<PAGE>
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 quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-13462
STORAGE TRUST REALTY
(Exact name of Registrant as specified in its Charter)
MARYLAND 43-1689825
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
2407 RANGELINE STREET
COLUMBIA, MISSOURI 65202
(Address of principal executive offices) (Zip Code)
(573)499-4799
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
12,910,357 common shares of Beneficial Interest, $.01 par value as of
October 15, 1997.
<PAGE>
STORAGE TRUST REALTY
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(amounts in thousands, except for share information)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1997 1996
(unaudited)
<S> <C> <C>
ASSETS
Investment in storage facilities, net $ 363,427 $ 304,114
Cash and cash equivalents 2,990 2,317
Accounts receivable and other assets 1,526 1,550
Deferred financing costs, net of
amortization of $927 and $463 1,109 547
Notes receivable 2,031 -
Investments in joint ventures 266 197
Total assets $ 371,349 $ 308,725
LIABILITIES AND EQUITY
Liabilities:
Mortgages and notes payable:
Revolving line of credit $ 23,820 $ 60,673
Senior Notes 100,000 -
Other - 2,582
Accounts payable and accrued expenses 6,816 4,964
Accrued interest payable 1,621 171
Tenant prepayments 2,845 2,195
Dividends and distributions payable 5,991 5,974
Total liabilities 141,093 76,559
Minority interest 16,114 16,470
Shareholders' equity:
Common shares, $.01 par value,
150,000,000 shares authorized,
12,910,357 and 12,874,932 shares
issued and outstanding, respectively 129 129
Additional paid-in capital 220,556 219,868
Distributions in excess of net income (6,543) (4,301)
Total shareholders' equity 214,142 215,696
Total liabilities and shareholders'
equity $ 371,349 $ 308,725
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
STORAGE TRUST REALTY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(amounts in thousands, except for share information)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Revenues:
Rental income $ 15,477 $ 12,055
Management income 80 32
Equity in earnings of joint ventures 30 17
Other income 377 199
Total revenues 15,964 12,303
Expenses:
Property operations 3,286 2,670
Real estate taxes 1,568 986
General and administrative 879 715
Interest 2,196 827
Depreciation 2,487 1,660
Amortization 161 72
Total expenses 10,577 6,930
Net income before minority interest 5,387 5,373
Minority interest (358) (327)
Net income $ 5,029 $ 5,046
Net income per share $ 0.39 $ 0.39
Weighted-average number of shares
outstanding during the period 12,909,775 12,827,375
Dividends declared per share
during the period $ 0.435 $ 0.410
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
STORAGE TRUST REALTY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(amounts in thousands, except for share information)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Revenues:
Rental income $ 42,623 $ 29,781
Management income 193 134
Equity in earnings of joint ventures 69 86
Other income 927 462
Total revenues 43,812 30,463
Expenses:
Property operations 9,025 6,758
Real estate taxes 3,995 2,641
General and administrative 2,302 1,783
Interest 5,596 3,241
Depreciation 6,812 4,225
Amortization 467 216
Total expenses 28,197 18,864
Net income before minority interest 15,615 11,599
Minority interest (1,011) (726)
Net income $ 14,604 $ 10,873
Net income per share $ 1.13 $ 1.08
Weighted-average number of shares
outstanding during the period 12,901,434 10,108,639
Dividends declared per share
during the period $ 1.305 $ 1.230
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
STORAGE TRUST REALTY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 14,604 $ 10,873
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,279 4,441
Equity in earnings of joint ventures (69) (86)
Distributions from joint ventures - 20
Minority interest 1,011 726
Changes in assets and liabilities:
Accounts receivable and other assets 24 97
Accounts payable, tenant prepayments
and accrued expenses 3,952 2,652
Net cash provided by operating activities 26,801 18,723
Cash flows from investing activities:
Acquisition of storage facilities (61,831) (98,844)
Other additions to storage facilities (2,360) (3,622)
Funding of notes receivable (2,031) -
Net cash used in investing activities (66,222) (102,466)
Cash flows from financing activities:
Borrowings on revolving line of credit 53,570 110,234
Payments on revolving line of credit (90,423) (86,156)
Principal payments on other mortgages
and notes payable (4,226) (7,849)
Funding of Senior Notes 100,000 -
Financing costs paid (1,026) (51)
Proceeds from sale of Common Shares - 83,835
Offering costs paid - (4,941)
Distributions to minority interests paid (1,113) (665)
Dividends paid (16,831) (10,744)
Stock options exercised 143 -
Net cash provided by financing activities 40,094 83,663
Net change in cash and cash equivalents 673 (80)
Cash and cash equivalents at beginning
of period 2,317 2,356
Cash and cash equivalents at end of period $ 2,990 $ 2,276
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
STORAGE TRUST REALTY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Supplemental cash flow information:
Cash paid for interest $ 4,146 $ 2,919
Schedule of non-cash investing and
financing activities:
Mortgages assumed on acquired facilities $ 1,644 $ 4,260
Issuance of Units in connection with the
acquisition of storage facilities $ - $ 8,243
Storage facilities acquired (10 in 1997
and one in 1996) in exchange for
storage facilities (16 in 1997 and
two in 1996) $23,683 $ 2,360
Issuance of Units in connection with the
earnout provisions of contracts on
previously acquired storage facilities $ 293 $ -
Reclassification of investment in
joint ventures to investment in
storage facilities $ - $ 364
Conversion of Units of the Operating
Partnership held by minority interests
to Common Shares of the Company $ 545 $ -
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
STORAGE TRUST REALTY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Organization
Storage Trust Realty (the "Company") was formed as a Maryland
real estate investment trust ("REIT") on July 12, 1994 to
continue the self-storage business of Burnam Holding Companies
Co. ("BHC") and certain of its affiliates (collectively, the
"Predecessor Company") in owning, operating and managing
self-storage facilities. The Company and its subsidiaries
commenced operations effective with the completion of the
Company's initial public offering ("IPO") on November 16, 1994.
As of September 30, 1997, the Company owned 181 self-storage
facilities in 16 states, and was a partner in two joint ventures
that owned two operating self-storage facilities.
Substantially all of the Company's assets and interests in
self-storage facilities are held by, and all of its operations
are conducted through, Storage Trust Properties, L.P. (the
"Operating Partnership"). The Company is the sole general
partner of, and thereby controls the operations of, the
Operating Partnership, holding a 93.74% ownership interest
therein as of September 30, 1997. The remaining ownership
interests in the Operating Partnership (the "Units") are held by
certain owners of the Predecessor Company, including BHC, and
certain former owners of assets acquired by the Operating
Partnership subsequent to the IPO.
Basis of Presentation
The financial statements included herein have been prepared
without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. These financial statements
reflect all adjustments which, in the opinion of management, are
necessary to fairly present results for the interim periods and
all such adjustments are of a normal recurring nature.
Certain amounts from 1996 have been reclassified to conform to
the presentation in 1997.
<PAGE>
STORAGE TRUST REALTY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation (continued)
Basis of Presentation (continued):
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the accompanying disclosures are adequate to make
the information presented not misleading. The results for the
interim periods are not necessarily indicative of the results
for a full fiscal year. These financial statements should be
read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
The accompanying consolidated financial statements include the
accounts of the Company, the Operating Partnership, and Storage
Realty Management Co. ("Management Company"). All significant
intercompany transactions have been eliminated in the
consolidated presentations.
2. Summary of Significant Accounting Policies
Investment in Storage Facilities
Investment in storage facilities is recorded at cost.
Depreciation is computed using straight-line and accelerated
methods over estimated useful lives ranging from 15 to 40 years
for buildings and improvements, and 3 to 10 years for furniture,
fixtures and equipment. Expenditures for significant
renovations and improvements, which improve and/or extend the
useful lives of fixed assets, are capitalized. Maintenance and
repairs are expensed as incurred.
Revenue Recognition
Rental income is recorded when due form tenants under operating
lease agreements.
<PAGE>
STORAGE TRUST REALTY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued)
Federal Income Taxes
No provision has been made for Federal income taxes for the
Company in the accompanying consolidated financial statements
because the Company has operated and expects to continue
operating in a manner to qualify as a REIT. Under the
applicable provisions of the Internal Revenue Code for a REIT,
the Company is allowed to reduce taxable income by all or a
portion of its distributions to shareholders so long as it
distributes at least 95% of its taxable income to its
shareholders and complies with certain other requirements.
Cash and Cash Equivalents
The Company considers all demand and money market accounts and
repurchase agreements with a maturity of three months or less
when purchased to be cash and cash equivalents.
Deferred Financing Costs
Fees and related expenses incurred in connection with financing
transactions are capitalized at cost and are amortized on a
straight-line basis over the life of the related financing,
which approximates the interest method. The unamortized balance
is expensed upon termination or prepayment of the financing.
Investments in Joint Ventures
Investments in joint ventures represent investments in self-storage
facilities in which the Company does not have a controlling interest.
The Company exercises significant influence over the operating and
financial policies of the joint ventures.
The equity method of accounting has been applied in the
accompanying consolidated financial statements with respect to
the Company's interests in joint ventures.
Net Income Per Common Share
Primary earnings per Common Share are based upon the weighted-average
number of Common Shares and the equivalent Common Shares
outstanding during the period. The assumed exercise price of
outstanding options for Common Shares and Units of the Operating
Partnership using the treasury stock method is not materially
dilutive and such amounts are not presented.
<PAGE>
STORAGE TRUST REALTY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued)
Net Income Per Common Share (continued)
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share" ("FASB 128"),
which is required to be adopted on December 31, 1997. At that
time, the Company will be required to change the method
currently used to compute earnings per Common Share and to
restate all prior periods. Under the new requirements for
calculating primary earnings per Common Share, the dilutive
effect of stock options will be excluded. The impact of FASB
128 on the calculation of primary and fully diluted earnings per
Common Share for the three months and nine months ended
September 30, 1997 and 1996 is not expected to be material.
Minority Interest
The minority interest reflects the ownership interest of the
limited partners of the Operating Partnership and the other
shareholder of the Management Company. Amounts allocated to
these interests are reflected as an expense in the statement of
operations and increase the Company's liability. Distributions
to these limited partners and the other shareholder reduce this
liability. Minority interest of unitholders in the Operating
Partnership is calculated on the weighted-average Common Shares
and Units outstanding for the period.
Units in the Operating Partnership held by minority interests
can be exchanged for Common Shares of the Company on a one-for-one
basis or redeemed in cash at the Company's option. During
the nine months ended September 30, 1997, limited partners
exchanged 27,829 Units in the Operating Partnership for 27,829
Common Shares in the Company.
At September 30, 1997, minority interest ownership in the
Operating Partnership was 862,684 units or 6.26%.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported on the financial statements and accompanying notes.
Actual results could differ from those estimates.
<PAGE>
STORAGE TRUST REALTY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Investment in Storage Facilities
The following summarizes investment in storage facilities
(amounts in thousands):
<TABLE>
<CAPTION>
Sept. 30, December 31,
1997 1996
(unaudited)
<S> <C> <C>
Land $ 72,795 $ 60,578
Buildings 284,181 237,190
Furniture, fixtures and
equipment 22,287 16,551
379,263 314,319
Accumulated depreciation (15,836) (10,205)
Investment in storage
facilities, net $363,427 $304,114
</TABLE>
<PAGE>
STORAGE TRUST REALTY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Mortgages and Notes Payable
Mortgages and notes payable consist of the following
(column amounts in thousands):
<TABLE>
<CAPTION>
Sept. 30, December 31,
1997 1996
(unaudited)
<S> <C> <C>
Revolving line of credit:
Unsecured revolving line of credit
with an aggregate borrowing limit
of $100 million, bearing interest
at LIBOR plus 1.375% per annum
(7.075%) at September 30, 1997
and LIBOR plus 1.625% per annum
(7.267%) at December 31, 1996,
respectively, interest only payable
monthly and a fee on the unused
portion of .25% per annum.
Expiration on January 24, 1998. $23,820 $60,673
</TABLE>
The Company is currently negotiating the terms of a new credit
agreement with several banks and expects to have such a new
facility in place in January 1998. However, there can be no
assurance that such new facility will be in place at such time.
<PAGE>
STORAGE TRUST REALTY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Mortgages and Notes Payable (continued)
<TABLE>
<CAPTION>
Sept. 30, December 31,
1997 1996
(unaudited)
<S> <C> <C>
Senior Notes:
Series A, bearing interest at a
fixed rate of 7.47% per annum,
interest payable semi-annually
on July 15 and January 15,
principal payments of $14,700,000
due on January 15, 2002 and 2003,
with the remaining principal
due January 15, 2004. $ 44,000 $ -
Series B, bearing interest at a
fixed rate of 7.66% per annum,
interest payable semi-annually
on July 15 and January 15,
principal payments of $11,200,000
due on January 15, 2003, 2004,
2005 and 2006, with the remaining
principal due January 15, 2007. 56,000 -
Total $100,000 $ -
</TABLE>
In anticipation of the Senior Notes offering, the Company
entered into a hedging transaction (the sale of Treasury
securities) with the objective of reducing its exposure to
changes in interest rates. The hedge was closed upon receiving
the commitments from the institutional investors in December
1996. The Company realized net proceeds of $645,000 from this
transaction. This hedging gain is being amortized against
interest expense over the weighted-average term of the Senior
Notes. The balance of the hedging gain, which is included in
accrued liabilities, at September 30, 1997 and December 31, 1996
was $577,000 and $645,000, respectively.
<PAGE>
STORAGE TRUST REALTY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mortgages and Notes Payable (continued)
<TABLE>
<CAPTION>
Sept. 30, December 31,
1997 1996
(unaudited)
<S> <S> <C>
Other:
Mortgage loan secured by one self-
storage facility, bearing interest
at 7.5%, principal and interest of
$16,000 payable monthly.
Repaid on January 17, 1997. $ - $ 1,582
Mortgage loan secured by one
self-storage facility, bearing
interest at 5.0%, monthly interest
payments due. Repaid at maturity
on January 31, 1997. - 1,000
$ - $ 2,582
</TABLE>
Scheduled Maturities:
The scheduled maturities of mortgages and notes payable
subsequent to September 30, 1997 are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
Revolving
Year Ending Line of Senior
December 31, Credit Notes Total
<C> <S> <C> <S>
1997 $ - $ - $ -
1998 23,820 - 23,820
1999 to 2001 - - -
2002 - 14,700 14,700
2003 - 25,900 25,900
2004 - 25,800 25,800
2005 - 11,200 11,200
2006 - 11,200 11,200
2007 - 11,200 11,200
Totals $ 23,820 $100,000 $123,820
</TABLE>
<PAGE>
STORAGE TRUST REALTY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Subsequent Events
On October 14, 1997, the Company declared a $.46 dividend on
each Common Share for the fourth quarter of 1997. This is an
increase from the $.435 per Common Share dividend declared for
the third quarter of 1997. The dividend is payable December
29, 1997 to shareholders of record on December 15, 1997.
On October 15, 1997, the Company announced it had agreed to
sell 2,200,000 Common Shares to an investment banking firm.
The net proceeds of approximately $52 million will be used to
repay amounts outstanding on the revolving line of credit and
to fund future acquisition activity. The transaction is
expected to close on October 21, 1997. The Company has granted
to the investment banking firm a 30-day option to purchase up
to 330,000 additional Common Shares solely to cover over-allotments.
<PAGE>
STORAGE TRUST REALTY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Acquisitions and Pro Forma Information
During the first nine months of 1997, the Company has acquired
32 facilities for consideration with an aggregate value of
$84,479,000. Consideration included cash of $60,798,000 and
the exchange of 16 of the Company's facilities valued at
$23,683,000.
The following presents the consolidated results of operations
of the Company for the nine months ended September 30, 1997 on
a pro forma basis as if (a) these acquisitions and exchanges
during the first nine months of 1997 had been completed on
January 1, 1997 and (b) the funding of $100 million of Senior
Notes had been completed on January 1, 1997:
<TABLE>
<CAPTION>
<S> <C>
Total revenues $46,405,000
Total expenses 31,617,000
Net income before
minority interest 14,788,000
Minority interest (956,000)
Net income $13,832,000
Net income per share $ 1.07
Weighted-average number
of shares outstanding 12,901,434
</TABLE>
Net income decreased $772,000 (5.2%) for the pro forma nine
months ended September 30, 1997 as compared to the actual
results for this time period due primarily to the fact that (a)
the operations of five facilities acquired in 1997 were in
their initial lease-up period and (b) one facility acquired in
1997 was undergoing a significant expansion that opened in June
1996.
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, 1997 nor does it purport to
represent the results of operations for future periods.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussions should be read in conjunction with the
financial statements and notes thereto appearing elsewhere herein and
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
Storage Trust Realty (the "Company") commenced operations with the
completion of its initial public offering (the "IPO") of common
shares of beneficial interest, par value $.01 per share ("Common
Shares"), on November 16, 1994. The Company was formed to continue
the self-storage business of Burnam Holding Companies Co. and certain
of its affiliates (collectively, "BHC" or the "Predecessor Company").
Substantially all of the Company's assets and interests in self-
storage facilities are held by, and all of its operations are
conducted through, Storage Trust Properties, L.P. (the "Operating
Partnership"). The Company is the sole general partner of, and
thereby controls the operations of, the Operating Partnership,
holding a 93.74% ownership interest therein as of September 30, 1997.
The remaining ownership interest in the Operating Partnership (the
"Units") are held by certain owners of the Predecessor Company,
including BHC, and certain former owners of assets acquired by the
Operating Partnership subsequent to the IPO.
The Company derives its revenue principally from the Operating
Partnership, which is generated primarily by (i) the Operating
Partnership's rental of self-storage units at the Company's
facilities, (ii) revenues (for financial reporting purposes) of the
Management Company, and (iii) earnings from joint ventures.
The following discussion is based on the consolidated financial
statements of Storage Trust Realty.
<PAGE>
Results of Operations: Three months ended September 30, 1997
compared to three months ended September 30, 1996
Rental income increased $3,422,000 (28.4%) in the second quarter of
1997 compared to the second quarter of 1996 as a result of the net
addition of 12 facilities during the six months ended December 31,
1996 and 16 facilities during the nine months ended September 30,
1997 ($3,122,000) and increases in the average rent per square foot
and occupancy associated with those facilities owned for all of the
three months ended September 30, 1996 and 1997 ($300,000). Average
annualized revenue per square foot for the portfolio increased 9.1%
to $7.69 in 1997 from $7.05 in 1996, while occupancy for the
portfolio decreased from 87% at September 30, 1996 to 85% at
September 30, 1997.
Other income increased $178,000 (89.4%) primarily from increased
product sales (locks and packaging supplies) and increased
commissions from rental trucks, which are at many of the Company's
facilities.
Revenues on a same store basis increased $401,000 or 3.7%. Revenues
on a same store basis include rental income, administrative fees,
late fees, product sales (locks and packaging supplies), commissions
from rental trucks and other income. On a same store basis, average
annualized revenue per square foot increased 4.6% to $7.47 in 1997
from $7.14 in 1996, while occupancy decreased from 86% at September
30, 1996 to 84% at September 30, 1997.
Property operating expenses increased $616,000 (23.1%) as a result of
acquisitions in 1996 and 1997 ($696,000) and increases at those
facilities owned for all of the three months ended September 30, 1996
and 1997. Property operating expenses decreased on a same store
basis by $36,000 or 1.5%, reflecting lower insurance costs and
reduced advertising expenses. These increases were partially offset
by a) additional payroll costs at the facilities, due to higher base
pay and incentive compensation, and b) higher repairs and
maintenance.
Real estate taxes increased $582,000 (59.0%) as a result of
acquisitions in 1996 and 1997 ($525,000) and increases at those
facilities owned for all of the three months ended September 30, 1996
and 1997. Real estate taxes on a same store basis increased by
$57,000 or 6.5%, reflecting higher tax assessments and higher tax
rates on those properties.
<PAGE>
Results of Operations: Three months ended September 30, 1997
compared to three months ended September 30, 1996 (continued)
General and administrative expenses increased $164,000 (22.9%). The
addition of personnel at the Company's headquarters in 1996 and 1997,
increased travel costs and higher professional fees accounted for the
majority of this increase.
Interest expense increased $1,369,000 (165.5%) due to the increase in
borrowings to finance acquisitions and from the issuance of
$100,000,000 of the Senior Notes in January and April 1997.
Depreciation increased $827,000 (49.8%) due to the increased
investment in storage facilities.
Amortization increased $89,000 (123.6%) due to amortization of the
costs of the Senior Notes.
Net income decreased $17,000 (0.3%) and net income per share was
unchanged as a result of the factors noted above.
Results of Operations: Nine months ended September 30, 1997
compared to nine months ended September 30, 1996
Rental income increased $12,842,000 (43.1%) in the first nine months
of 1997 compared to the first nine months of 1996 as a result of the
net addition of 44 facilities during the year ended December 31, 1996
and 16 facilities during the nine months ended September 30, 1997
($11,886,000) and increases in the average rent per square foot and
occupancy associated with those facilities owned for all of the nine
months ended September 30, 1996 and 1997 ($956,000). Average
annualized rent per square foot for the portfolio increased 8.3% to
$7.47 in 1997 from $6.90 in 1996, while occupancy for the whole
portfolio decreased from 87% at September 30, 1996 to 85% at
September 30, 1997.
Other income increased $465,000 (100.6%) primarily from increased
product sales (locks and packaging supplies) and increased
commissions from rental trucks at many of the Company's facilities.
Revenues on a same store basis increased $1,109,000 or 4.8%. Revenues
on a same store basis include rental income, administrative fees,
late fees, product sales (locks and packaging supplies), commissions
from rental trucks and other income.
<PAGE>
Results of Operations: Nine months ended September 30, 1997
compared to nine months ended September 30, 1996 (continued)
On a same store basis, average annualized rent per square foot
increased 4.1% to $7.34 in 1997 from $7.05 in 1996, while
occupancy decreased from 86% at September 30, 1996 to 84% at
September 30, 1997.
Property operating expenses increased $2,267,000 (33.5%) as a
result of acquisitions in 1996 and 1997 ($2,127,000) and increases
at those facilities owned for all of the nine months ended
September 30, 1996 and 1997.
Property operating expenses increased on a same store basis by
$140,000 or 2.8%, reflecting a) additional payroll costs at the
facilities, due to higher base pay and incentive compensation,
b) additional costs for regional managers, due to more regions, and
c) higher maintenance and snow removal costs. These increases were
partially offset by lower insurance costs and reduced advertising
expenses.
Real estate taxes increased $1,354,000 (51.3%) as a result of
acquisitions in 1996 and 1997 ($1,288,000) and increases at those
facilities owned for all of the nine months ended September 30, 1996
and 1997. Real estate taxes on a same store basis increased by
$66,000 or 3.4%, reflecting higher tax assessments and higher tax
rates on those properties.
General and administrative expenses increased $519,000 (29.1%). The
addition of personnel at the Company's headquarters in 1996 and 1997,
increased travel costs and higher professional fees accounted for the
majority of this increase.
Interest expense increased $2,355,000 (72.7%) due to the increase in
borrowings from the issuance of $100,000,000 of the Senior Notes in
January and April 1997 and the use of proceeds from the sale of
4,140,000 Common Shares in July 1996.
Depreciation increased $2,587,000 (61.2%) due to the increased
investment in storage facilities.
Amortization increased $251,000 (116.2%) due to amortization of the
costs of the Senior Notes.
Net income increased $3,731,000 (34.3%) and net income per share
increased $.05 (4.6%) as a result of the factors noted above.
<PAGE>
Funds from Operations
The Company believes that Funds from Operations ("FFO") is helpful to
investors as a measure of the performance of an equity REIT because,
along with cash flows from operating activities, financing activities
and investing activities, it provides investors with an understanding
of the ability of the Company to incur and service debt and to make
capital expenditures. FFO is defined by NAREIT as income (loss)
before minority interest of the holders of Units (computed in
accordance with GAAP), excluding gains or losses from debt
restructuring and sales of property, provision for losses, and real
estate related depreciation and amortization (excluding amortization
of financing costs). FFO is not to be considered as an alternative
to net income or any other GAAP measurement as a measure of operating
performance and is not necessarily indicative of cash available to
fund all cash needs.
Funds from Operations is determined as follows (amounts in
thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Three Months Ended September 30:
Net income before minority interest $ 5,387 $ 5,373
Depreciation of revenue-producing
assets 2,462 1,660
Company's share of joint ventures'
depreciation 4 4
Funds from Operations $ 7,853 $ 7,037
Weighted-average number of
Common Shares and Units 13,772,459 13,552,741
Nine Months Ended September 30:
Net income before minority interest $15,615 $ 11,599
Depreciation of revenue-producing
assets 6,747 4,225
Company's share of joint ventures'
depreciation 12 17
Funds from Operations $22,374 $15,841
Weighted-average number of
Common Shares and Units 13,762,612 10,733,513
</TABLE>
The Company includes Units in these amounts as Units can be exchanged
for Common Shares of the Company on a one-for-one basis or redeemed
in cash at the Company's option.
<PAGE>
Funds from Operations (continued)
FFO increased $816,000 (11.6%) in the third quarter of 1997 over 1996
due to the acquisition of facilities in 1997 and 1996 and the
increased results from those facilities owned for all of the three
months ended September 30, 1997 and 1996. Net operating income,
defined as revenues less property operating expenses and real estate
taxes, increased on a same store basis by $381,000 or 5.0%. These
increases were partially offset by increases in general and
administrative expenses and interest expense, as previously
discussed.
FFO increased $6,533,000 (41.2%) in the first nine months of 1997
over 1996 due to the acquisition of facilities in 1997 and 1996 and
the increased results from those facilities owned for all of the nine
months ended September 30, 1997 and 1996. Net operating income
increased on a same store basis by $903,000 or 5.7%. These increases
were partially offset by increases in general and administrative
expenses and interest expense, as previously discussed.
FFO decreased $242,000 (1.1%) for the pro forma nine months ended
September 30, 1997 as compared to the actual results for this time
period due primarily to the fact that (a) the operations of five
facilities acquired in 1997 were in their initial lease-up period and
(b) one facility acquired in 1997 was undergoing a significant
expansion that opened in June 1996.
<PAGE>
Liquidity and Capital Resources
Mortgages and Notes Payable
The Company had outstanding borrowings of $123,820,000 at September
30, 1997. This indebtedness consists of (a) $100,000,000 of Senior
Notes and (b) $23,820,000 on the Company's revolving line of credit.
The revolving line of credit may be used to fund the acquisition,
development or conversion of additional facilities. The revolving
line of credit expires in January 1998 and bears interest at a
floating rate of LIBOR plus 1.375% (7.075% at September 30, 1997).
The Company is currently negotiating the terms of a new credit
agreement with several banks and expects to have such a new facility
in place in January 1998. However, there can be no assurance that
such new facility will be in place at such time.
On October 15, 1997, the Company announced it had agreed to sell
2,200,000 Common Shares to an investment banking firm. The net
proceeds of approximately $52 million will be used to repay amounts
outstanding on the revolving line of credit and to fund future
acquisition activity. The transaction is expected to close on
October 21, 1997. The Company has granted to the investment banking
firm a 30-day option to purchase up to 330,000 additional Common
Shares solely to cover over-allotments.
In December 1996, the Company received commitments from various
institutional investors for the private placement of $100 million of
unsecured Senior Notes. The Company funded $75 million of the Senior
Notes on January 22, 1997 and the remaining $25 million was funded on
April 15, 1997. The fixed rate debt has two separate series - Series
A Senior Notes totaling $44 million with a final maturity of seven
years, an average maturity of six years and a fixed interest rate of
7.47% per annum (125 basis points over comparable Treasuries at the
date of pricing) and Series B Senior Notes totaling $56 million with
a final maturity of ten years, an average maturity of eight years and
a fixed interest rate of 7.66% per annum (135 basis points over
corresponding Treasuries at the date of pricing). The proceeds of
the financing are being utilized to repay indebtedness under the
Company's revolving line of credit, to finance additional self-storage
acquisitions and for general corporate purposes.
<PAGE>
Liquidity and Capital Resources (continued)
Mortgages and Notes Payable (continued)
At September 30, 1997, the Company has joint and several liability
but does not guarantee the $3,925,000 indebtedness of a joint venture
in New Orleans, Louisiana in which it has a 15% interest. In 1996,
the Company acquired a 25% interest in a joint venture that is
operating a self-storage facility in Kansas City, Missouri that was
constructed during 1997. The Company has guaranteed 25% of the joint
venture's construction loan, which is for a total of $2,054,000. The
balance outstanding under this construction loan as of September 30,
1997 was $1,789,000.
Liquidity
The expansion of existing facilities, the acquisition, conversion and
development of additional self-storage facilities and the repayment
of indebtedness, including the Senior Notes and any amounts
outstanding on the revolving line of credit, represent the Company's
principal liquidity requirements.
The Company expects to meet its short-term liquidity requirements by
(a) net cash provided by operating activities and (b) borrowings
under the revolving line of credit. The Company intends to meet its
long-term liquidity requirements primarily through (a) borrowings
under the revolving line of credit, (b) the issuance of new debt and
(c) the sale of Common Shares.
The Company believes that its future net cash flow will be adequate
to meet operating requirements and provide for payment of
distributions by the Company in accordance with tax requirements
relating to a REIT in the short-term and in the long-term. In order
to maintain its status as a REIT, the Company will be required to
make distributions to its shareholders of at least 95% of its taxable
income, which is expected to consist primarily of its share of the
income of the Operating Partnership. Differences in timing between
the recognition of taxable income and receipt of cash which would be
available for distribution could require the Company to borrow to
meet the 95% distribution requirement, although the Company does not
currently anticipate the need to borrow as a result of any such
differences in timing.
<PAGE>
Capital Expenditures
During the three months ended March 31, 1997, the Company spent
$187,000 for expansions of existing facilities and climate-controlled
conversions and $446,000 on other capital expenditures. During the
three months ended June 30, 1997, the Company spent $131,000 for
expansions of existing facilities and climate-controlled conversions
and $832,000 on other capital expenditures. During the three months
ended September 30, 1997, the Company spent $437,000 for expansions
of existing facilities and climate-controlled conversions and
$327,000 on other capital expenditures.
For the twelve months ending September 30, 1998, the Company expects
to spend $7,050,000 for expansions and climate-controlled conversions
at existing facilities. For the remaining six months of 1997, the
Company expects to spend $400,000 on other capital expenditures. The
Company believes that it can fund any necessary capital expenditures
through its operations or from the revolving line of credit.
Inflation
Substantially all of the leases at the facilities have one-month
terms, which thereby provide the Company with the opportunity to
achieve increases in rental income as each lease matures. Such types
of leases generally minimize the risk of inflation to the Company.
Seasonality
The Company's revenues are expected to be higher during the latter
part of the year because its facilities experience greater occupancy
from May through September (due to higher levels of residential moves
during that period) and increases in rental rates, which occur
throughout the year. The Company does not expect seasonality to
materially affect distributions to shareholders. The Company
believes that its geographic diversity, tenant mix, and rental and
expense structures provide adequate protection against significant
fluctuations in cash flow and net income due to seasonality.
<PAGE>
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share" ("FASB 128"), which is
required to be adopted on December 31, 1997. At that time, the
Company will be required to change the method currently used to
compute earnings per Common Share and to restate all prior periods.
Under the new requirements for calculating primary earnings per
Common Share, the dilutive effect of stock options will be excluded.
The impact of FASB 128 on the calculation of primary and fully
diluted earnings per Common Share for the three months and nine
months ended September 30, 1997 and 1996 is not expected to be
material.
In June 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("FASB 131"), which is effective for financial
statements for periods beginning after December 15, 1997. At that
time, the Company will be required to report additional information
(both financial and descriptive) about operating segments in annual
and interim reports. The Company will implement FASB 131 during the
year ending December 31, 1998.
<PAGE>
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
27. Financial Data Schedule.
(b.) Reports on Form 8-K
A report on Form 8-K (Items 5 and 7), dated October 14,
1997, was filed to report that Storage Trust Properties,
L.P. completed the acquisition of nine self-storage
facilities and exchange of eight self-storage facilities
during the period from May 21, 1997 and September 30, 1997.
Historical Summaries of Combined Gross Revenue and Direct
Operating Expenses for the year ended December 31, 1996 and
for the six months ended June 30, 1997 (unaudited) were
filed with the Form 8-K for six of the nine facilities
acquired. In addition, an unaudited Pro Forma Consolidated
Balance Sheet as of June 30, 1997 and unaudited Pro Forma
Consolidated Statements of Operations for the year ended
December 31, 1996 and the six months ended June 30, 1997
were presented.
A report on Form 8-K (Item 5), dated October 15, 1997, was
filed to report the press release issued by the Company on
October 14, 1997 that disclosed earnings information for
the three and nine months ended September 30, 1997 and the
declaration of the dividend for the fourth quarter of 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
STORAGE TRUST REALTY
October 17, 1997 /s/ Michael G. Burnam
(Date) Michael G. Burnam
Chief Executive Officer
October 17, 1997 /s/ Stephen M. Dulle
(Date) Stephen M. Dulle
Chief Financial Officer
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
THIRD QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH 10-Q
</LEGEND>
<CIK> 0000928735
<NAME> STORAGE TRUST REALTY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,990
<SECURITIES> 0
<RECEIVABLES> 618
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,516
<PP&E> 379,263
<DEPRECIATION> (15,836)
<TOTAL-ASSETS> 371,349
<CURRENT-LIABILITIES> 17,273
<BONDS> 123,820
0
0
<COMMON> 129
<OTHER-SE> 214,013
<TOTAL-LIABILITY-AND-EQUITY> 371,349
<SALES> 42,623
<TOTAL-REVENUES> 43,812
<CGS> 0
<TOTAL-COSTS> 13,020
<OTHER-EXPENSES> 9,581
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,596
<INCOME-PRETAX> 14,604
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,604
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,604
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
</TABLE>
