<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
/x/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended June 30, 1996
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
Commission File Number: 001-12910
STORAGE USA, INC.
(Exact name of registrant as specified in its charter)
Tennessee
(State or other jurisdiction of
incorporation or organization)
62-1251239
(IRS Employer
Identification Number)
10440 Little Patuxent Parkway, #1100, Columbia, MD
(Address of principal executive offices)
21044
(Zip Codes)
Registrant's telephone number, including area code: (410) 730-9500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. ( X) Yes ( ) NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $.01 par value, 21,474,692 shares outstanding at August 14,
1996
<PAGE> 2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Storage USA, Inc.
Consolidated Statements of Operations
(unaudited)
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Three months ended Six months ended Six months ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
================== ================== ================ ================
<S> <C> <C> <C> <C>
PROPERTY REVENUES:
Rental income $23,770 $15,834 $44,590 $27,806
Management income 206 199 446 443
Other income 380 200 654 347
------------------ ------------------ ---------------- ----------------
Total property revenues 24,356 16,233 45,690 28,596
------------------ ------------------ ---------------- ----------------
PROPERTY EXPENSES:
Cost of property operations & maintenance 6,376 4,621 12,113 7,911
Taxes 2,051 1,094 3,744 1,900
General & administrative 969 597 1,749 1,109
Depreciation & amortization 2,762 1,835 5,433 3,404
------------------ ------------------ ---------------- ----------------
Total property expenses 12,158 8,147 23,039 14,324
------------------ ------------------ ---------------- ----------------
INCOME FROM PROPERTY OPERATIONS 12,198 8,086 22,651 14,272
------------------ ------------------ ---------------- ----------------
OTHER INCOME (EXPENSE):
Interest expense (1,558) (1,063) (3,223) (1,220)
Interest income 175 22 330 37
------------------ ------------------ ---------------- ----------------
INCOME BEFORE MINORITY INTEREST 10,815 7,045 19,758 13,089
Minority interest (670) (385) (1,225) (617)
------------------ ------------------ ---------------- ----------------
NET INCOME $10,145 $6,660 $18,533 $12,472
================== ================== ================ ================
NET INCOME PER SHARE $0.52 $0.47 $0.99 $0.90
================== ================== ================ ================
WEIGHTED AVERAGE SHARES OUTSTANDING 19,553 14,316 18,690 13,810
================== ================== ================ ================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 3
STORAGE USA, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
as of as of
June 30, 1996 December 31, 1995
================== ==================
(unaudited)
<S> <C> <C>
ASSETS
Investments in storage facilities, at cost:
Land $175,402 $139,603
Buildings and equipment 467,248 369,694
------------------ ------------------
642,650 509,297
Accumulated depreciation (19,637) (14,561)
------------------ ------------------
623,013 494,736
Cash & cash equivalents 3,318 3,006
Other assets 7,734 11,783
------------------ ------------------
TOTAL ASSETS $634,065 $509,525
================== ==================
LIABILITIES & SHAREHOLDERS' EQUITY
Notes payable $147,435 $107,605
Mortgage notes payable 13,604 6,670
Accounts payable & accrued expenses 5,565 5,945
Dividends payable 11,000 -
Rents received in advance 4,302 3,680
Minority interest 35,851 27,438
------------------ ------------------
TOTAL LIABILITIES 217,757 151,338
------------------ ------------------
Commitments and contingencies
Shareholders' equity:
Common stock $.01 par value, 150,000,000 shares 195 176
authorized, 19,554,759 and 17,562,363
shares issued and outstanding
Paid-in capital 447,944 385,989
Notes receivable - officers (7,965) (6,727)
Accumulated deficit (15,831) (15,831)
Distributions in excess of net income (8,035) (5,420)
------------------ ------------------
TOTAL SHAREHOLDERS' EQUITY 416,308 358,187
------------------ ------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $634,065 $509,525
================== ==================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
STORAGE USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1996 June 30, 1995
================ ================
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $18,533 $12,472
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,433 3,404
Minority interest 1,225 617
Changes in assets and liabilities:
Other assets (2,300) (1,675)
Other liabilities 242 1,117
---------------- ----------------
Net cash provided by operating activities: 23,133 15,935
================ ================
INVESTING ACTIVITIES:
Acquisition and improvements of storage facilities (106,619) (117,879)
Developments placed in service (2,274) -
Other improvements (3,412) (741)
---------------- ----------------
Net cash used in investing activities (112,305) (118,620)
================ ================
FINANCING ACTIVITIES:
Net borrowings under line of credit 39,830 2,000
Mortgage principal payments (127) (22)
Cash dividends (10,149) (6,782)
Proceeds from issuance of stock 60,736 107,835
Distribution to minority interests (806) (268)
---------------- ----------------
Net cash provided by financing activities 89,484 102,763
================ ================
Net increase in cash and equivalents 312 78
Cash and equivalents, beginning of period 3,006 3,325
---------------- ----------------
Cash and equivalents, end of period $3,318 $3,403
================ ================
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Common Stock issued in exchange for notes receivable $1,253 -
Mortgages assumed on storage facilities acquired $7,061 -
Storage facilities acquired in exchange for Operating
Partnership Units $7,994 $12,881
================ ================
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
Interim consolidated financial statements of Storage USA, Inc. (the
"Company") are prepared pursuant to the requirements for reporting on
Form 10-Q. Accordingly, certain disclosures accompanying annual
financial statements prepared in accordance with generally accepted
accounting principles are omitted. In the opinion of management, all
adjustments, consisting solely of normal recurring adjustments, necessary
for the fair presentation of consolidated financial statements for the
interim periods have been included. The current period's results of
operations are not necessarily indicative of results which ultimately may
be achieved for the year. The interim consolidated financial statements
and notes thereto should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K, as
filed with the Securities and Exchange Commission.
2. ORGANIZATION
Storage USA, Inc. (the Company), a Tennessee corporation, was formed in
1985 to own, develop, construct and operate self-storage facilities
throughout the United States. On March 23, 1994, the Company completed
an initial public offering (the "IPO") of 6,325,000 shares of common
stock at $21.75 per share.
Upon completion of the IPO, the Company contributed substantially all of
its net assets to SUSA Partnership, L.P. (the "Operating Partnership") in
exchange for an approximately 98.9% general partnership interest in the
Operating Partnership. In addition, the Operating Partnership formed
SUSA Management, Inc., ("SUSA Management") to provide self-storage
management to third parties and certain ancillary services. The
Operating Partnership owns 99% of the economic interest of SUSA
Management.
In June of 1996, the Company formed Storage USA Trust (the "Trust"),
Maryland real estate investment trust of which it is the sole
shareholder, and transferred approximately 79% of the Company's interest
in the Operating Partnership to the Trust. The Company remains the sole
general partner of the Operating Partnership.
3. CAPITAL STOCK
FORMATION OF STRATEGIC ALLIANCE
On March 1, 1996, the Company entered into a Stock Purchase Agreement
with Security Capital U.S. Realty (US Realty), an affiliate of Security
Capital Group. Under the Stock Purchase Agreement, subject to the terms
and conditions thereof, US Realty will invest a total of $220,000 in the
Company, initially place two of its nominees on the Company's Board of
Directors, and make available to the Company certain strategic advice,
research and related information and expertise (the "Strategic Alliance").
As part of the transaction, on March 19, 1996, the Company issued to US
Realty 1,948,882 shares of Common Stock, approximately 10.0% of the
outstanding Common Stock, at a price of $31.30 per share, plus a purchase
price adjustment for accrued dividends, less issuance costs.
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 1996
(THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. CAPITAL STOCK (CONTINUED)
At the same time, the Company executed a Strategic Alliance Agreement and
a Registration Rights Agreement with US Realty.
The Company 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 were approved by
shareholders at the Company's 1995 annual meeting held June 5, 1996.
On July 8, 1996, the Company issued 1,916,933 shares of common stock to
US Realty at a price of $31.30 per share, plus an adjustment for accrued
dividends, less issuance costs. Prior to December 31, 1996, the Company
will issue to US Realty an additional 3,162,939 shares of the Company's
common stock at the same price for aggregate consideration of
approximately $99,000. The proceeds of these 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.
EMPLOYEE STOCK PURCHASE AND LOAN PLAN
In March of 1996, the Company issued 40,000 shares of its common stock
under the 1995 Employee Stock Purchase and Loan Plan. Pursuant to the
terms of the plan, the Company and certain officers entered into stock
purchase agreements whereby the officers purchased common stock at the
then current stock price. The Company provides 100% financing for the
purchase of the shares with interest at 7% per anum payable quarterly.
The underlying notes are secured by the shares and mature in November
2002. At June 30, 1996, there are 270,000 shares issued and outstanding
under the plan.
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 1996
(THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. INVESTMENT IN STORAGE FACILITIES
The following summarizes activity in storage facilities during the
period:
<TABLE>
<S> <C>
COST:
Balance on January 1, 1996 $ 509,297
Property acquisitions 117,735
Land acquisitions 3,940
Developments placed in service 8,266
Improvements 3,412
----------
Balance on June 30, 1996 $ 642,650
==========
ACCUMULATED DEPRECIATION:
Balance on January 1, 1996 $ 14,561
Additions during the period 5,076
----------
Balance on June 30, 1996 $ 19,637
==========
</TABLE>
Unaudited pro forma combined results of operations of the Company for six
months ended June 30, 1996 are presented below. Such pro forma
presentation has been prepared assuming that the acquisition of the 32
properties acquired during the six month period ended June 30, 1996, had
been completed as of January 1, 1996.
<TABLE>
<CAPTION>
PRO FORMA FOR
SIX MONTHS ENDED
JUNE 30, 1996
<S> <C>
Revenues $ 49,712
Net income $ 19,481
Earnings per share $ 1.04
</TABLE>
The unaudited pro forma information is not necessarily indicative of what
actual results of operations of the Company would have been assuming such
transactions had been completed as of January 1, 1996, nor does it
purport to represent the results of operations for future periods.
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 1996
(THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. NOTES PAYABLE
Notes payable at June 30, 1996 consist of $75,000 of borrowings under a
$75,000 line of credit with a group of commercial banks, $22,435 of
borrowings under a $30,000 line of credit with a commercial bank, and
$50,000 of borrowings under a $50,000 term loan with a commercial bank.
These lines of credit and the term loan bear interest at various spreads
over LIBOR. During the quarter ended June 30, 1996, the weighted average
borrowings were $92,406, and the weighted average interest rate was 6.8%.
6. SUBSEQUENT EVENTS
Subsequent to June 30, 1996, the Company has completed the acquisition of
15 self-storage facilities for approximately $53,951. These acquisitions
were financed through operating cash flows, borrowings under the
available line of credit, and the issuance of 1,916,333 shares of Common
Stock to US Realty, on July 8, 1996, at a price of $31.30 per share, plus
an adjustment for accrued dividends, less issuance costs.
The Company has also entered into various property acquisition contracts
with an aggregate cost of approximately $13,980. These acquisitions are
subject to customary conditions to closing including satisfactory due
diligence and should close during the third quarter. Should these
contracts be disapproved, the costs incurred by the Company would be
immaterial.
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the consolidated financial condition
and results of operations of the Company should be read in conjunction with
the Consolidated Financial Statements and Notes thereto. References to the
Company includes SUSA Partnership L.P., the Company's operating subsidiary
(the "Operating Partnership").
Due to the substantial number of facilities acquired from June 30, 1995 to
June 30, 1996, management believes that it is meaningful and relevant in
understanding the present and ongoing operations of the Company to compare
certain information using occupancy, per square foot and pro forma data.
The following are definitions of terms used throughout this discussion in
analyzing the Company's business. Physical Occupancy is defined as the total
net rentable square feet rented as of the date computed divided by the total
net rentable square feet available. Gross Potential Income is defined as the
sum of all units available to rent at a facility multiplied by the market
rental rate applicable to those units as of the date computed. Expected
Income is defined as the sum of the monthly rent being charged for the rented
units at a facility as of the date computed. Economic Occupancy is defined as
the Expected Income divided by the Gross Potential Income. Rent Per Square
Foot is defined as the annualized result of dividing Gross Potential Income on
the date computed by total net rentable square feet available. Direct
Property Operating Cost is defined as the costs incurred in the operation of
a facility, such as utilities, real estate taxes, and on-site personnel.
Indirect Property Operations Cost is defined as costs incurred in the
management of all facilities, such as accounting personnel and management
level operations personnel. Net Operating Income ("NOI") is defined as total
property revenues less Direct Property Operating Costs.
RESULTS OF OPERATIONS- QUARTER ENDED JUNE 30, 1996 COMPARED TO QUARTER
ENDED JUNE 30, 1995.
In the second quarter of 1996, the Company reported growth in revenue, Net
Operating Income and net income, respectively, of $8.1 million, $5.4 million
and $3.5 million over the same quarter of 1995. Since June 30, 1995, the
Company has acquired 59 facilities and completed construction of and opened 2
new facilities. These 61 facilities added 4.05 million square
feet, bringing the total square feet of the 206 facilities owned by
the Company at June 30, 1996 to 13.9 million. For the second quarter of 1996,
the 98 facilities owned during the entire second quarter of 1995 provided 55.4%
of the Company's rental income. These same facilities' rental income grew 8.0%
over 1995 results. The majority of this growth was provided by an approximate
8.0% rate
<PAGE> 10
increase. At June 30, 1996, the physical and economic occupancy and rent per
square foot on the 132 facilities owned at June 30, 1995, was 90%, 84%, and
$9.59, respectively, while the figures as of June 30, 1995, were 90%, 83%, and
$8.91, respectively. The Company's portfolio of facilities as a whole had an
average occupancy at June 30, 1996 of 89% physical and 82% economic, with an
average rent per square foot of $9.48. Management income for the quarter
ended June 30, 1996 remained relatively consistent with 1995. Other income,
which reflects primarily sales of lock and packaging products and truck
rentals, increased primarily due to the increase in the number of properties
owned.
Cost of property operations and maintenance was $6.4 million for the quarter
ended June 30, 1996, representing a $1.75 million increase over the second
quarter of 1995. Cost of property operations and maintenance was 26.2% of
revenues for the quarter ended June 30, 1996 and 28.5% of revenue for the
quarter ended June 30, 1995. The higher costs as a percentage of revenues
during the second quarter of 1995 were due to the acquisition of 32 facilities
during that quarter. These costs, along with the cost of area and district
managers added during that quarter, preceded the revenue growth related to the
implementation of the Company's marketing and pricing strategies.
Tax expense increased from $1.1 million or 6.7 % of revenues for the quarter
ended June 30, 1995 to $2.05 million or 8.4% of revenue for the quarter ended
June 30, 1996. This growth as a percentage of revenue reflects both the
impact of reassessments on the properties purchased during 1994 and 1995 and
the increased state and franchise taxes as the Company moves into new states
and expands in current states. The majority of the property tax increase is
attributable to reassessments on acquisitions with the remainder attributable
to increased tax rates or reassessments on properties owned for a full year.
General and administrative expense increased from $0.58 million to $0.97
million for the second quarter of 1996 from the comparable quarter of 1995.
As a percentage of revenues the expense increased from 3.7% for the quarter
ended June 30, 1995 to 3.9% for the quarter ended June 30, 1996. The growth
in expense reflects the Company's expansion of its administration, development
and acquisition, management information systems, and human resource departments,
in connection with its ongoing growth strategy.
Depreciation expense increased to $2.76 million for the quarter ended June 30,
1996 from $1.8 million for the comparable period in 1995, reflecting the
increase in the number of facilities owned. The Company has acquired or placed
in service approximately $342 million in depreciable assets since July 1,
1995.
Interest expense for the quarter ended June 30, 1996, was $1.56 million as
compared to $1.1 million for the comparable period in 1995. The 1996 second
quarter interest
<PAGE> 11
expense represents weighted average borrowings of $92.4 million under the
Company's lines of credit at a weighted average interest rate of 6.8%.
Interest income was $0.18 million for the quarter ended June 30, 1996 as
compared to $0.02 million for the quarter ended June 30, 1995. Interest
income in 1996 represents earnings on overnight deposits and amounts
outstanding under the 1995 Employee Stock Purchase and Loan Plan.
Minority interest grew from $0.38 million for the quarter ended June 30, 1995
to $0.67 million for the quarter ended June 30, 1996, as the Company issued
approximately 398,000 Operating Partnership units in connection with the
acquisition of certain facilities from July 1, 1995 to June 30, 1996.
RESULTS OF OPERATIONS- SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX
MONTHS ENDED JUNE 30, 1995.
In the first six months of 1996, the Company reported growth in revenue, Net
Operating Income and net income, respectively, of $17.1 million, $11.0 million
and $6.1 million over the same period of 1995. Management income for the six
months ended June 30, 1996 remained relatively consistent with 1995. Other
income, which reflects primarily sales of lock and packaging products and
truck rentals, increased primarily due to the increase in the number of
properties owned.
Cost of property operations and maintenance was $12.1 million for the six
months ended June 30, 1996, representing a $4.2 million increase over the
first six months of 1995. Cost of property operations and maintenance was
26.5% of revenues for the six months ended June 30, 1996 and 27.7% for the six
months ended June 30, 1995. The higher costs during 1995 were as a result of
the Company implementing its facility operating cost structure, along with the
addition of area and district managers. These costs preceded the revenue
growth related to the implementation of the Company's marketing and pricing
strategies.
Tax expense increased from $1.9 million or 6.6% of revenues for the six months
ended June 30, 1995 to $3.7 million or 8.2% of revenue for the six months
ended June 30, 1996. This growth as a percentage of revenue reflects both the
impact of reassessments on the properties purchased during 1994 and 1995 and
the increased state and franchise taxes as the Company moves into new states
and expands in current states. The majority of the real estate tax increase
is attributable to reassessments on acquisitions with the remainder
attributable to increased tax rates or reassessments on properties owned for a
full year.
General and administrative expense increased from $1.1 million to $1.7 million
for the first six months of 1996 from the comparable six months of 1995. As a
percentage of
<PAGE> 12
revenues, this category of expense fell from 3.9% for the six months ended
June 30, 1995 to 3.8% for the six months ended June 30, 1996. The Company
expects that the gross expense will grow as the Company expands its
administration, development and acquisition, management information systems, and
human resource departments, in connection with its ongoing growth strategy.
Depreciation expense increased to $5.4 million for the six months ended June
30, 1996 from $3.4 million for the comparable period in 1995, reflecting the
increase in the number of facilities owned. The Company has acquired or placed
in service approximately $342 million in depreciable assets since July 1,
1995.
Interest expense for the six months ended June 30, 1996 was $3.2 million as
compared to $1.2 million for the comparable period in 1995. For the six
months ended June 30, 1996, interest expense represents weighted average
borrowings of $99.6 million under the Company's lines of credit at a weighted
average interest rate of 6.4%.
Interest income was $0.3 million for the six months ended June 30, 1996 as
compared to $0.04 million for the six months ended June 30, 1995. Interest
income in 1996 represents earnings on overnight deposits and amounts
outstanding under the 1995 Employee Stock Purchase and Loan Plan.
Minority interest grew from $0.6 million for the six months ended June 30,
1995 to $1.2 million for the six months ended June 30, 1996, as the Company
issued approximately 398,000 operating partnership units in connection with
the acquisition of certain facilities from July 1, 1995 to June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations grew to $23.2 million for the six months ended
June 30, 1996 from $15.9 million for the six months ended June 30, 1995. This
increase is a result of the Company's net income growing $6.1 million or
48.6%, over the prior six month period, primarily as a result of the increase
in number of facilities owned, and the improvement of operations at the
facilities acquired.
During the first six months of 1996, the Company acquired 32 facilities
totaling 2,057,000 square feet for a cost of $114.4, million including the
issuance of 246,000 operating partnership units valued at $8.0 million. In
addition to its acquisitions during the period, the Company opened a newly
constructed 68,000 square foot facility in Northern Virginia and a 28,000
square foot expansion in Sarasota, Florida. The Company currently has plans
to develop 19 new facilities, primarily in the Washington, DC and Memphis,
Tennessee areas. Of these, five projects are under construction or are in
construction planning, with expected costs totaling $14.0 million and
completion dates anticipated to be in the second quarter of 1997. Expansions
are planned for 14 existing facilities, and of these, 10 are under way with
planned completion dates
<PAGE> 13
ranging from the fourth quarter of 1996 to the second quarter of 1997.
Estimate costs of the 10 expansions under way are $10.2 million.
On March 1, 1996, the Company entered into a Stock Purchase Agreement with
Security Capital U.S. Realty ("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 by December 31, 1996, initially place two of its nominees on the
Company's Board of Directors, 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 used the proceeds of the offering to
pay off $43.4 million of borrowings under the available lines of credit, for
property acquisitions, and for working capital. On July 8, 1996, the Company
issued 1,916,933 shares of common stock to US Realty at a price of $31.30 per
share, plus an adjustment for accrued dividends, less issuance costs.
At June 30, 1996, the Company had $147.4 million of borrowings outstanding on
its lines of credit, $3.4 million of fixed rate debt maturing in 2001, $2.3
million of fixed rate debt maturing in 2006, and $0.9 million of fixed rate
debt maturing in 2000. During the quarter, the Company assumed two variable
rate mortgages totaling $7.0 million and maturing in 2001. The weighted
average balance and interest rate on these mortgages was $4.6 million and
9.01%, respectively. The Company had $7.6 million of unused borrowing
capacity under its lines of credit at June 30, 1996.
During the period, the Company issued approximately 246,000 units of limited
partnership interest in the Operating Partnership ("Units") valued at
approximately $8.0 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 has entered into various property acquisition contracts for
facilities with an aggregate cost of approximately $13.9 million. These
acquisitions are subject to customary conditions to closing including
satisfactory due diligence and should close during the third quarter. Should
these contracts be disapproved, the costs incurred by the Company would be
immaterial.
The Operating Partnership filed a shelf registration statement relating to
$250 million of unsecured non-convertible senior debt securities. This
registration statement was declared effective on July 30, 1996, and should
enable the Operating Partnership to access the public debt markets efficiently
at opportune times.
<PAGE> 14
FUNDS FROM OPERATIONS ("FFO")
The Company believes that FFO should be considered in conjunction with its net
income and cash flows to facilitate a clear understanding of its results of
operations. FFO is defined as net income, computed in accordance with GAAP,
excluding gains (losses) from debt restructuring and sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. FFO should not be considered an alternative
to net income as a measure of the Company's performance or to cash flows as a
measure of liquidity.
Effective January 1, 1996, the National Association of Real Estate Investment
Trusts amended its definition of FFO. The impact of conforming to the amended
definition was to reduce FFO available to the Company's stockholders by
approximately $37,000 and $87,000, and $136,000 and $240,000 for the three and
six month periods ended June 30, 1996 and June 30, 1995, respectively. Because
of the change in the definition of FFO, FFO for the Company may not be
comparable to similiarly titled measures of operating performance disclosed by
other companies.
The following table illustrates the components of the Company's FFO and FFO
per share for the quarters ended June 30, 1996 and June 30, 1995.
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
======================================================================================
<S> <C> <C> <C> <C>
Net Income $ 10,145 $ 6,660 $ 18,533 $ 12,472
Depreciation of real property 2,591 1,660 5,036 2,894
Amortization of lease guarantees
15 76 68 268
Amortization of non-compete 21 63 83 126
--------------------------------------------------------------------------------------
Consolidated FFO 12,772 8,459 23,720 15,760
Minority interest share of
Depreciation and amortization (152) (86) (293) (101)
--------------------------------------------------------------------------------------
FFO available to Company
shareholders $12,620 $ 8,373 $ 23,427 $ 15,659
======================================================================================
FFO per share $0.65 $0.59 $1.25 $1.13
======================================================================================
</TABLE>
The Company, in order to qualify as a REIT, is required to distribute a
substantial portion of its net income as dividends to its shareholders. While
the Company's goal is to generate and retain sufficient cash flow to meet its
operating, capital, and debt service needs, its dividend requirements may
require the Company to
<PAGE> 15
utilize its bank lines of credit to finance property acquisitions and
development and major capital improvements. For the year ended December 31,
1995, distributions were approximately 85% of the Company's FFO.
The Company has incurred approximately $0.43 million for regularly scheduled
maintenance and repairs during the six months ended June 30, 1996. For the
year, the Company expects to incur approximately $1.2 million for scheduled
maintenance and repairs and approximately $5.9 million to conform facilities
acquired during 1995 and 1994 to Company standards.
The Company believes that its liquidity and capital resources are adequate to
meet its cash requirements relating to its existing operations for the next
twelve months.
INFLATION
The Company does not believe that inflation has had or will have a direct
effect on its operations. Substantially all of the leases at the facilities
allow for monthly 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 and early fall months due to the greater incidence of residential moves
during those periods. The Company believes that its tenant mix, rental
structure, and expense structure provide adequate protection against undue
fluctuations in cash flows and net revenues during off-peak seasons. Thus, the
Company does not expect seasonality to materially affect distributions to
shareholders.
RECENT ACCOUNTING DEVELOPMENTS
In October of 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (AFAS 123") was issued. The
standard is effective for fiscal years beginning after December 15, 1995. The
Company has elected to continue expense recognition under APB 25, and
disclosing pro forma net income, and earnings per share information based on
the FAS 123 fair value methodology.
<PAGE> 16
PART II- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibit 27 - Financial Data Schedule.
b. Reports on Form 8-K
On June 21, 1996, the Company filed a Current Report on Form 8-K
reporting the acquisition of 29 self storage facilities.
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 1996
Storage USA, Inc.
By: /s/ Thomas E. Robinson
-----------------------
Thomas E. Robinson
President & Chief Financial
Officer
(Principal Financial and
Accounting Officer)
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