Capital U.S. Realty (filed as Exhibit 2.2 to
Amendment No. 1 to the Schedule 13D filed March 21, 1996, by
Security Capital U.S. Realty and Security Capital Holdings
S.A. with respect to the Common Stock of the Company, and
incorporated by reference herein)
10.25 First Amendment to the Partnership Agreement, dated March 19,
1996 (filed as Exhibit 10.3 to the Company's Current report on
Form 8-K, filed March 27, 1996, and incorporated by reference
herein)
10.26*** First Amendment to the Adoption Agreement for the Storage USA,
Inc. 401(k) Plan
13 The Company's 1995 Final Financial Statements are incorporated
by reference into this Form 10-K/A-1
<PAGE>
21** Subsidiaries of Registrant
23 Consent of Coopers & Lybrand L.L.P.
__________________
* Filed as an Exhibit to the Company's Registration Statement on Form S-
11, File No. 33-74072, as amended, and incorporated by reference
herein.
** Filed as an Exhibit to the Company's Registration Statement on Form
S-11, File No. 33-82764, as amended, and incorporated by reference
herein.
+ Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, and incorporated by reference
herein.
++ Filed as an Exhibit to the Company's Current Report on Form 8-K, as
amended to Form 8-K/A Filed November 17, 1995, and incorporated by
reference herein.
+++ Filed as an Exhibit to the Company's Current Report on form 8-K, filed
May 30, 1995, and incorporated by reference herein.
++++ Filed as an Exhibit to the Company's Registration Statement on Form S-
3, File No. 33-91302, and incorporated by reference herein.
*** Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated by reference herein.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
STORAGE USA, INC.
By: /s/ John R. Erickson
----------------------
John R. Erickson
SENIOR VICE PRESIDENT,
SECRETARY, AND CHIEF
FINANCIAL OFFICER
<PAGE>
STORAGE USA, INC.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
3.1* Amended Charter of Storage USA, Inc. (the "Company").
3.2* Restated and Amended Bylaws of the Company.
4* Specimen Common Stock Certificate.
10.1* Agreement between the Company and certain executive officers
prohibiting conflicting self-storage interest.
10.2* 1993 Omnibus Stock Option Plan
10.3* Deed of Trust Promissory Note made by Severn River Associates
Limited Partnership ("Severn River") in favor of Aid
Association of Lutherans ("AAL")
10.4* First Deed of Trust made by Severn River in favor of AAL
10.5* SUSA Partnership, L.P. 401(k) Savings Plan
10.6** Form of Registration Rights Agreement relating to Operating
Partnership unit issuances in 1994
10.7** Loan Agreement of the Partnership in favor of First Tennessee
National Bank ("FTNB")
10.8** Revolving Credit Note of the Partnership in favor of FTNB
10.9*** Credit Agreement, dated February 8, 1995, among SUSA
Partnership, L.P., Storage USA, Inc. And The First National
Bank of Chicago, Crestar Bank, and Signet Bank/Virginia
10.10*** First Amendment to Credit Agreement, dated as of October 31,
1995, by and among SUSA Partnership, L.P., Storage USA, Inc.,
The First National Bank of Chicago, Crestar Bank, Signet
Bank/Virginia and The First National Bank of Chicago
10.11*** Amended and Restated Promissory Note, dated October 31, 1995,
in the amount of $45,000,000 executed by SUSA Partnership,
L.P. to The First National Bank of Chicago
10.12*** Promissory Note dated February 8, 1995, in the amount of
$15,000,000 executed by SUSA Partnership, L.P. payable to
Crestar Bank.
10.13*** Promissory Note dated February 8, 1995, in the amount of
$15,000,000 executed by SUSA Partnership, L.P. payable to
Signet Bank/Virginia
10.14*** Credit Agreement, dated as of December 21, 1995, by and among
SUSA Partnership, L.P., Storage USA, Inc., and The First
National Bank of Chicago
10.15*** Promissory Note, dated December 21, 1995, in the amount of
$25,000,000 executed by SUSA Partnership, L.P., payable to The
First National Bank of Chicago
10.16+++ Form of Agreement of General Partners relating to certain
Operating Partnership issuances in 1995 and schedule of
beneficiaries
10.17+++ Promissory Note, dated March 23, 1995, in the original
principal amount of $2,400,000 executed by the Partnership
payable to the order of
10.18+++ Form of Registration Rights Agreement relating to certain
issuances of Operating Partnership units in 1995 and schedule
of beneficiaries
<PAGE>
10.19++ Form of stock purchase agreement in connection with the 1995
Employee Stock Purchase and Loan Plan, and schedule of
participants
10.20++ Form of Promissory Note in connection with the 1995 Employee
Stock Purchase and Loan Plan and Schedule of issuers
10.21++++ Second Amended and Restated Agreement of Limited Partnership
of SUSA Partnership, L.P., dated as of September 21, 1994 (the
"Partnership Agreement")
10.22 Stock Purchase Agreement, dated as of March 1, 1996, between
the Company and Security Capital Holdings S.S. and Security
Capital U.S. Realty (filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K, filed March 7, 1996, and
incorporated by reference herein).
10.23 Strategic Alliance Agreement, dated as of March 1, 1996,
between the Company and Security Capital Holdings S.A. and
Security Capital U.S. Realty (filed as Exhibit 2.1 to
Amendment No. 1 to the Schedule 13D filed March 21, 1996, by
Security Capital U.S. Realty and Security Capital Holdings
S.A. with respect to the Common Stock of the Company, and
incorporated by reference herein).
10.24 Registration Rights Agreement, dated as of March 19, 1996,
between the Company, Security Capital Holdings, S.A. and
Security Capital U.S. Realty (filed as Exhibit 2.2 to
Amendment No. 1 to the Schedule 13D filed March 21, 1996, by
Security Capital U.S. Realty and Security Capital Holdings
S.A. with respect to the Common Stock of the Company, and
incorporated by reference herein)
10.25 First Amendment to the Partnership Agreement, dated March 19,
1996 (filed as Exhibit 10.3 to the Company's Current report on
Form 8-K, filed March 27, 1996, and incorporated by reference
herein)
10.26*** First Amendment to the Adoption Agreement for the Storage USA,
Inc. 401(k) Plan
13 The Company's 1995 Final Financial Statements are incorporated
by reference into this Form 10-K/A-1
21** Subsidiaries of Registrant
23 Consent of Coopers & Lybrand L.L.P.
-----------------
* Filed as an Exhibit to the Company's Registration Statement on Form
S-11, File No. 33-74072, as amended, and incorporated by reference
herein.
** Filed as an Exhibit to the Company's Registration Statement on Form
S-11, File No. 33-82764, as amended, and incorporated by reference
herein.
+ Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, and incorporated by reference
herein.
++ Filed as an Exhibit to the Company's Current Report on Form 8-K, as
amended to Form 8-K/A Filed November 17, 1995, and incorporated by
reference herein.
+++ Filed as an Exhibit to the Company's Current Report on form 8-K, filed
May 30, 1995, and incorporated by reference herein.
++++ Filed as an Exhibit to the Company's Registration Statement on Form
S-3, File No. 33-91302, and incorporated by reference herein.
*** Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995 and incorporated by reference herein.
<PAGE>
EXHIBIT 13
STORAGE USA, INC.
1995 FINAL FINANCIAL STATEMENTS
--------
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------
The following discussion and analysis of the consolidated financial condition
and results of operations should be read in conjunction with the Consolidated
Financial Statements and Notes thereto. As discussed in Note 1 to the
Consolidated Financial Statements, the "Company's" 1994 results of operations
are presented from March 24, 1994, the date following the completion of the
Company's initial public offering (the "IPO") and conversion to real estate
investment trust ("REIT") status, through December 31, 1994 (the "Period").
References to the "Company" include SUSA Partnership, L.P., the Company's
operating subsidiary (the "Operating Partnership"). As discussed in Note 12 to
the Consolidated Financial Statements, the accompanying combined financial
statements for the periods prior to March 24, 1994, present only the "carved
out" accounts of the "Predecessor" comprised of the combined assets,
liabilities, and operations of the Predecessor preceding the IPO, including 11
owned facilities and 6 controlled facilities and Storage USA Management Corp.
Due to the substantial number of facilities acquired during 1995 and 1994,
management believes that it is meaningful and relevant in understanding the
present and ongoing operations of the Company to compare information using
occupancy, per square foot and pro forma data. The assumptions underlying the
pro forma data presented are described under "Pro Forma Results of Operations
for the period January 1, 1994 through December 31, 1994."
The following are definitions of terms used throughout this discussion 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.
Continued
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
OVERVIEW:
In 1995, the Company continued executing its strategy of acquiring suitably
located, under-performing facilities that offer upside potential due to low
occupancy rates or non-premium pricing. During the year, the Company invested
$220 million in acquiring 63 facilities. In addition, the Company pursued
development opportunities in selective markets, specifically the San Francisco,
Memphis, and Washington, D.C. areas. The Company invested $4.7 million in
acquiring 11 parcels of land for expansion of existing facilities and $0.8
million acquiring a parcel of land to be developed. The 1995 financial results
reflect the continuing implementation of this acquisition and development
strategy.
Contributions to the Company's revenue growth came from a successful execution
of both external and internal growth strategies. The Company continues to
purchase properties on an accretive basis. Internal growth remained strong
during 1995. The 96 properties owned at December 31, 1994 demonstrated total
revenue growth of 7.2% and NOI growth of 4.6% as compared to the pro forma 1994
results. The lower rate of NOI growth reflects the fact that the pro forma
expense is based on the previous operator's expense structure for the period
prior to acquisition, and the Company's expense structure is generally higher
than that of the previous operator. The Company expects that when comparing its
actual "same store" results, NOI growth will generally exceed revenue growth,
similarly to the 67 facilities described herein. The Company considers
facilities to be suitable for a year-over-year "same store" results comparison
only after four complete quarters of operation by the Company. For example, if
a facility was purchased in January of 1995, the Company would consider it
suitable for a year-over-year comparison beginning with the second quarter of
1996. The 67 properties owned by the Company for the entire fourth quarter of
1994, experienced 5.2% rental income growth and 7.7% NOI growth for the fourth
quarter of 1995 over the same quarter in 1994. The Company believes that once
it implements its property operations expense structure, its Direct Property
Operating Costs should increase on a year-over-year basis in a more predictable
pattern.
In 1995, the Company experienced cost growth principally in the areas of real
estate tax and Indirect Property Operations Cost. The Company's cost to manage,
or Indirect Property Operations Cost, grew during 1995 to a year-end result of
$3.3 million or 4.9% of total revenues. This was a result of the Company's
planning and structuring for continued growth. The Company added four district
offices during the year, and added regional coordinators and trainers at each of
its four regional offices. The personnel additions allow the Company to shift
to the regional offices certain duties that were previously performed at the
Corporate office. During the fourth quarter of 1995, the Company began to
experience growth in property tax expense as a result of revised assessments on
acquired facilities.
Continued
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
OVERVIEW, continued:
In the initial period following the Company's purchase of a facility, the
Company is subject to reassessments which may result in increased real estate
tax expense for the facility. While these increases are estimated by the
Company in underwriting the acquisition of the facility, they may not actually
be incurred by the Company until generally 12-24 months after closing. In the
periods that follow the initial reassessment, increases in property tax expense
becomes more predictable.
The Company expects to continue implementing its strategies for growth in 1996.
The addition of Indirect Property Operations Cost in 1995 will allow the Company
the capacity to add more facilities in the future, assuming an even distribution
of the facilities in the Company's existing markets. Acquisitions continue to
be available at attractive capitalization rates and at prices that approximate
replacement cost. Development efforts will intensify in 1996, with the Company
planning to have 500,000 square feet under development during 1996. This
development includes expansion of existing facilities as well as new
construction. The Company considers a project to enter the development stage
when it obtains a conditional contract on the land, which generally is subject
to rezoning or special use permits. The Company will normally not acquire land
until it is satisfied it can obtain the entitlements required to develop a self-
storage facility. Typical self-storage facility construction costs range from
$22 to $25 per net rentable square foot. Land costs vary by location, with the
Company's past experience being $12 to $35 per buildable square foot. Soft
costs, such as capitalized interest, can add $4 to $9 per net rentable square
foot. The Company's development policy requires a projected 12.5% return at
stabilization, in order for the Company to develop a facility. The Company
considers a property at stabilization when it reaches an 85% physical occupancy
level, which generally occurs over an 18-24 month lease-up period. The 1996
development efforts are not expected to have a material impact on earnings.
In 1996, the Company anticipates funding its capital requirements through the
sale of 7.03 million shares of common stock at $31.30 per share to its strategic
alliance partner, Security Capital U.S. Realty, pursuant to a Stock Purchase
Agreement entered into on March 1, 1996. In addition, the Operating Partnership
anticipates filing a shelf registration statement relating to $250 million of
unsecured, nonconvertible senior debt securities, which should enable the
Company to access the public debt markets efficiently at opportune times.
RESULTS OF OPERATIONS:
YEAR ENDED DECEMBER 31, 1995, AS COMPARED TO PERIOD MARCH 24, 1994 (INCEPTION)
THROUGH DECEMBER 31, 1994:
In 1995, the Company reported growth in revenue, income from property
operations, and net income, respectively, of $42.2 million, $27.3 million, and
$17.2 million over the prior period. Compared to
Continued
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
RESULTS OF OPERATIONS, continued:
pro forma results for 1994, the Company's revenues grew $21.0 million, income
from property operations increased $12.2 million and net income rose $5.4
million. These significant increases are primarily attributable to both the
Company's aggressive acquisition strategy and aggressive rental rate increases.
Facility acquisitions during 1995, by quarter, were as follows (in thousands):
NUMBER NET
OF RENTABLE
1995 FACILITIES COST SQUARE FEET
---- ---------- ---- -----------
Quarter ended
March 31 2 $ 7,080 180
Quarter ended
June 30 34 119,788 2,248
Quarter ended
September 30 14 56,682 1,110
Quarter ended
December 31 13 36,450 890
------- -----
Total 63 $220,000 4,428
-- -------- -----
-- -------- -----
These acquisitions added 44,000 units, bringing the total square feet and units
of the 159 facilities owned by the Company at December 31, 1995 to 10,715,000
and 105,000, respectively. For the year, the 96 facilities owned on December
31, 1994, provided 74% of the Company's rental income. These facilities' rental
income grew 9.1% over pro forma 1994 results. Approximately 8% of this growth
was provided by rate increases. At December 31, 1995, the physical and economic
occupancy and rent per square foot on these facilities was 88%, 81%, and $9.24,
respectively. The Company's portfolio as a whole had average occupancy at
December 31, 1995 of 88% physical and 81% economic, with an average rent per
square foot of $8.93.
Management income increased $365 thousand over the prior Period, and $216
thousand over the 1994 pro forma results. The pro forma variance reflects the
addition of three managed facilities and management during the year of
facilities that were subsequently purchased by the Company.
Other Income, which consists primarily of sales of lock and packaging products
and truck rentals, increased 4% over the prior Period. This increase reflects
primarily the growth in the number of facilities owned.
Continued
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
RESULTS OF OPERATIONS, continued:
Cost of property operations and maintenance was 27.2% of revenue for 1995 as
compared to 26.5% for the prior Period. This increase reflects the addition of
Indirect Property Operations Cost to support the level of growth experienced in
1995 and planned in 1996.
Real estate taxes were 7.2% of revenue for 1995 as compared to 6.5% for the
prior Period and 6.8% for the pro forma results. This growth as a percentage of
revenue reflects the impact of reassessments on the properties purchased during
1994 and 1995. The majority of the increase is attributable to reassessments on
acquisitions with the remainder attributable to increased tax rates or
reassessments on properties owned for a full year. The Company expects
continued modest real estate tax expense growth as a percentage of revenues in
1996.
Direct Property Operating Cost was 29.9% of rental income, both on the 96
properties owned at December 31, 1994 and the portfolio as a whole. The
property level margins remained consistent from 1994 to 1995.
General and Administrative ("G&A") expense declined as a percentage of total
revenue as compared to the prior Period and was consistent as compared to the
1994 pro forma results. 1995 G&A expense was $2.6 million, or 3.8% of total
revenue as compared to $1.4 million or 5.3% in the prior Period. G&A was $762
thousand for the quarter ended December 31, 1995 and the Company expects that
the expense will decline further as a percentage of revenue in 1996, while the
gross expense will grow as the Company expands its accounting, management
information systems, and human resource departments, in connection with its
ongoing growth strategy.
The increase in depreciation and amortization to $8.6 million from $2.9 million
in the prior Period and $5.7 million on a pro forma basis reflects the Company's
acquisition of $220 million of facilities in 1995. In addition, the Company
amortized $903 thousand of the loan fees related to the Company's short-term
borrowings in 1995. As of December 31, 1995, the Company has unamortized loan
fees of approximately $230 thousand.
Interest expense was $3.0 million in 1995, a $1.6 million increase over the
prior Period. 1995 interest expense represents weighted average borrowings of
$47.2 million under the Company's lines of credit at a weighted average interest
rate of 6.4%.
Interest income in 1995 was $166 thousand, as compared to $658 thousand in 1994.
1995 interest income represents earnings on overnight deposits and amounts
outstanding under the 1995 Employee Stock Purchase and Loan Plan, while the
prior Period reflected the temporary investment of a portion of the proceeds
from the Company's two common stock offerings during the Period.
Continued
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
RESULTS OF OPERATIONS, continued:
PERIOD MARCH 24, 1994 (INCEPTION) THROUGH DECEMBER 31, 1994:
The Company reported rental income of $24.7 million, income before minority
interest of $12.3 million and net income of $11.9 million or $1.28 per share
during the Period. These results reflect the significant portfolio expansion
that occurred during 1994. At the IPO the Company owned 17 facilities (the
"Original Properties"). Property acquisitions by quarter were as follows (in
thousands):
NUMBER NET
OF RENTABLE
1995 FACILITIES COST SQUARE FEET
---- ---------- ---- -----------
Quarter ended
March 31 26 $ 65,193 1,743
Quarter ended
June 30 12 25,004 596
Quarter ended
September 30 12 40,796 797
Quarter ended
December 31 29 83,831 1,991
------- -----
Total 79 $214,824 5,127
-- -------- -----
-- -------- -----
The rental revenues reflect the weighted average per square foot rent increases
ranging from 4.9% for some of the facilities acquired during the second quarter
to 6.9% for facilities acquired during the first quarter.
There were no rent increases implemented at three of the facilities acquired
during the quarter ended June 30 nor at any of the facilities acquired during
the quarters ended September 30 and December 31. The Company generally operates
an acquisition facility for three to six months prior to implementing rent
increases. At December 31, 1994, the Company's physical and economic occupancy
and rent per square foot were 87%, 81%, and $8.53, respectively.
Cost of operations and maintenance expense was $6.9 million, or 26.5% of
revenue. The expense reflects the direct cost of operating the 96 properties
owned by the Company at December 31, 1994. The ratio is approximately 4% higher
than the pro forma ratio in the Company's Prospectus, dated September 22, 1994.
The 4% increase reflects the Company's level of acquisition during the fourth
Continued
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
RESULTS OF OPERATIONS, continued:
quarter as there tends to be a slight time lag between the cost structure the
Company puts in place at an acquisition facility and the related impact of the
Company's rent increases.
Real estate tax expense was $1.7 million or 6.5% of revenue. The Company
evaluates real estate taxes on a property by property basis and appeals
assessments where it deems the action warranted.
General and Administrative expense was $1.4 million in 1994, reflecting growth
in the number of facilities owned.
The 1994 depreciation expense of $2.9 million reflects the expansion in the
number of facilities owned. The facilities acquired during the Period had an
average depreciable base of 73% of cost.
Interest expense was $1.4 million. The Company had a weighted average of
approximately $20.5 million in debt outstanding during the Period at a weighted
average interest rate of 6.8%.
Interest income was $0.7 million reflecting the temporary investment of a
portion of the proceeds from the Company's two common stock offerings during the
Period.
YEAR ENDED DECEMBER 31, 1995 RESULTS OF THE COMPANY, AS COMPARED TO THE COMBINED
(HISTORICAL) YEAR ENDED DECEMBER 31, 1994 RESULTS OF THE PREDECESSOR AND THE
COMPANY:
Rental Income increased $39.4 million (146%) primarily as a result of rental
rate increases, and an increase in the number of facilities owned as a result of
the Company acquiring 63 facilities during fiscal year 1995. Management income
increased $.18 million (20%) reflecting the addition of three managed facilities
and management during the year of facilities that were subsequently purchased by
the Company.
Cost of property operations and maintenance increased $10.8 million (142%) as a
result of an increase in the number of facilities owned during fiscal year 1995.
Cost of property operations and maintenance was 27.2% of revenue for 1995 as
compared to 26.9% for the combined 1994 period.
Real estate taxes increased $3.1 million (166%) as a result of additional
expenses due to acquisitions of 63 facilities during fiscal year 1995 and the
impact of property reassessments. Real estate taxes were 7.2% of revenue for
1995 as compared to 6.5% for the combined 1994 period.
General and administrative (G&A) expense increased $.9 million (51%) as a result
of additional expenses incurred to support the Company's aggressive growth
strategy. G&A expense was 3.8%
Continued
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
RESULTS OF OPERATIONS, continued:
YEAR ENDED DECEMBER 31, 1995 RESULTS OF THE COMPANY, AS COMPARED TO THE COMBINED
(HISTORICAL) YEAR ENDED DECEMBER 31, 1994 RESULTS OF THE PREDECESSOR AND THE
COMPANY, continued:
of revenue for 1995 as compared to 6.0% for the combined 1994 period. This
decline as a percentage of revenue reflects the overall increase in revenue.
Depreciation and amortization expense increased $5.5 million (175%) due to the
acquisition of $220 million in facilities in 1995, as well as the impact of
recognizing a full year of depreciation on the facilities acquired in the prior
period.
Interest expense increased $.4 million reflecting the changes in the Company's
debt structure between the periods.
COMBINED (HISTORICAL) YEAR ENDED DECEMBER 31, 1994 RESULTS OF THE PREDECESSOR
AND THE COMPANY, AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1993 RESULTS OF THE
PREDECESSOR:
Rental Income increased $17.0 million (170%) primarily as a result of rental
rate increases, and an increase in the number of facilities owned as a result of
the Company acquiring 79 facilities during fiscal year 1994. Management income
increased $.04 million (4%) reflecting growth in revenues at managed properties.
Cost of property operations and maintenance increased $4.5 million (144%) as a
result of the Company operating 96 facilities during 1994, as compared to 17
facilities in 1993. Cost of property operations and maintenance was 26.9% of
revenue for the combined 1994 period as compared to 28.0% for 1993.
Real estate taxes increased $1.2 million (169%) as a result of an increase in
the number of properties owned during the combined periods of 1994. Real estate
taxes were 6.5% of revenue for the combined 1994 period as compared to 6.1% for
1993. General and administrative (G&A) expense increased $.9 million (104%) as
a result of additional expenses incurred to support the current and future
growth in the number of facilities and the related increased requirements for
accounting, management information systems, and administrative personnel. G&A
expense was 6.0% of revenue for the combined 1994 period, as compared to 7.4%
for 1993.
Depreciation and amortization expense increased $1.8 million (138%) as the
Company acquired 79 facilities for approximately $214 million during 1994.
Continued
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
RESULTS OF OPERATIONS, continued:
COMBINED (HISTORICAL) YEAR ENDED DECEMBER 31, 1994 RESULTS OF THE PREDECESSOR
AND THE COMPANY, AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1993 RESULTS OF THE
PREDECESSOR, continued:
Interest expense decreased $1.8 million as a result of the Predecessor's
outstanding mortgage debt balance being significantly reduced through the use of
the proceeds from the Company's March, 1994 IPO.
PRO FORMA RESULTS OF OPERATIONS FOR THE PERIOD JANUARY 1, 1994 THROUGH DECEMBER
31, 1994:
The Company believes that pro forma results of operations provide a meaningful
and relevant understanding of the Company's results as if it had been a public
REIT since January 1, 1994. The following pro forma results of operations was
prepared as if: (i) the sale in the IPO of 6.325 million shares of the Company's
common stock for aggregate proceeds of approximately $125.8 million and the
related transactions, (ii) the sale of 5.980 million shares of the Company's
common stock for aggregate proceeds of approximately $155.5 million in a
secondary offering and the related transactions, and (iii) the acquisition of
the 79 facilities acquired during the year, had taken place on January 1, 1994.
The pro forma information is not necessarily indicative of the results of
operations which may have occurred if such transactions had been consummated on
January 1, 1994, nor does it purport to represent the results of operations for
future periods.
Continued
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
RESULTS OF OPERATIONS, continued:
PRO FORMA RESULTS OF OPERATIONS FOR THE PERIOD JANUARY 1, 1994 THROUGH DECEMBER
31, 1994, continued:
Pro Forma for the period January 1, 1994 through December 31, 1994 (amounts in
thousands except per share data).
Revenues:
Rental income $45,093
Management income 856
Other income 1,045
-------
Total revenues 46,994
-------
-------
Expenses:
Cost of property operations
and maintenance 11,328
Real estate taxes 3,206
General and administrative 1,794
Depreciation and amortization 5,738
-------
Total expenses 22,066
-------
Income from operations 24,928
Other income (expense):
Interest expense (446)
Interest income 23
-------
Income before minority interest 24,505
Minority interest (747)
-------
Net income $23,758
-------
Net income per weighted average
common shares outstanding
(13,298,817 at December 31, 1994) $ 1.79
-------
-------
Continued
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
LIQUIDITY AND CAPITAL RESOURCES:
CAPITAL RESOURCES:
On March 1, 1996, the Company entered into a Stock Purchase Agreement with
Security Capital U.S. Realty ("US Realty"), an affiliate of Security Capital
Group. Under the Stock Purchase Agreement, and pursuant to the terms and
conditions thereof, US Realty will invest a total of $220 million in the
Company, initially place two of its nominees on the Company's Board of
Directors, one of whom the Company has been informed will be William D. Sanders,
Chairman of the Board and Chief Executive Officer of Security Capital Group, and
make available to the Company certain strategic advice, research and related
information and expertise (the "Strategic Alliance"). As part of the
transaction, on March 19, 1996, the Company issued to US Realty 1,948,882 shares
of Common Stock, approximately 10.0% of the outstanding Common Stock, at a price
of $31.30 per share, plus a purchase price adjustment for accrued dividends. At
the same time, the Company executed a Strategic Alliance Agreement and a
Registration Rights Agreement with US Realty.
The Company believes that the Strategic Alliance represents an attractive
opportunity to improve long-term shareholder value by providing the Company with
access to significant additional financial and strategic resources not otherwise
readily available to it, thereby enhancing the Company's short-term and long-
term growth prospects and better positioning it to capitalize on opportunities
as the REIT industry matures.
After the Strategic Alliance has been approved by the shareholders of the
Company, and prior to December 31, 1996, the Company will issue to US Realty an
additional 5,079,872 shares of the Company's common stock at the same price.
After acquiring the additional shares (and assuming no other change in the
number of outstanding shares), US Realty will own approximately 28.6% of the
outstanding Common Stock. The Company has agreed to submit to the shareholders
a proposal to amend the ownership limitations of the Company's Charter to permit
US Realty to acquire up to 37.5% of the Company's capital stock. The Strategic
Alliance, the amendment and certain related transactions are expected to be
submitted to shareholders for approval at the Company's 1996 annual meeting.
The Company expects to finance the acquisition and development of self-storage
facilities primarily through the issuance of equity and debt securities.
Pursuant to the Strategic Alliance with US Realty the Company issued to US
Realty 1,948,882 shares of common stock for $61 million on March 19, 1996, and
expects to issue an additional 5,079,872 shares of common stock for $159 million
on or prior to December 31, 1996.
Continued
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
LIQUIDITY AND CAPITAL RESOURCES, continued:
CAPITAL RESOURCES, continued:
The Operating Partnership of the Company anticipates filing a shelf registration
statement relating to $250 million of unsecured, nonconvertible debt securities.
In addition, the Company has outstanding a shelf registration statement covering
approximately $75 million of unallocated equity securities. These registration
statements should permit the Operating Partnership and the Company to access the
public capital markets efficiently when it deems appropriate.
The Company anticipates using the proceeds of the common stock issuance to U.S.
Realty for acquisition and development of self-storage facilities. The proceeds
from any debt or equity offering by the Operating Partnership or the Company
would be used to repay borrowings under the Company's lines of credit used to
finance acquisitions and development, and for general purposes. As a general
matter, the Company anticipates utilizing its lines of credit as an interim
source of funds to acquire and develop self-storage facilities and repaying the
credit lines with longer-term debt or equity when management determines that
market conditions are favorable. The Company believes that the combination of
the common stock issuance pursuant to the Strategic Alliance, and debt or equity
issuances pursuant to the shelf registration statements, in addition to
borrowings under its credit facilities and issuances of Operating Partnership
Units, as described below, will provide the Company with necessary liquidity and
capital resources to meet the requirements of its operating strategies in 1996.
On February 8, 1995, the Company entered into a Credit Agreement for a $55
million unsecured revolving line of credit (the "Line") with a financial
institution acting as an agent for a group of lenders. On October 31, 1995, the
First Amendment to the Credit Agreement was entered into by the Company
increasing the aggregate commitment available under the Line to $75 million.
The Line had an initial termination date of February 8, 1996, with the Company
having an option to extend the term for two successive one-year periods. The
Company has exercised that right and has extended the maturity on the Line to
February 1997. The Line bears interest at various spreads (75 basis points at
March 1, 1996) over LIBOR based on the Company's debt service coverage. On
December 31, 1995, the Company entered into a $25 million unsecured term loan
facility (the "Facility") with the same agent as on the Line. The Facility has
a maturity date of December 21, 1996, and bears interest at various spreads (135
basis points at March 1, 1996) over LIBOR.
In addition to the $75 million Line, the Company has a $30 million line of
credit with a commercial bank with an initial maturity date of July 1, 1996.
This line of credit was increased from $15 million to $23 million in November
1995 and increased to $30 million by year end. In connection with the last
increase, the lender released its security interest in 13 self-storage
facilities that previously had
Continued
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
LIQUIDITY AND CAPITAL RESOURCES, continued:
CAPITAL RESOURCES, continued:
been pledged by the Company. This line of credit, at the option of the Company,
bears interest at Prime or LIBOR plus 2.25%.
The Company assumed a $2.4 million mortgage on a facility acquired during
September 1995. The mortgage bears interest at 8.375% and matures in 2006.
At December 31, 1995, the Company had $3.4 million of fixed rate debt maturing
in 2001, $2.3 million of fixed rate date maturing in 2006, and $.9 of floating
rate debt maturing in 1999. The Company does not believe it has significant
refinancing or interest rate risk on its debt. At December 31, 1995, the
Company had $15.4 million available under the $23 million line of credit with a
commercial bank.
During 1995, the Company revised its debt policy. The Company's policy limits
indebtedness at time of incurrence to the lesser of 50% of its total assets at
cost or the amount that will sustain a minimum debt service coverage ratio of
3:1. In addition, following shareholder approval of the Strategic Alliance with
US Realty, the Strategic Alliance Agreement with US Realty will restrict the
Company from incurring total indebtedness in an amount exceeding 60% of the
total assets (generally defined as the sum of (i) the value of the Company's
outstanding common stock at $31.30 per share, (ii) the Company's outstanding
indebtedness, and (iii) net property acquisitions after March 1, 1996). The
Company does not anticipate operating at a debt level that would cause the debt-
to-total assets ratio to exceed 40% for an extended period of time, and,
consequently, does not believe that these restrictions will materially restrict
its operations or have a material adverse effect on its financial condition or
results of operations, though there can be no assurance that they will not do so
in the future.
On June 7, 1995, the Company issued 4.025 million shares of common stock raising
net proceeds of approximately $107.6 million. The proceeds were used to repay
$99.9 million of indebtedness, and for portfolio acquisitions.
During 1995, the Company issued approximately 600,000 units of limited
partnership interest in the Operating Partnership ("Units") valued at
approximately $18 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.
The Company's investing activities during the year consisted primarily of the
acquisition of 63 self storage facilities, a warehouse to be converted by the
Company into a self-storage facility, 11
Continued
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
LIQUIDITY AND CAPITAL RESOURCES, continued:
CAPITAL RESOURCES, continued:
expansion parcels of land at existing facilities and one parcel of land for
development by the Company.
The Company expects to incur approximately $1.2 million for scheduled
maintenance and repairs during the next twelve months and approximately $5.9
million to conform facilities acquired during 1995 and 1994 to Company
standards.
The Company at December 31, 1995, had Shareholders Equity of approximately $358
million, a debt-to-equity ratio of 31.9% and a debt-to-total assets ratio of
22.4%.
FUNDS FROM OPERATIONS ("FFO"):
The Company believes FFO should be considered in conjunction with net income and
cash flows to facilitate a clear understanding of its operating results. FFO is
defined as net income, computed in accordance with generally accepted accounting
principles ("GAAP"), excluding gains (losses) from debt restructuring and sales
of property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. FFO should not be considered as
an alternative to net income as a measure of the Company's financial performance
or as an alternative to cash flows from operating activities as a measure of
liquidity. FFO does not represent cash generated from operating activities in
accordance with GAAP and is not necessarily indicative of cash available to fund
cash needs. Effective January 1, 1996, the National Association of Real Estate
Investment Trusts amended its definition of FFO. The Company will begin
presenting FFO under the amended definition for the first quarter 1996. As
such, the Company's 1995 FFO and FFO per share may not be comparable to
similarly titled measures of other REITs who may have chosen early adoption of
the amended method of FFO computation. The pro forma FFO was prepared as if the
IPO and the related formation transactions, including the acquisition of the 26
facilities, had occurred on January 1, 1994.
Continued
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
LIQUIDITY AND CAPITAL RESOURCES, continued:
FUNDS FROM OPERATIONS ("FFO"), continued:
The following table illustrates the components of the Company's FFO and FFO per
share for the year ended December 31, 1995, the period ending December 31, 1994
and pro forma for the year ended December 31, 1994 (in thousands except per
share data):
1995 1994 1994
HISTORICAL HISTORICAL PRO FORMA
---------- ---------- ---------
Net income $29,153 $11,930 $14,243
Depreciation of
real property 7,246 2,474 2,984
Amortization of
non compete 248 167 167
Amortization of
lease guarantees 189 186 186
Amortization of
loan fees 903 55 55
-------- ------- -------
-------- ------- -------
Consolidated FFO 37,739 14,812 17,635
Minority interest
share of depreciation
and amortization (382) (55) (97)
-------- ------- -------
FFO available
to Company
Shareholders $37,357 $14,757 $17,538
-------- ------- -------
-------- ------- -------
FFO per weighted average share $ 2.39 $ 1.58 $ 1.98
Distributions per
common share (2.04) (1.41) (1.84)
-------- ------- -------
Undistributed FFO
per weighted
average share $ .35 $ .17 $ .14
-------- ------- -------
-------- ------- -------
The Company, as a qualified REIT, is required to distribute a substantial
portion of its net income as dividends to its shareholders. In 1995, those
distributions were approximately 85% of the Company's funds from operations.
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
Continued
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
LIQUIDITY AND CAPITAL RESOURCES, continued:
FUNDS FROM OPERATIONS ("FFO"), continued:
to utilize its bank lines of credit and other sources of liquidity to finance
property acquisitions and development, and major capital improvements.
The Company believes that its liquidity and capital resources are adequate to
meet its cash requirements for the next twelve months.
FUTURE ACTIVITIES:
The Company's strategic alliance with US Realty will not affect its business
plan or growth strategies for 1996. However, the alliance has positively
affected the Company's access to capital. Pursuant to the terms of the
alliance, US Realty will provide certain economic and market research, and
assistance in capital strategy and formation. The Company expects that this
alliance will positively impact the formulation of the Company's longer term
strategic plan and its ability to execute its strategies.
The Company's external growth strategy is to increase the number of facilities
owned by the Company either by acquiring suitably located, under-performing
facilities that offer potential for improvement of occupancy or rental rates, or
by developing and constructing new facilities in favorable markets. The
Company, since its IPO, has made approximately $435 million of acquisitions.
The Company expects to continue investing at a consistent pace during 1996,
seeking to acquire approximately 65-75 facilities. The Company anticipates
purchasing properties in 1996 at an average yield on trailing NOI of not less
than 10%.
The Company will continue to selectively develop facilities in markets that are
determined by management to be favorable. The Company has budgeted commitments
of approximately $30 million for development beginning in 1996. The development
activities will consist of additions to existing facilities and construction of
new facilities. The Company, at December 31, 1995, had 12 parcels of land in
its portfolio in various stages of development. The Company has entered into an
agreement to develop a self-storage facility in Northern Virginia, to be owned
jointly by the Company and an unaffiliated third party. The Company estimates
that its share of the construction expenses under the agreement will be
approximately $6.5 million. The Company expects to complete construction in
April 1996 and at December 31, 1995, had incurred construction costs of
approximately $3.3 million. The Company is converting a warehouse into a self-
storage facility at an estimated cost of construction of $1 million. At
December 31, 1995, the Company had incurred construction costs of approximately
$400 thousand, and expects to complete the facility by the end of the first
quarter of 1996.
Continued
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
LIQUIDITY AND CAPITAL RESOURCES, continued:
FUTURE ACTIVITIES, continued:
At December 31, 1995, the Company had 1,025,423 Operating Partnership Units
outstanding. Certain Operating Partnership Units became redeemable beginning on
March 23, 1995, for an amount equal to their then fair market value ($2.7
million, based upon a price per Unit of $32.625 at December 31, 1995) payable by
the Company either in cash or (at the Company's option, based upon a
determination by the Company's Board of Directors that the Company's anticipated
cash requirements and anticipated cash flow make a lump sum payment imprudent)
by a promissory note payable in quarterly installments over two years with
interest at the prime rate. Units held by other Limited Partners are
redeemable, at the option of such Limited Partners, beginning on the first
anniversary of their issuance, for amounts equal to the then fair market value
of their Units ($11.3 million, based upon a price per Unit of $32.625 at
December 31, 1995) payable by the Company in cash or, at the option of the
Company, in shares of the Company's Common Stock at the initial exchange ratio
of one share for each Unit. As of March 29, 1996, no Limited Partner has
requested to redeem Units. It is anticipated that a source of funds for any
such cash redemption will be retained cash flow or proceeds from the future sale
of securities of the Company or other Company indebtedness. The Company has
granted registration rights to the holders of Units entitling them to require
the Company to register under the Securities Act of 1933 any shares of the
Company's common stock issued upon redemption of Units held by them.
Portfolio expansion and repayment of principal on Company indebtedness represent
the Company's primary liquidity requirements. The Company does not expect to
generate sufficient funds from operating cash flow to meet such long-term
liquidity needs and intends to finance them primarily through borrowings under
its lines of credit, debt or equity offerings, or additional borrowings for such
purpose.
COMPETITION:
The Company monitors the development of self-storage facilities in its markets.
The Company has identified four markets in which potential overbuilding may be
occurring. In three of these markets (Dallas, Atlanta, and Phoenix) the Company
may be required to reduce by 50% its normal yearly rental rate increase, and in
one market, Albuquerque, the Company may be unable to aggressively increase
rates in 1996. All of these markets may also demonstrate a minimal reduction in
the seasonal physical occupancy achieved throughout the year. As a result of
the geographic diversity of the Company's portfolio, the Company does not expect
the potential for excess supply in these markets to have a significant impact on
its financial condition or results of operations.
Continued
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTINUED
--------
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 rent increases which provide the Company with the opportunity to achieve
increases in rental income as each lease matures.
SEASONALITY:
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,
summer, and early fall months due to the greater incidence of 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
anticipates continuing to elect expense recognition under APB 25, and disclosing
pro forma net income, and earnings per share information based on the FAS 123
fair value methodology.
Continued
18
<PAGE>
STORAGE USA, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 1994
------------------------------
(amounts in thousands -- except share data)
ASSETS
Investment in storage facilities,
at cost:
Land $139,603 $74,544
Buildings and equipment 369,694 204,449
------------------------------
509,297 278,993
Accumulated depreciation (14,561) (7,224)
------------------------------
494,736 271,769
Cash & cash equivalents 3,006 3,325
Other assets 11,783 5,079
------------------------------
TOTAL ASSETS $509,525 $280,173
------------------------------
------------------------------
LIABILITIES & SHAREHOLDERS' EQUITY
Line of credit borrowings $107,605 $4,000
Mortgage notes payable 6,670 4,373
Accounts payable & accrued expenses 5,945 5,398
Rents received in advance 3,680 2,038
Minority interest 27,438 9,673
------------------------------
TOTAL LIABILITIES 151,338 25,482
------------------------------
Commitment and contingencies
Shareholders' equity:
Common stock $.01 par value, 150,000,000
shares authorized, and 17,562,363 and
13,298,817 shares issued and outstanding 176 133
Paid-in capital 385,989 271,529
Notes receivable -- officers (6,727) --
Accumulated deficit (15,831) (15,831)
Distributions in excess of net
income (5,420) (1,140)
------------------------------
TOTAL SHAREHOLDERS' EQUITY 358,187 254,691
------------------------------
TOTAL LIABILITIES & SHAREHOLDERS'
EQUITY $509,525 $280,173
------------------------------
------------------------------
See notes to consolidated financial statements.
Continued
19
<PAGE>
STORAGE USA, INC. (THE "COMPANY")
AND
STORAGE USA, INC. (THE "PREDECESSOR")
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
----------------------------------------------------------------------------
For the
period March
24, 1994 For the
For the (Inception) period For the
year ended through January 1, 1994 through year ended
Dec 31, 1995 Dec 31, 1994 March 23, 1994 Dec 31, 1993
----------------------------------------------------------------------------
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
REVENUES:
Rental income $66,455 $24,667 $2,358 $10,019
Management income 1,072 707 188 859
Other income 480 460 52 311
----------------------------------------------------------------------------
Total revenues 68,007 25,834 2,598 11,189
----------------------------------------------------------------------------
EXPENSES:
Cost of property operations & maintenance 18,471 6,851 792 3,130
Real estate taxes 4,900 1,686 153 683
General & administrative 2,568 1,374 325 831
Depreciation & amortization 8,586 2,882 244 1,313
----------------------------------------------------------------------------
Total expense 34,525 12,793 1,514 5,957
----------------------------------------------------------------------------
INCOME FROM OPERATIONS 33,482 13,041 1,084 5,232
OTHER INCOME (EXPENSE):
Interest expense (3,004) (1,404) (1,195) (4,432)
Interest income 166 658 -- --
----------------------------------------------------------------------------
INCOME (LOSS) BEFORE MINORITY INTEREST 30,644 12,295 (111) 800
Minority interest (1,491) (365) (54) (351)
----------------------------------------------------------------------------
NET INCOME (LOSS) $29,153 $11,930 $(165) $449
----------------------------------------------------------------------------
----------------------------------------------------------------------------
NET INCOME PER SHARE $1.87 $1.28
DISTRIBUTIONS PER SHARE $2.04 $1.41
----------------------------------------------------------------------------
----------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 15,612 9,304
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
Continued
20
<PAGE>
STORAGE USA, INC. (THE "COMPANY")
AND STORAGE USA, INC. (THE "PREDECESSOR")
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
-----------------------------------------------------------------------
For the Period Jan 1, 1994 For the
For the March 24, 1994 through year ended
year ended (Inception) through March 23, Dec 31,
Dec 31, 1995 Dec 31, 1994 1994 1993
-----------------------------------------------------------------------
(amounts in thousands)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $29,153 $11,930 $(165) $449
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,586 2,882 244 1,313
Minority interest 1,491 365 -- --
Changes in assets and liabilities:
Other assets (3,111) (2,025) (809) (591)
Other liabilities 2,189 4,664 393 218
-----------------------------------------------------------------------
Net cash provided/(used) by operating activities 38,308 17,816 (337) 1,389
-----------------------------------------------------------------------
-----------------------------------------------------------------------
INVESTING ACTIVITIES:
Acquisition and improvements of storage facilities (212,332) (215,857) -- (655)
Development of storage facilities (4,842) (327) -- (3,095)
-----------------------------------------------------------------------
Net cash used in investing activities (217,174) (216,184) -- (3,750)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
FINANCING ACTIVITIES:
Net borrowings under line of credit 103,605 4,000 450 --
Proceeds from the issuance of bank notes -- -- -- 900
Mortgage principal payments (79) (41,802) (44) (71)
Mortgage principal borrowing 2,376 -- 2,970
Increase in deferred costs -- -- (372)
Increase/(decrease) in payable to affiliates -- (18,812) 178 (589)
Proceeds from issuance of stock 107,776 271,652 -- --
Cash dividends (33,433) (13,070) (397) (350)
Distributions to minority interest (1,698) (275) -- --
-----------------------------------------------------------------------
Net cash provided by financing activities 178,547 201,693 187 2,488
-----------------------------------------------------------------------
Net (decrease) increase in cash and equivalents (319) 3,325 (150) 127
Cash and equivalents, beginning of period 3,325 -- 150 23
-----------------------------------------------------------------------
Cash and equivalents, end of period $3,006 $3,325 $ -- $150
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Supplemental schedules of non-cash activities:
Storage facilities acquired in exchange for Operating
Partnership Units $17,972 $8,374
Common Stock issued in exchange for notes receivable $6,727 --
-----------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
Continued
21
<PAGE>
STORAGE USA, INC. (THE "COMPANY")
AND
STORAGE USA, INC. (THE "PREDECESSOR")
CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' EQUITY
PREDECESSOR
<TABLE>
<CAPTION>
COMMON STOCK
------------ NOTES DISTRIBUTIONS TOTAL
NUMBER OF PAID IN RECEIVABLE- ACCUMULATED IN EXCESS OF SHAREHOLDERS'
SHARES AMOUNT CAPITAL OFFICER'S DEFICIT NET INCOME EQUITY
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1993. . . . . . . 1 $1 -- -- $(3,562) -- $(3,561)
Dividends deemed cash
distributions. . . . . . . . -- -- -- -- (11,012) -- (11,012)
Capital contributions. . . . . -- -- -- -- 1,462 -- 1,462
Stock split. . . . . . . . . . 993 9 -- -- (9) -- --
Net income . . . . . . . . . . -- -- -- -- 449 -- 449
--------------------------------------------------------------------------------------------------
Balance at
December 31, 1993. . . . . . 994 10 -- -- (12,672) -- (12,662)
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
Corporate reorganization
adjustments. . . . . . . . . -- -- -- -- (2,994) -- (2,994)
Net loss . . . . . . . . . . . -- -- -- -- (165) -- (165)
--------------------------------------------------------------------------------------------------
Balance at March 23, 1994. . . 994 $10 -- -- $(15,831) -- $(15,821)
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
</TABLE>
Continued
22
<PAGE>
STORAGE USA, INC. (THE "COMPANY")
AND
STORAGE USA, INC. (THE "PREDECESSOR")
CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' EQUITY
(continued)
COMPANY
<TABLE>
<CAPTION>
COMMON STOCK
------------ NOTES DISTRIBUTIONS TOTAL
NUMBER OF PAID IN RECEIVABLE- ACCUMULATED IN EXCESS OF SHAREHOLDERS'
SHARES AMOUNT CAPITAL OFFICER'S DEFICIT NET INCOME EQUITY
-------------------------------------------------------------------------------------------
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 24, 1994. . . . . . . 994 $10 $ -- $ -- $(15,831) $ -- $(15,821)
Issuance of new shares of
common stock on
March 24, 1994 . . . . . . . . . . . 6,325 63 $125,727 -- -- -- $125,790
Issuance of new shares of
common stock on
September 29, 1994 . . . . . . . . . 5,980 60 145,802 -- -- -- 145,862
Net income . . . . . . . . . . . . . . -- -- -- -- -- $11,930 11,930
Distributions declared
($1.41 per share). . . . . . . . . . -- -- -- -- -- (13,070) (13,070)
-------------------------------------------------------------------------------------------
Balance at
December 31, 1994. . . . . . . . . . 13,299 133 271,529 -- (15,831) (1,140) 254,691
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Issuance of new shares of
common stock on June 7, 1995 . . . . 4,025 40 107,517 -- -- -- 107,557
Issuance of new shares of
common stock to officers
under the 1995 Employee
Stock Purchase and Loan Plan . . 230 2 6,725 (6,727) -- -- --
Issuance of new shares of
common stock under the
Dividend Reinvestment and
Stock Purchase Plan, and
the 1993 Omnibus Stock Plan . . . . 8 1 218 -- -- -- 219
Net Income . . . . . . . . . . . . . . -- -- -- -- -- 29,153 29,153
Distributions declared
($2.04 per share). . . . . . . . . . -- -- -- -- -- (33,433) (33,433)
-------------------------------------------------------------------------------------------
Balance at
December 31, 1995. . . . . . . . . . 17,562 $176 $385,989 $(6,727) $(15,831) $(5,420) $358,187
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Continued
23
<PAGE>
STORAGE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------
1. ORGANIZATION:
Storage USA, Inc. (the "Predecessor" See Note 12), a Tennessee corporation,
was formed in 1985 to own, develop, construct and operate self-storage
facilities throughout the United States. On March 23, 1994, the
Predecessor completed an initial public offering (the "IPO") of 6,325,000
shares of common stock at $21.75 per share forming Storage USA, Inc. (the
"Company"). The Company received approximately $125,790 in proceeds, net
of underwriting discount and offering expenses.
Upon completion of the IPO, the Company retired approximately $36,300 in
facility indebtedness and 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. The Operating Partnership used the contribution from the
Company to acquire 26 self-storage facilities from unrelated third parties,
to acquire the outstanding partnership interests in five controlled
facilities, and for working capital.
In addition, the Operating Partnership formed SUSA Management, Inc. ("SUSA
Management"), to provide self-storage management to third parties and
certain ancillary services. The Operating Partnership owns 99% of the
economic interest of SUSA Management.
On September 29, 1994, the Company completed a second public offering
("Second Offering") of 5,980,000 shares of common stock at $26.00 per
share. The Company received approximately $145,862 in proceeds net of
underwriting discount and offering expenses. The Company used the proceeds
of the offering to acquire 27 self-storage facilities from unrelated third
parties, to retire approximately $33,200 of indebtedness, and for working
capital. On June 7, 1995, the Company completed a third public offering
("Third Offering") of 4,025,000 shares of common stock at $28.375 per
share. The Company received approximately $107,557 in proceeds net of
underwriting discount and offering expenses. The Company used the proceeds
of the offering to acquire and repay debt related to the acquisition of 34
self-storage facilities.
The Company began operating as a Real Estate Investment Trust ("REIT")
commencing with the period beginning March 24, 1994. Accordingly, the
Company's 1994 results of operations are presented from March 24, 1994, the
date following the completion date of the IPO and the establishment of REIT
status, through December 31, 1994. The results for the period prior to
January 1, 1994, and for the period from January 1, 1994, through March 23,
1994 are presented for the Predecessor and are labeled as such on the
financial statements related to Predecessor activity.
Continued
24
<PAGE>
STORAGE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements of the Company include the accounts
of the Company, the Operating Partnership and SUSA Management. All
intercompany balances and transactions have been eliminated. The financial
statements reflect the segregation of the operating activities for the
periods presented related to the Company and the Predecessor, which has
been accounted for on a basis consistent with the Company except for the
items noted in Note 12.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reported periods. Actual results could differ from those
estimates.
FEDERAL INCOME TAXES:
The Company operates so as to qualify to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). Generally, a REIT
that complies with the Code and distributes at least 95% of its taxable
income to its shareholders does not pay federal tax on its distributed
income. Therefore, the statement of operations contains no provision for
federal income taxes.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid debt instruments purchased with
maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION:
Rental income and management income is recorded when due from tenants and
customers. Rental income received prior to the start of the rental period
is included in rents received in advance.
INVESTMENT IN STORAGE FACILITIES:
Storage facilities are recorded at cost. Depreciation is computed using
the straight line method over estimated useful lives of 40 years for
buildings and improvements, and three to ten years for furniture, fixtures
and equipment. Expenditures for significant renovations or
Continued
25
<PAGE>
STORAGE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
improvements which extend the useful life of assets are capitalized.
Repairs and maintenance costs are expensed as incurred.
During 1995, the Company adopted Statement of Accounting Standards No. 121
"Accounting for Impairment of Long-Lived Assets." The adoption of this
standard had no impact on the Company's financial statements. Impairment
is evaluated based upon comparing the sum of the expected future cash flows
(undiscounted and without interest charges) to the carrying value of the
asset. If the cash flow is less, an impairment loss is recognized for the
amount by which the carrying amount of the assets exceeds the fair value of
the asset.
OTHER INCOME:
Other income consists primarily of sales of storage-related merchandise
(locks and packing supplies) and commissions from truck rentals.
MINORITY INTEREST:
The minority interest reflects the ownership interest of the limited
partners who hold Units in the Operating Partnership. The Unit holders'
share of the net income of the Operating Partnership is charged to minority
interest expense and increases the Company's liability. Distributions to
Operating Partnership Unit holders reduce the Company's liability.
OTHER ASSETS:
Included in other assets in 1995 and 1994, respectively, are $4,842 and
$327 of costs related to two development projects, prepaid expenses,
accounts receivable and intangible assets. The intangible assets at
December 31, 1995 and 1994, respectively, consist primarily of loan
acquisition costs of approximately $254 and $230, net of accumulated
amortization of approximately $24 and $78, a covenant not to compete of
$500, net of accumulated amortization of approximately $415 and $167, and
minimum lease guarantees of approximately $189 and $186, which have been
fully amortized. Loan acquisition costs are amortized over the terms of
the related debt, the covenant is amortized over the contract period of the
agreement. Amounts under minimum lease guarantees on five of the Company's
facilities are amortized as earned.
INCOME PER SHARE:
Net income per share is calculated using the weighted average number of
shares outstanding during the period. In 1995 and 1994, the impact of
outstanding stock options is not materially dilutive.
Continued
26
<PAGE>
STORAGE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
3. INVESTMENT IN STORAGE FACILITIES:
The following summarizes activity in storage facilities during the period:
Cost Balance at March 23, 1994 $ 54,762
Property acquisitions 224,147
Improvements 84
--------
Balance at December 31, 1994 278,993
Property acquisitions 220,541
Land acquisitions 5,733
Improvements 4,030
--------
Balance at December 31, 1995 $509,297
--------
--------
Accumulated Depreciation
Balance at March 23, 1994 $ 4,695
Additions during the year 2,529
Balance at December 31, 1994 7,224
--------
Additions during the year 7,337
--------
Balance at December 31, 1995 $ 14,561
--------
--------
The aggregate cost of real estate facilities for federal income tax
purposes was approximately $479,037 and $255,755 at December 31, 1995 and
1994, respectively.
Continued
27
<PAGE>
STORAGE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------
4. MORTGAGE NOTES PAYABLE:
Mortgage notes payable consist of the following at December 31:
1995 1994
---- ----
First mortgage note, payable in equal
monthly installments of $34, including
interest at 10.6%, through May 2001,
with the remaining balance of $3,081
due June 2001 $3,428 $3,473
First mortgage note, payable in equal
monthly installments of $28, including
interest at 8.375%, through June 2006 2,342 --
First mortgage note, interest only at
prime plus 2% (9% at December 31, 1994)
payable monthly through December 31,
1998, with the balance due in full in
January 1999 -- 900
First mortgage note, payable in equal
monthly installments of $8, including
interest at 8.5%, through August 2000,
with the remaining balance of $815 due
September 2000 900 --
------ ------
Total $6,670 $4,373
------ ------
------ ------
Principal payments are due as follows:
1996 $ 214
1997 234
1998 255
1999 279
2000 1,094
Thereafter 4,594
-----
$6,670
------
------
Continued
28
<PAGE>
STORAGE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------
5. LINE OF CREDIT BORROWINGS:
Line of credit borrowings at December 31, 1995, consists of $100,000 of
borrowings under a $100,000 line of credit with a group of commercial
banks, and $7,605 of borrowings under a $23,000 line of credit with a
commercial bank. The balance at December 31, 1994, consists of $4,000 of
borrowings under the $23,000 line. The $100,000 facility, consists of a
$75,000 tranche with an initial termination date of February 8, 1996, and a
$25,000 tranche with an initial termination date of April 21, 1996. On the
$75,000 tranche, the Company has an option to extend the term for two
successive one year periods. On the $25,000 tranche, the Company has an
option to extend the term until December 21, 1996. Subsequent to year end,
the Company exercised its option on the $75,000 tranche and extended the
maturity to February 8, 1997. This line bears interest at various spreads
over a base rate based on the Company's debt service coverage. The
weighted average borrowings during the year was $41,662, the maximum
borrowing outstanding under the line during the period was $100,000, and
the weighted average interest rate during the year was 6.1%. The $23,000
line consists of an $8,000 tranche maturing on February 15, 1996, and a
$15,000 tranche maturing on July 1, 1996. Both tranches, at the option of
the Company, bear interest at prime or LIBOR plus 2.25%, and are
collateralized by mortgages on 13 facilities. These facilities have a net
book value of $28,035. Subsequent to year end, the commercial bank agreed
to release the mortgages, increase the line to $30,000 with an initial
maturity of July 1, 1996, and continue the borrowing arrangement. During
1995 and 1994, respectively, the weighted average daily borrowings were
$5,513 and $4,900, the maximum borrowings outstanding under the line were
$21,700 and $11,500, and the weighted average interest rates were 8.9% and
6.5%. Under the terms of the agreements, the Company is required to
maintain certain financial ratios and a minimum net worth, as defined under
the agreements.
Interest is capitalized on accumulated expenditures relating to the
development of certain qualifying properties. During 1995 and 1994, total
cash paid by the Company for the interest was $3,345 and $1,404,
respectively, which includes $532 which was capitalized in 1995. No
interest was capitalized in 1994.
6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
The following unaudited pro forma statement of operations of the Company is
presented as if the Third Offering, and the acquisition of 63 properties
during 1995 had occurred on January 1, 1995. This unaudited pro forma
statement of operations is not necessarily indicative of what actual
results of operations of the Company would have been assuming such
transactions had been completed as of January 1, 1995, nor does it purport
to represent the results of operations for future periods.
Pro forma for the year ended December 31, 1995:
Continued
29
<PAGE>
STORAGE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------
6. PRO FORMA FINANCIAL INFORMATION (UNAUDITED), continued:
Revenues:
Rental income $81,875
Management income 1,072
Other income 1,037
-------
Total revenues 83,984
-------
Expenses:
Cost of property operations and maintenance 22,385
Real estate taxes 6,171
General and administrative 3,046
Depreciation and amortization 9,579
-------
Total expenses 41,181
-------
Income from operations 42,803
Other income (expense):
Interest expense (7,679)
Interest income 637
-------
Income before minority interest 35,761
Minority interest (1,798)
-------
Net income $33,963
-------
Net income per share $ 1.93
------
------
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company's carrying amount and fair value of its financial instruments
as of December 31, 1995 and 1994, respectively, were as follows:
CASH AND CASH EQUIVALENTS:
The carrying amount of $3,006 and $3,325 reported in the balance sheets for
cash and cash equivalents approximates its fair value.
MORTGAGE AND LINE OF CREDIT BORROWINGS:
The carrying amount of $107,605 and $4,000 reported in the balance sheets
for line of credit borrowings approximates their fair value. The fair
value of the $6,670 and $4,373 of mortgage notes payable reported in the
balance sheets is $7,003 and $4,631. These fair
Continued
30
<PAGE>
STORAGE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------
7. FAIR VALUE OF FINANCIAL INSTRUMENTS, continued:
values were estimated using discounted cash flow analysis, based on the
Company's current incremental borrowing rate for similar types of borrowing
arrangements.
INTEREST RATE SWAP AGREEMENT:
The Company had entered into an interest rate swap agreement as more fully
described in footnote 12. At December 31, 1995, the fair value of the
agreement was ($3,547). This fair value represents the estimated amount
the Company would have paid to terminate the swap at that date. The swap
was terminated on March 8, 1996, and the Company recognized a gain of $50
in connection with the termination. See Note 13.
8. COMMITMENTS AND CONTINGENCIES:
LEASE AGREEMENTS:
The Company has various lease agreements for office space. Total future
minimum rental payments on the office leases are $1,124: $222 in years one
through three, and $229 in years four and five.
PROPERTY DEVELOPMENT:
The Company has entered into an agreement to develop a self-storage
facility in Northern Virginia. The facility will be owned by the Company
and an unaffiliated third party. Under the terms of the agreement, the
Company is required to fund the cost of construction, which is currently
estimated to be approximately $6,500. At December 31, 1995, the Company
has incurred costs of approximately $3,290. The facility is expected to be
complete by the middle of the second quarter of 1996.
The Company agreed, in the event of default, on a revolving credit line of
approximately $800 between an Operating Partnership Unit holder and a
commercial lending institution, to repurchase the units or issue registered
shares.
REDEMPTION OF OPERATING PARTNERSHIP UNITS:
At December 31, 1995, there were 1,025,423 Operating Partnership Units
outstanding. Certain Operating Partnership Units became redeemable on
March 23, 1995, for an amount equal to their then fair market value ($2.7
million, based upon a price per Unit of $32.625 at December 31, 1995)
payable by the Company either in cash or by a promissory note payable in
quarterly installments over two years with interest at the prime rate.
Units held by other
Continued
31
<PAGE>
STORAGE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------
8. COMMITMENTS AND CONTINGENCIES, continued:
Limited Partners are redeemable, at the option of such Limited Partners,
beginning on the first anniversary of their issue, for amounts equal to the
then fair market value of their Units ($11.3 million, based upon a price
per Unit of $32.625 at December 31, 1995) payable by the Company in cash
or, at the option of the Company, in shares of the Company's common stock
at the exchange ratio of one share for each Unit.
9. DISTRIBUTIONS:
The Company's Board of Directors declared dividends of $2.04 and $1.41 for
the year ended 1995 and for the period from March 24, 1994 to December 31,
1994, respectively. For federal income tax purposes, distributions
declared by the Board of Directors for 1995 were 94% from ordinary income
and 6% return of capital. During the period from March 24, 1994 to
December 31, 1994, distributions were from ordinary income.
10. CAPITAL STOCK:
STOCK OPTIONS:
The shareholders of the Company have approved and the Company has adopted
the Storage USA, Inc. 1993 Omnibus Stock Incentive Plan. The Company has
granted options to certain directors, officers and key employees to
purchase shares of the Company's common stock at a price not less than the
fair market value at the date of grant. There are 1,000,000 shares
available to be issued under the plan. Generally, the optionee has up to
ten years from the date of the grant to exercise the options.
Continued
32
<PAGE>
STORAGE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------
10. CAPITAL STOCK, continued:
STOCK OPTIONS:
Plan activity is as follows:
NUMBER PRICE
OF OPTIONS PER SHARE
---------- ---------
Options outstanding:
March 24, 1994 -- --
Granted 492,402 $21.75 -- $24.75
Exercised -- --
Canceled -- --
Options outstanding:
December 31, 1994 492,402 $21.75 -- $24.75
------- ----------------
Granted 220,750 $31.00
Exercised (4,500) $21.75 -- $24.75
Canceled -- --
------- ----------------
Options outstanding:
December 31, 1995 708,652 $21.75 -- $31.00
------- ----------------
------- ----------------
At December 31, 1995, 525,486 options are exercisable under the plan.
EMPLOYEE STOCK PURCHASE AND LOAN PLAN:
In 1995, the Company issued 230,000 shares of its common stock under the
1995 Employee Stock Purchase and Loan Plan. Pursuant to the terms of the
plan, the Company and certain officers entered into stock purchase
agreements whereby the officers purchased common stock at the then current
market price. The Company provides 100% financing for the purchase of the
shares with interest at 7% per annum payable quarterly. The underlying
notes are secured by the shares and mature in November 2002.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN:
In 1995, the Company adopted the Dividend Reinvestment and Stock Purchase
Plan (the "Plan"). Under the Plan, the Company offers holders of its
common stock the opportunity to purchase, through reinvestment of dividends
or by additional cash payments, additional shares of its common stock. The
shares of common stock for participants may be purchased from the Company
at the greater of the average high and low sales price or the average
Continued
33
<PAGE>
STORAGE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------
10. CAPITAL STOCK, continued
closing sales price on the investment date or in the open market at 100% of
the average, price of all shares purchased for the Plan. During 1995, 653
shares were issued under the Plan.
11. POST EMPLOYMENT BENEFIT PLAN:
The Company contributes to a 401(k) savings plan (a voluntary defined
contribution plan) for the benefit of employees meeting certain eligibility
requirements and electing participation in the plan. Each year the Company
is obligated to make a matching contribution on the employee's behalf equal
to 50% of the participant's contribution to the plan, up to 2% of the
participant's compensation. Company profit sharing contributions to the
plan are determined annually by the Company. Company contributions totaled
$223 and $137 during 1995 and 1994, respectively.
12. SUMMARY OF PREDECESSOR SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The accompanying combined financial statements for the periods prior to
March 24, 1994 present only the "carved-out" accounts of the Predecessor
comprised of the continuing assets, liabilities and operations of the
Predecessor following the IPO, including 11 owned facilities and six
controlled facilities (Original Facilities) and Storage USA Management
Corporation (Management Corp.). All other accounts of the Predecessor were
excluded since the business segments to which they relate were discontinued
by the Company before the IPO. Due to common ownership and management of
the Original Facilities and Management Corp., the historical combined
financial statements have been accounted for as a group of entities under
common control, which is similar to the accounting method used for a
pooling of interest. All significant intercompany transactions and
balances have been eliminated in the combined presentation. The financial
information included herein may not necessarily reflect the financial
position and results of operations of the Predecessor had it been a
separate stand-alone entity during the periods prior to March 24, 1994.
MINORITY INTEREST:
The Predecessor financial statements include the accounts of six facilities
(Selling Partnerships) which were owned by investment partnerships in which
the Predecessor or its affiliates had a controlling interest. The
ownership interest of the other partners in these partnerships is treated
as a minority interest and reported as a liability of the Predecessor.
Increases in minority interest are charged to operations.
Continued
34
<PAGE>
STORAGE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------
12. SUMMARY OF PREDECESSOR SIGNIFICANT ACCOUNTING POLICIES, continued:
FEDERAL INCOME TAXES:
The Predecessor was an S Corporation and thus was not subject to taxation
at the corporate level. The self-storage facilities owned through the
investment partnerships required the partners to include their respective
share of profits and losses in their individual tax returns. Therefore,
the statements of operations contain no provision for federal income taxes
for any periods prior to March 24, 1994.
SHAREHOLDERS' DEFICIT:
The Predecessor's President and Chief Executive Officer contributed a
portion of his interests in two of the Selling Partnerships in exchange for
the satisfaction of his indebtedness to the Predecessor. The value
attributed to his interest in the Selling Partnerships was determined on
the same basis as the determination of payments made by the Predecessor to
the unrelated limited partners in the Selling Partnerships.
Corporate reorganization adjustments consist primarily of dividends deemed
cash distributions, reclassification of certain minority interests, and
other non-cash adjustments relating to the IPO.
RELATED PARTY TRANSACTIONS:
The Predecessor had demand notes payable to the Predecessor's founder,
bearing interest at prime plus 2% (8% at December 31, 1993). These notes
were collateralized by second mortgages on certain of the Original
Facilities. Total interest expense to affiliates amounted to approximately
$178 and $1,426 for period from January 1, 1994 to March 23, 1994 and the
year ended December 31, 1993, respectively.
OTHER:
There was no significant Investment in Storage Facilities activity for the
period from January 1, 1994 to March 23, 1994, and for the year ended
December 31, 1993.
Total cash paid for interest related to the mortgages payable and notes
payable balances for the period from January 1, 1994 to March 23, 1994 and
the year ended December 31, 1993 was $1,017 and $3,006, respectively.
13. SUBSEQUENT EVENTS:
FORMATION OF STRATEGIC ALLIANCE:
On March 1, 1996, the Company entered into a Stock Purchase Agreement with
Security Capital U.S. Realty (US Realty), an affiliate of Security Capital
Group. Under the Stock
Continued
35
<PAGE>
STORAGE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------
13. SUBSEQUENT EVENTS, continued:
Purchase Agreement, subject to the terms and conditions thereof, US Realty
will invest a total of $220,000 in the Company, initially place two of its
nominees on the Company's Board of Directors, one of whom the Company has
been informed will be William D. Sanders, Chairman of the Board and Chief
Executive Officer of Security Capital Group, and make available to the
Company certain strategic advice, research and related information and
expertise (the "Strategic Alliance"). As part of the transaction, on March
19, 1996, the Company issued to US Realty 1,948,882 shares of Common Stock,
approximately 10.0% of the outstanding Common Stock, at a price of $31.30
per share, plus a purchase price adjustment for accrued dividends. At the
same time, the Company executed a Strategic Alliance Agreement and a
Registration Rights Agreement with US Realty.
After the Strategic Alliance has been approved by the shareholders of the
Company, and prior to December 31, 1996, the Company will issue to US
Realty an additional 5,079,872 shares of the Company's common stock at the
same price for an aggregate of $159,000. After acquiring the additional
shares (and assuming no other change in the number of outstanding shares).
US Realty will own approximately 28.6% of the outstanding Common Stock.
The proceeds of both fundings will be contributed to the Operating
Partnership in exchange for additional Operating Partnership Units and used
to support the acquisition and development of self-storage facilities.
The Company has agreed to submit to the shareholders a proposal to amend
the ownership limitations of the Company's Charter to permit US Realty to
acquire up to 37.5% of the Company's capital stock. The Strategic
Alliance, the amendment and certain related transactions are expected to be
submitted to shareholders for approval at the Company's 1996 annual
meeting.
PROPERTY ACQUISITIONS:
Subsequent to December 31, 1995, the Company has completed the acquisition
of six self-storage facilities for approximately $21,460. In addition, the
Company purchased two land parcels for approximately $688. These
acquisitions were financed through operating cash flows and borrowings
under the $30,000 line of credit.
INTEREST RATE SWAP AGREEMENT:
In anticipation of a debt offering in 1996, the Company entered into an
interest rate swap agreement in October 1995, with the objective of
reducing its exposure to future interest rate fluctuations. The agreement
involved the exchange of a variable rate for a fixed rate interest payment
obligation. The agreement had a notional principal amount of $100,000, an
effective date of March 1, 1996, and a maturity date of March 1, 2003. On
March 8, 1996, the Company closed the interest rate swap agreement and
received proceeds of approximately
Continued
36
<PAGE>
STORAGE USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
--------
13. SUBSEQUENT EVENTS, continued
$50. The Company anticipates filing a $250,000 debt shelf registration
statement on Form S-3 with the Securities and Exchange Commission. Upon
successful completion of an offering of unsecured debt securities under the
shelf, the Company will recognize the gain as a yield adjustment over the
life of the debt.
14. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a summary of quarterly results of operations for 1995 and
1994:
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
Revenue $12,312 $16,233 $18,667 $20,795
Net Income $ 5,761 $ 6,660 $ 8,528 $ 8,204
Per Share
Net Income $ 0.43 $ 0.47 $ 0.49 $ 0.47
FIRST SECOND THIRD FOURTH
1994 QUARTER* QUARTER QUARTER QUARTER
Revenue $ 523 $ 6,376 $ 7,668 $11,267
Net Income $ 236 $ 2,985 $ 3,084 $ 5,625
Per Share
Net Income $ 0.03 $ 0.41 $ 0.42 $ 0.42
* For the period March 24, 1994 (inception) to March 31. 1994. (See
Note 1).
15. RECENT ACCOUNTING DEVELOPMENTS:
In October of 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" was issued. The standard is
effective for fiscal years beginning after December 15, 1995. The Company
anticipates continuing to elect expense recognition under APB No. 25, and
disclosing pro forma net income and earnings per share information based on
the FAS 123 fair value methodology.
37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
--------
To the Board of Directors
and Shareholders of
Storage USA, Inc.
We have audited the accompanying consolidated balance sheets of Storage
USA, Inc. (the "Company") as of December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year ended December 31, 1995, and for the period from March 24, 1994
(inception), through December 31, 1994. We have also audited the accompanying
combined statements of operations, shareholders' equity, and cash flows of
Storage USA, Inc. (the "Predecessor") for the period from January 1, 1994
through March 23, 1994, and for the year ended December 31, 1993 (See Note 1 and
12). These financial statements are the responsibility of the management of
the Company. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as
of December 31, 1995 and 1994, the consolidated results of its operations and
its cash flows for the year ended December 31, 1995, and for the period from
March 24, 1994 (inception) through December 31, 1994, and the combined results
of the Predecessor's operations and cash flows for the period from January 1,
1994 through March 23, 1994, and for the year ended December 31, 1993, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Baltimore, Maryland
January 26, 1996, except
for Note 5 and Note 13, as to which
the date is March 21, 1996
38
<PAGE>
STORAGE USA, INC.
SELECTED FINANCIAL DATA
(amounts in thousands)
The following table summarizes certain selected financial data for the Company
and its Predecessor. The results of operations of the Predecessor for the
period January 1, 1994 to March 23, 1994, and the Company for the period March
24, 1994 to December 31, 1994, have been combined. This financial data should
be read in conjunction with the Company's financial statements and notes
thereto, and with Management's Discussion and Analysis of Financial Condition
and Results of Operations.
PREDECESSOR
AND COMPANY
PREDECESSOR COMBINED* COMPANY
----------------------- --------- -------
YEAR ENDED DECEMBER 31, YEAR ENDED YEAR ENDED
1991 1992 1993 1994 1995
Operating data:
Total revenue $ 6,732 $ 8,900 $11,189 $ 28,432 $ 68,007
Net (loss) income (4,095) 9,2351(1) 449 11,765 29,153
Net income
per share -- -- -- -- 1.87
Dividends declared
per share -- -- -- -- 2.04
Balance sheet data:
Total assets $51,900 $51,620 $55,253 $280,173 $509,525
Total Borrowings $47,500 $53,237 $65,753 $ 8,373 $114,275
PREDECESSOR COMPANY
PERIOD FROM PERIOD FROM
JANUARY 1, 1994 TO MARCH 24, 1994 TO
MARCH 23 DECEMBER 31
1994 1994
Operating data:
Total Revenue $2,598 $25,834
Net (loss) income (165) 11,930
Net income per share -- 1.28
Dividends declared per share -- 1.41
* The combined results for 1994 are presented unaudited as they represent the
sum of the amounts derived by combining the audited results of the
Predecessor for the period January 1, 1994 to March 23, 1994, and the
audited results of the Company for the period March 24, 1994 through
December 31, 1994.
* Includes $12,279 gain from early extinguishment of debt.
39
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference into: (A) the Registration
Statements on Forms S-8 (Commission File Nos. 33-80967, 33-93882 and 33-86362)
of Storage USA, Inc., (B) the Registration Statements on Forms S-3 (33-0965, 33-
98142, 33-93886 and 33-91302) of Storage USA, Inc. and (C) the Registration
Statement on Form S-3 (333-3344) of SUSA Partnership, L.P. of: (1) our report
dated January 26, 1996, except for Note 5 and Note 13, as to which the date is
March 21, 1996, on our audits of the consolidated financial statements of
Storage USA, Inc. (the "Company") as of December 31, 1995 and 1994 and for the
year ended December 31, 1995 and for the period from March 24, 1994 (inception)
through December 31, 1994, and the combined results of Storage USA, Inc. (the
"Predecessor") for the period from January 1, 1994 through March 23, 1994, and
for the year ended December 31, 1993, which report is incorporated by reference
in the Company's 1995 Form 10-K/A-1; and (2) our report dated January 26, 1996,
on the financial statement schedule of Storage USA, Inc. as of December 31,
1995, which report is included in the Company's 1995 Form 10-K/A-1.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
June 24, 1996
