1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended June 30, 2001
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)
175 Toyota Plaza, Suite 700, Memphis, TN
(Address of principal executive offices)
38103
(Zip Codes)
Registrant's telephone number, including area code: (901) 252-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] NO
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, 27,387,556 shares outstanding at August 1, 2001.
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
STORAGE USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(amounts in thousands, except per share data)
Three months Three months Six months Six months
ended ended ended ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------- ------------- ------------- -------------
OPERATING REVENUES:
Rental and other property income $ 71,111 $ 63,687 $ 138,076 $ 123,235
Service and other income 3,122 1,350 4,665 3,301
--------- --------- --------- ---------
Total operating revenues 74,233 65,037 142,741 126,536
--------- --------- --------- ---------
OPERATING EXPENSES:
Cost of property operations & maintenance 17,910 15,461 35,904 31,172
Taxes 5,824 5,450 11,076 10,637
Costs of providing services 2,117 979 3,612 2,265
General & administrative 5,001 3,649 9,281 5,914
Depreciation & amortization 10,352 10,097 20,326 19,291
--------- --------- --------- ---------
Total operating expenses 41,204 35,636 80,199 69,279
--------- --------- --------- ---------
INCOME FROM OPERATIONS 33,029 29,401 62,542 57,257
OTHER INCOME (EXPENSE):
Interest expense, net (12,377) (10,960) (24,710) (21,637)
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTEREST AND GAIN 20,652 18,441 37,832 35,620
Gain on sale of assets -- -- -- 890
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTEREST 20,652 18,441 37,832 36,510
Minority interest (3,501) (3,357) (6,695) (6,748)
--------- --------- --------- ---------
NET INCOME $ 17,151 $ 15,084 $ 31,137 $ 29,762
--------- --------- --------- ---------
BASIC NET INCOME PER SHARE $ 0.63 $ 0.55 $ 1.15 $ 1.07
--------- --------- --------- ---------
DILUTED NET INCOME PER SHARE $ 0.62 $ 0.55 $ 1.13 $ 1.07
--------- --------- --------- ---------
See Notes to Consolidated Financial Statements
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3
STORAGE USA, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
as of as of
June 30, 2001 December 31, 2000
------------- -----------------
(unaudited)
ASSETS
Investments in storage facilities, at cost 1,750,009 1,710,725
Accumulated depreciation (152,635) (132,527)
----------- -----------
1,597,374 1,578,198
Cash & cash equivalents 2,913 5,045
Advances and investments in real estate 128,351 136,125
Other assets 37,300 47,402
----------- -----------
TOTAL ASSETS $ 1,765,938 $ 1,766,770
----------- -----------
LIABILITIES & SHAREHOLDERS' EQUITY
Notes payable $ 600,000 $ 600,000
Line of credit borrowings 169,938 168,333
Mortgage notes payable 65,611 66,845
Other borrowings 39,139 38,804
Accounts payable & accrued expenses 28,276 26,498
Dividends payable 19,437 18,643
Rents received in advance 12,384 10,783
Deferred gain from contribution of self-storage facilities 37,175
37,175
----------- -----------
TOTAL LIABILITIES 971,960 967,081
----------- -----------
Minority interests
Preferred units 65,000 65,000
Common units 74,109 82,542
----------- -----------
TOTAL MINORITY INTERESTS 139,109 147,542
----------- -----------
Commitments and contingencies
Shareholders' equity:
Common stock $.01 par value, 150,000,000 shares
authorized, 27,380,451 and 27,019,095 shares issued
and outstanding 274 270
Paid-in capital 735,647 727,022
Notes receivable - officers (9,814) (11,310)
Deferred compensation
(180) (252)
Accumulated deficit (15,831) (15,831)
Distributions in excess of net income (55,227) (47,752)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 654,869 652,147
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 1,765,938 $ 1,766,770
----------- -----------
See Notes to Consolidated Financial Statements
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STORAGE USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
Six months ended Six months ended
June 30, 2001 June 30, 2000
---------------- ----------------
OPERATING ACTIVITIES:
Net income $ 31,137 $ 29,762
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 20,326 19,291
Minority interest 6,695 6,748
(Gain) on exchange of self-storage facilities -- (890)
Changes in assets and liabilities:
Other assets 3,850 (19,718)
Other liabilities 3,160 1,621
--------- ---------
Net cash provided by operating activities 65,168 36,814
--------- ---------
INVESTING ACTIVITIES:
Acquisition and improvements of storage facilities (9,389) (12,987)
Proceeds from sale/exchange of storage facilities
-- 21,682
Development of storage facilities (18,379) (18,729)
Advances and investments in real estate (8,147) (9,846)
Proceeds from liquidation and distributions from advances
and investments in real estate 16,040 6,344
Issuances of notes receivable (26) (1,309)
Payments on notes receivable 5,172 2,113
--------- ---------
Net cash used in investing activities (14,729) (12,732)
--------- ---------
FINANCING ACTIVITIES:
Net (repayments)/borrowings under line of credit (8,395) 49,460
Mortgage principal payments (689) (831)
Other borrowings principal payments/payoffs (250) (100)
Payment of debt issuance costs (374) (192)
Cash dividends (37,819) (38,044)
Preferred unit dividends (2,884) (2,884)
Proceeds from issuance of stock 1,891 148
Repurchase of common stock -- (25,967)
Payments on notes receivable - officers 543 43
Distribution to minority interests (4,594) (4,961)
--------- ---------
Net cash used in financing activities (52,571) (23,328)
--------- ---------
Net increase/(decrease) in cash and equivalents (2,132) 754
Cash and equivalents, beginning of period 5,045 1,699
--------- ---------
Cash and equivalents, end of period $ 2,913 $ 2,453
--------- ---------
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Common Stock issued in exchange for notes receivable $ -- $ 756
Equity share of joint venture received for disposition of assets -- 6,526
Note received in consideration for undepreciated land sold -- 2,200
Partnership Units exchanged for shares of common stock 11,424 8,234
Common Stock received in payment of notes receivable 952 156
Shares issued to Directors 160 160
--------- ---------
See Notes to Consolidated Financial Statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
1. UNAUDITED INTERIM FINANCIAL STATEMENTS
References to the Company include Storage USA, Inc. ("the REIT") and
SUSA Partnership, L.P. (the "Partnership"), its principal operating
subsidiary. Interim consolidated financial statements of the Company
are prepared pursuant to the requirements for reporting on Form 10-Q.
Accordingly, certain disclosures accompanying annual financial
statements prepared in accordance with generally accepted accounting
principles are omitted. In the opinion of management, all adjustments,
consisting solely of normal recurring adjustments, necessary for the
fair presentation of consolidated financial statements for the interim
periods have been included. The current period's results of operations
are not necessarily indicative of results that ultimately may be
achieved for the year. The interim consolidated financial statements
and notes thereto should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for
the year ended December 31, 2000 as filed with the Securities and
Exchange Commission.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amount reported in the financial
statements and accompanying notes. Actual results could vary from these
estimates.
2. ORGANIZATION
Storage USA, Inc. (the "Company") a Tennessee corporation, was formed
in 1985 to acquire, develop, construct, franchise, own and operate
self-storage facilities throughout the United States. The Company is
structured as an umbrella partnership real estate investment trust
("UPREIT") in which substantially all of the Company's business is
conducted through SUSA Partnership, L.P. (the "Partnership"). Under
this structure, the Company is able to acquire self-storage facilities
in exchange for units of limited partnership interest in the
Partnership ("Units"), permitting the sellers to at least partially
defer taxation of capital gains. At June 30, 2001 and December 31,
2000, respectively, the Company owned approximately 89.8% and 88.8% of
the partnership interest in the Partnership.
In 1996, the Company formed Storage USA Franchise Corp ("Franchise"), a
Tennessee corporation. From the initial inception of Franchise until
December 31, 2000, the Partnership owned 100% of its non-voting common
stock, and accounted for Franchise under the equity method. The
Partnership included its 97.5% share of the profit or loss of Franchise
in Service and Other Income as part of income from equity investments,
and its share of the net assets of Franchise in Other Assets. On
January 2, 2001, the Company acquired all of the outstanding voting
stock of Franchise for total consideration of $203 thousand. The
transaction was accounted for under the purchase method. The voting
stock was acquired from the Company's Chief Executive Officer and
President in a Board approved transaction. Accordingly, commencing in
2001, the Company consolidates Franchise for accounting purposes. Also
effective as of the beginning of the year was the Company's election of
Franchise as a taxable REIT subsidiary under the REIT provisions of the
Ticket to Work and Work Incentives Improvement Act of 1999.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Rental and Other Property Income
Rental and other property income consists of rental income plus other
income from property specific activities (rental of floor and storage
space for locks and packaging material, truck rentals and ground rents
for cellular telephone antenna towers and billboards). Following is a
summary of rental and other property income for the second quarter and
for the six months ended June 30, 2001 and 2000.
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6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2001
Three months Three months Six months Six months
ended ended ended ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
---------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
Rental Income: $ 69,964 $ 62,878 $135,868 $121,251
Other property specific income: 1,147 809 2,208 1,984
-----------------------------------------------------------------------
Rental and other property income $ 71,111 $ 63,687 $138,076 $123,235
========================================================================
Service and Other Income
Service and other income consists of revenue derived from providing
services to third parties and related unconsolidated joint ventures and
the Company's proportionate share of the net income of equity
investments. The services provided by the Company include the
management of self-storage facilities, general contractor, development
and acquisition services provided to the GE Capital Corp. Development
and Acquisition Ventures ("GE Capital Ventures"), and services provided
by Franchise Corp. The Company is reimbursed a fixed percentage of
facility revenues for providing management services to third parties
and related unconsolidated joint ventures. With the January 1, 2001
implementation of the REIT provisions of the Ticket to Work and Work
Incentives Improvement Act of 1999 (the "Act"), taxable REIT
subsidiaries gained the ability to provide "non-customary" services to
tenants. Accordingly, commencing in 2001, one of the services being
provided by Franchise Corp. is the offering to the Company's customers
direct access to tenant insurance, which insures their goods against
described perils. With the consolidation of Franchise, as described in
Note 2 to the Consolidated Financial Statements, tenant insurance
income plus royalty fees from franchisees are included in Franchise
services income in 2001. Below is a summary of service and other income
for the second quarter and for the six months ended June 30, 2001 and
2000.
Three months Three months Six months Six months
ended ended ended ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
-----------------------------------------------------------------------------------------------------------------------
(in thousands)
Management fees $ 982 $ 686 $ 1,838 $ 1,298
Acquisition, development and
general contractor fees 294 581 459 1,574
Franchise services income 934 -- 1,705 --
Income from equity investments and other 912 83 663 429
--------------------------------------------------------------
TOTAL SERVICE AND OTHER INCOME: $ 3,122 $ 1,350 $ 4,665 $ 3,301
==============================================================
Interest Expense, net
Interest income and expense are netted together and the breakout of
income and expense is as follows:
Three months Three months Six months Six months
ended ended ended ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------------------------------------------------------------------------------------------------
(in thousands)
Interest income $ 2,541 $ 3,334 $ 5,616 $ 6,674
Interest expense (14,918) (14,294) (30,326) (28,311)
-----------------------------------------------------------------
NET INTEREST EXPENSE $(12,377) $(10,960) $(24,710) $(21,637)
=================================================================
Reclassifications
Certain previously reported amounts have been reclassified to conform
to the current financial statement presentation with no impact on
previously reported net income or shareholders' equity.
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7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2001
Interest Rate Management Agreements
On June 16, 1998, the Financial Accounting Standards Board issued
Statement No. 133 (SFAS 133), "Accounting for Derivative Instruments
and Hedging Activities," as amended, which was effective for the
Company as of January 1, 2001. This statement established standards for
accounting and reporting of derivative instruments. The Company
periodically enters into interest rate management agreements, including
interest rate swaps and caps, to manage interest rate risk associated
with anticipated debt transactions and with its variable rate line of
credit. Since no such agreements were outstanding as of December 31,
2000, the implementation of SFAS 133 did not have a material impact on
the Company's financial position or results of operations.
4. INVESTMENTS IN STORAGE FACILITIES
Investments in storage facilities consisted of the following at June
30, 2001 and December 31, 2000:
June 30, 2001 December 31, 2000
--------------------------------------------------------------------------------------
(in thousands)
Land $ 426,567 $ 418,507
Buildings and improvements 1,226,616 1,197,701
Tenant improvements 7,582 7,338
Furniture, fixtures and equipment 45,944 42,525
Development in progress, including land 43,300 44,654
----------------------------------
Total 1,750,009 1,710,725
Less: accumulated depreciation (152,635) (132,527)
----------------------------------
$ 1,597,374 $ 1,578,198
==================================
The preceding cost balances include facilities acquired through capital
leases of $32.4 million at June 30, 2001 and $31.5 million at December
31, 2000. Also included above are $23.8 million at June 30, 2001 and
$22.8 at December 31, 2000 of corporate office furniture, fixtures and
equipment. Accumulated depreciation associated with the facilities
acquired through capital leases was $1.8 million at June 30, 2001 and
$1.4 million at December 31, 2000.
The Company acquired one self-storage facility for $4.6 million during
the first quarter. The Company has also opened three internally
developed facilities through June 2001: one in the first quarter at a
total cost of approximately $6.4 million; and two in the second quarter
for approximately $18.2 million.
5. ADVANCES AND INVESTMENTS IN REAL ESTATE
Advances and investments in real estate consisted of the following at
June 30, 2001 and December 31, 2000:
JUNE 30, 2001 December 31, 2000
------------------------------------------------------------------------
(in thousands)
Advances to Franchisees: $ 109,923 $ 113,272
Fidelity joint venture: (443) (300)
GE joint ventures: 18,111 20,758
Other joint ventures: 760 2,395
-----------------------------------
Total advances & investments $ 128,351 $ 136,125
===================================
As of June 30, 2001 and December 31, 2000, $109.9 million and $113.3
million respectively of advances had been made by the Company to
franchisees of Franchise to fund the development and construction of
franchised self-storage facilities. These advances are collateralized
by the facilities being developed by the franchisee.
7
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2001
Joint Ventures
Fidelity Venture
On June 7, 1999, the Company formed a joint venture with Fidelity
Management Trust Company (the "Fidelity Venture"). The Company sold or
contributed 32 self-storage facilities with a fair value of $144
million to the Fidelity Venture in return for a 25% interest and cash
proceeds of approximately $131 million. The Company accounts for its
investment in the Fidelity Venture under the equity method.
The Company recognized $372 thousand in equity earnings from the
Fidelity Venture and $371 thousand in management fees for operating the
venture's properties in the second quarter of 2001, compared to $365
thousand and $342 thousand, respectively, in the second quarter of
2000. For the six months ended June 30, 2001 the Company recognized
$700 thousand in equity earnings and $720 thousand in management fees,
compared to $638 thousand and $664 thousand, respectively, for the same
period in 2000. As of June 30, 2001 and December 31, 2000, the Company
had recorded negative investment balances in the Fidelity Venture of
$443 thousand and $300 thousand, respectively. The following table
summarizes certain financial information related to the Fidelity
Venture:
Three months Three months Six months Six months
ended ended ended ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
-----------------------------------------------------------------------------------------------------------
(in thousands)
INCOME STATEMENT:
Property revenues $ 6,176 $ 5,730 $ 12,004 $ 11,079
Property expenses 2,176 1,815 4,184 3,675
Net operating income 4,000 3,915 7,820 7,404
Net income 1,486 1,463 2,798 2,551
BALANCE SHEET:
Total assets $ 146,365 $ 149,246
Total third party debt 90,953 92,327
GE Capital Ventures
On December 1, 1999, the Company formed two joint ventures with GE
Capital providing for a total investment capacity of $400 million for
acquisitions and development of self-storage facilities. The Company
has a 25% interest in the $160 million Development Venture and a 16.7%
interest in the $240 million Acquisition Venture. All of the properties
acquired and developed by the ventures are operated by Storage USA
under a management contract. In addition to the property management,
Storage USA provides certain fee-based services to the ventures,
including identifying suitable development and acquisition
opportunities and general contractor services. The Company accounts for
these joint ventures under the equity method of accounting.
In connection with the closing of these joint ventures, GE Capital
received warrants for the purchase of 1.25 million shares of Storage
USA common stock at $42 per share. These warrants may be exercised at
any time within a five-year period. The warrants were recorded at fair
value on the date of issuance, based upon a Black-Scholes option
pricing model. There were also investment advisory fees incurred in the
closing of the GE Capital Ventures. A total of $3.2 has been paid, $1.7
million relating to the GE Development Venture, and $1.5 million to the
GE Acquisition Venture. These amounts, along with the value of the
warrants, are included in the Company's recorded investment in the
joint ventures.
We transferred nine projects in various stages of development into the
GE Capital Development Venture during the first quarter of 2000. These
projects had a total projected cost of $53.0 million, $26.0 million of
which represented the Company's total costs as of March 31, 2000. We
received $19.9 million in cash, and recorded an investment in the
venture of $6.5 million, representing a 25% interest. As of June 30,
2001, six properties were open and operating and three remained in
design and construction within the Development Venture. During the
first six months of 2001, the Acquisition Venture has acquired two
properties and
8
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2001
leasehold interests in five others for a cost of approximately $23.3
million, bringing the total number of operating properties within the
Venture to thirteen. Of the properties acquired during 2001, six are
located in the Boston metropolitan area and one is located in Northern
New Jersey.
The Company has recognized certain fees related to the GE Capital
Ventures as summarized below. The 2000 totals reflect fees generated by
the initial transfer of the nine development projects to the
Development Venture.
Three months Three months Six months Six months
ended ended ended ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
-----------------------------------------------------------------------------------------------
(in thousands)
Acquisition, development and
general contractor fees $ 294 $ 581 $ 459 $1,574
Management fees 191 23 354 23
-----------------------------------------------------------
$ 485 $ 604 $ 813 $1,597
===========================================================
In 2000, the Company recognized a $103 thousand loss in equity earnings
from the GE Capital Ventures in the second quarter, and a $176 thousand
loss for the six months ended June 30. Included in these equity
earnings losses is amortization relating to the difference between the
Company's cost and the underlying equity in the Ventures' net assets.
In 2001, the Company has recognized $48 thousand in equity earnings
from the GE Capital Ventures for the second quarter of 2001, including
related amortization, and a like $201 thousand loss in equity earnings
for the six months ended June 30, 2001.
As of June 30, 2001 and December 31, 2000, the Company had combined
recorded investments of $18.1 million and $20.8 million, respectively,
in the GE Capital Ventures. The following table summarizes certain
financial information related to the Ventures for the second quarter of
2001 and 2000, and for the six months ended June 30, 2001 and 2000.
Three months ended June 30, 2001 Six months ended June 30, 2001
---------------------------------------------------------------------------
Development Acquisition Development Acquisition
Venture Venture Total Venture Venture Total
------------------------------------------------------------------------------------------------------------------------
(in thousands, except number of properties)
INCOME STATEMENT:
Property revenues 504 2,820 3,324 865 5,062 5,927
Property expenses 502 1,576 2,078 981 2,681 3,662
Net operating income/(loss) 2 1,244 1,246 (116) 2,381 2,265
Net income/(loss) (509) 226 (283) (1,176) 388 (788)
BALANCE SHEET (AS OF JUNE 30, 2001):
Total assets 47,534 76,568 124,102
Total debt 22,703 29,462 52,165
NUMBER OF OPERATIONAL PROPERTIES: 6 13 19
9
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2001
Three months ended June 30, 2001 Six months ended June 30, 2001
---------------------------------------------------------------------------
Development Acquisition Development Acquisition
Venture Venture Total Venture Venture Total
------------------------------------------------------------------------------------------------------------------------
(in thousands, except number of properties)
INCOME STATEMENT:
Property revenues 28 334 362 32 334 366
Property expenses 46 67 113 75 67 142
Net operating income/(loss) (18) 267 249 (43) 267 224
Net income/(loss) (58) 146 88 (83) 146 63
BALANCE SHEET (AS OF JUNE 30, 2000):
Total assets 32,343 34,728 67,071
Total debt 9,574 -- 9,574
NUMBER OF OPERATIONAL PROPERTIES: 1 5 6
Other Ventures
SUSA Partnership has equity interests in several single facility joint
ventures. Franchise has equity interests in a number of franchisee
joint ventures which are now included in advances and investments in
real estate. Prior to the first quarter of 2001, these equity interests
were included in Other Assets as part of the Company's recording of its
share of the overall net assets of Franchise.
The decline in Other Ventures from $2.4 million at December 31, 2000 to
$760 thousand at June 30, 2001 is primarily due to the consolidation of
Franchise and the related inclusion of its equity interest in
franchisee properties as described above.
6. OTHER ASSETS
AS OF As of
JUNE 30, December 31,
2001 2000
----------------------------------------------------------------------------------
(in thousands)
Deposits $ 2,833 $ 4,449
Accounts receivable 4,329 4,192
Mortgages receivable 563 2,700
Notes receivable 3,472 6,389
Other receivables 10,933 7,760
Advances and investments in Franchise -- 9,464
Deferred costs of issuances of unsecured notes
(net of amortization) 7,653 8,291
Other 7,517 4,157
---------------------------
Total Other Assets $ 37,300 $ 47,402
===========================
7. LINES OF CREDIT, MORTGAGES PAYABLE, AND OTHER BORROWINGS
SUSA Partnership can borrow under a $200 million line of credit with a
group of commercial banks and under a $40 million line of credit with a
commercial bank. Franchise can borrow under a $10 million line of
credit with a commercial bank. The lines bear interest at various
spreads of LIBOR. The following table lists additional information
about the lines of credit.
10
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2001
LINE OF CREDIT BORROWINGS SUSA
AS OF JUNE 30, 2001 Partnership Franchise
----------------------------------------------------------------------
(in thousands)
Total lines of credit $240,000 $ 10,000
Borrowings outstanding $159,938 $ 10,000
Weighted average daily interest
rate year-to-date 5.80% 6.26%
The Company from time to time assumes mortgages on facilities acquired.
Certain mortgages were assumed at above market interest rates. Premiums
were recorded upon assumption and amortized using the interest method
over the terms of the related debt. The following table provides
information about the mortgages:
MORTGAGE NOTES PAYABLE
AS OF JUNE 30, 2001 Face Amount Maturity Range
------------------------------------------------------------
(in thousands)
Fixed rate $ 55,526 2000-2021
Variable rate 5,161 2006-2016
----------------------------
$ 60,687
Premiums 4,924
--------
Mortgage notes payable $ 65,611
========
The Company has other borrowings used in the financing of property
acquisitions. The following table provides information about the other
borrowings.
OTHER BORROWINGS
AS OF JUNE 30, 2001 Face Amount Carry Value Imputed Rate
-----------------------------------------------------------------------------
(in thousands)
Non-interest bearing notes $ 5,150 $ 4,919 7.50%
Deferred units 11,000 10,354 7.50%
Capital Leases -- 23,866 7.50%
--------------------------------------------
$ 16,150 $ 39,139
=========================
During the six months ended June 30, 2001, total interest paid on all
debt was $32.4 million and total interest capitalized for construction
costs was $2.1 million.
11
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2001
8. INCOME PER SHARE
Basic and diluted income per share is calculated as presented in the
following table. Amounts are in thousands, except for per share data.
Three months Three months Six months Six months
ended ended ended ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
------------------------------------------------------------------
BASIC NET INCOME PER SHARE:
Net income $ 17,151 $ 15,084 $ 31,137 $ 29,762
Basic weighted average
common shares outstanding 27,299 27,526 27,188 27,688
- ----------------------------------------------------------------------------------------------------------------------
BASIC NET INCOME PER SHARE $ 0.63 $ 0.55 $ 1.15 $ 1.07
Diluted net income per share:
Net income $ 17,151 $ 15,084 $ 31,137 $ 29,762
Minority interest relating to limited
partners of the Partnership 1,984 1,920 3,716 3,825
Net income before minority interest relating
------------------------------------------------------------------
to limited partners of the Partnership $ 19,135 $ 17,004 $ 34,853 $ 33,587
Basic weighted average
common shares outstanding 27,299 27,526 27,188 27,688
Weighted average Partnership Units
outstanding 3,164 3,449 3,263 3,494
Basic weighted average common shares
and partnership units outstanding 30,463 30,975 30,451 31,182
Dilutive effect of stock options 362 47 316 50
------------------------------------------------------------------
Diluted weighted average common shares
and partnership units outstanding 30,825 31,022 30,767 31,232
------------------------------------------------------------------
DILUTED NET INCOME PER SHARE $ 0.62 $ 0.55 $ 1.13 $ 1.07
9. COMMITMENTS
As of June 30, 2001, the Company is committed to advance an additional
$1.1 million to franchisees of Franchise for the construction of
self-storage facilities. These advances will be collateralized by the
facility. The Company is a limited guarantor on $6.0 of loan
commitments made by third party lenders to franchisees of Franchise.
This entire amount has been funded as of June 30, 2001.
10. SUBSEQUENT EVENTS
On July 3, 2001, the Company opened a newly developed facility in the
Baltimore/Washington market at an approximate cost of $4.7 million. The
Company has entered into no further property acquisition contracts to
date. On August 1, 2001, the Company, through Franchise Corp., sold its
equity interest in a single franchisee property to a third party for a
gain of approximately $441 thousand.
12
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
JUNE 30, 2001
11. RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board (FASB) has recently issued
FASB Statement No. 141, "Business Combinations", and No. 142, "Goodwill
and Other Intangible Assets". Both of these statements will be
effective for fiscal year 2002. Due to the limited amount of goodwill
and other intangibles that have been previously booked by the Company,
the adoption of these statements is not expected to have a material
impact on the Company's financial position or results of operation.
12. LEGAL PROCEEDINGS
On July 22, 1999, a purported statewide class action was filed against
the REIT and Partnership in the Circuit Court of Montgomery County,
Maryland, under the style Ralph Grunewald v. Storage USA, Inc. and SUSA
Partnership, L.P., case no. 201546V, seeking recovery of certain late
fees paid by tenants and an injunction against further assessment of
similar fees. The Company filed a responsive pleading on September 17,
1999, setting out its answer and affirmative defenses. The Company
believes that it has defenses to the claims in the suit and intends to
vigorously defend it. The Plaintiff filed a Motion for Partial Summary
Judgment and a Motion for Class Certification, but before Storage USA
was required to respond to these motions, the case was stayed until 30
days after the conclusion of appellate proceedings in an unrelated
case, not involving the Company, challenging the constitutionality of a
new statute passed by the Maryland legislature relating to late fees.
While an estimate of the possible loss or range of losses cannot be
currently made, we do not believe this case will have any material
adverse effect upon the Company's financial position. However, if,
during any period, the potential contingency should become probable,
the results of operations in such period could be materially affected.
On November 15, 1999, a purported nationwide class action was filed
against the REIT and Partnership in the Supreme Court of the State of
New York, Ulster County, under the style West 125th Street Associates,
L.L.C. v. Storage USA, Inc. and SUSA Partnership, L.P., case no
99-3278, seeking the recovery of certain late and administrative fees
paid by tenants and an injunction against similar fees. The Company
filed a responsive pleading on January 28, 2000 and the case was
transferred to New York County, case no. 401589/00. On July 6, 2000 the
Plaintiff filed an Amended Complaint and a Motion for Class
Certification. On February 6, 2001, the New York Supreme Court, in an
oral ruling by Justice Gammerman, declined to certify either a New York
or nationwide class. The Company has reached an agreement with the
plaintiff to settle and dismiss the plaintiff's individual claims. On
August 10, 2001, the parties executed a stipulation discontinuing the
action with prejudice. The terms of the settlement are confidential,
but do not have a material impact on the Company's financial position
or results of operations.
13
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the consolidated financial condition
and results of operations should be read together with the Consolidated
Financial Statements and Notes thereto. References to "we," "our" or "the
Company" include Storage USA, Inc. (the "REIT") and SUSA Partnership, L.P., the
principal operating subsidiary of the REIT (the "Partnership").
The following are definitions of terms used throughout this discussion that will
be helpful in understanding our business.
- - Physical Occupancy means the total net rentable square feet rented as
of the date (or period if indicated) divided by the total net rentable
square feet available.
- - Scheduled Rent Per Square Foot means the average market rate per square
foot of rentable space.
- - Net Rental Income means income from self-storage rentals less
discounts.
- - Realized Rent Per Square Foot means the annualized result of dividing
rental income, less discounts by total square feet rented.
- - Direct Property Operating Cost means the costs incurred in the
operation of a facility, such as utilities, real estate taxes, and
on-site personnel. Costs incurred in the management of all facilities,
such as accounting personnel and management level operations personnel
are excluded.
- - Net Operating Income ("NOI") means total property revenues less Direct
Property Operating Costs.
- - Annual Capitalization Rate ("Cap Rate")/ Yield means NOI of a facility
divided by the total capitalized costs of the facility.
- - Funds from Operations ("FFO") means net income, computed in accordance
with generally accepted accounting principles ("GAAP"), excluding gains
(losses) from debt restructuring and sales of property, plus
depreciation and amortization of revenue-producing property, and after
adjustments for unconsolidated partnerships and joint ventures.
- - Same-Store Facilities include all facilities that we owned for the
entire period of both comparison periods. Development properties and
expansions are removed from these groups to avoid skewing the results.
OVERVIEW
As of June 30, 2001, we owned, managed and franchised 550 facilities containing
37.2 million square feet in 32 states and the District of Columbia.
Internal Growth
The following table compares Same-Store Facilities for the quarter (364
properties owned since April 1, 2000) and for the first six months of 2001 and
2000 (360 properties owned since January 1, 2000). Newly developed and expanded
facilities are removed from the same-store pool to avoid skewing the results.
Quarter Ended Six Months Ended
-------------------------------------------------------------------------------------------
SAME-STORE RESULTS June 30, 2001 June 30, 2000 Growth % June 30, 2001 June 30, 2000 Growth %
(amounts in thousands except occupancy and per square foot figures)
Revenues $64,394 $59,875 7.5% $123,243 $114,111 8.0%
Expenses
Operating Expenses 11,277 10,357 8.9% 22,561 20,753 8.8%
Property Tax & Other 6,911 6,335 9.1% 13,188 12,402 6.3%
------------------------------------------------------------------------------------------
Total Expenses 18,188 16,692 9.0% 35,749 33,155 7.9%
------------------------------------------------------------------------------------------
Net Operating Income $46,206 $43,183 7.0% $87,494 $80,956 8.0%
------------------------------------------------------------------------------------------
Physical Occupancy 85% 85% 84% 84%
Scheduled Rent per Square Foot $ 12.73 $ 11.96 6.4% $ 12.59 $ 11.94 5.4%
Realized Rent per Square Foot $ 11.78 $ 10.94 7.7% $ 11.54 $ 10.73 7.5%
14
15
- Our Same-Store Facilities achieved 7.0% NOI growth in the
second quarter of 2001 as compared to the second quarter of
2000. The growth resulted from revenue increases of 7.5%,
offset by expense growth of 9.0%. For the six months ended
June 30, 2001, same-store NOI grew 8.0% compared to the same
six months in 2000 due to revenue increases of 8.0% offset by
expense growth of 7.9%. We do not believe that the Same-Store
NOI growth we experienced in the second quarter and through
the first six months of 2001 is sustainable, and are
estimating that it will moderate during the remaining quarters
of 2001. For the remainder of the year, we anticipate
Same-Store revenue growth in the 5.0-5.5% range for the
balance of 2001, coupled with expense growth of 6.0-6.5%.
- The increase in revenues of 7.5% for the second quarter of
2001 compared to the same quarter in 2000, and 8.0% for the
six months ended June 30, 2001 compared to the same six months
in 2000, is attributable to corresponding growth in realized
rent per square foot, 7.7% for the second quarter of 2001
compared to the second quarter of 2000, and 7.5% for the six
months ended June 30, 2001 compared to the same period in
2000. Increased rents combined with less discounting led to
these gains. Discounts were $1 million less in the second
quarter of 2001 than in the corresponding quarter in 2000 and
$2.2 million less in the first six months of 2001 than in the
like six months in 2000. Physical occupancy has remained
relatively constant between 2000 and 2001, both at 85% for the
quarter and 84% for the six months ended June 30.
- Our operating expenses grew 8.9% over the second quarter of
2000 and 8.8% over the first six months of 2000. The quarter
to quarter growth is primarily attributable to increases in
utilities and property level incentives and bonuses paid to
facility personnel. In looking at the operating expense
increase for the six months ended June 30, 2001 compared to
the same period in 2000, the same reasons hold true, with the
addition of increased snow removal costs in 2001. Meanwhile,
property tax and other expenses increased 9.1% over the second
quarter of 2000 and 6.3% over the first six months of 2000.
These increases are primarily due to escalating property and
liability insurance costs.
The following table lists changes in the 10 largest same-store markets
(on a percentage of year to date same-store NOI basis) and the change
in net rental income, realized rent per square foot, and occupied
square feet for the second quarter of 2001 versus the same period in
2000, as well as for the six months ended June 30. The largest 10
markets in total represent 68.9% of the total same-store NOI.
% of Change in Net % Change in % Change in
# of YTD same- Rental Income (1) Realized RPSF (2) Occupied sq. ft.
Market Facilities store NOI QTD YTD QTD YTD QTD YTD
- ----------------------------------------------------------------------------------------------------------------------------------
Los Angeles-Riverside-Orange County, CA 47 17.8% 9.6% 9.8% 10.7% 10.3% (1.0)% (0.5)%
New York-N. New Jersey-Long Island, NY 30 16.7% 9.5% 8.7% 8.5% 10.9% 1.0% (2.0)%
Washington-Baltimore, DC-MD-VA-WV 22 10.0% 9.6% 9.8% 9.8% 8.8% (0.2)% 0.9%
Miami-Fort Lauderdale, FL 15 6.1% 7.3% 7.7% 2.5% 7.2% 4.6% 0.5%
Philadelphia-Wilm-Atlantic City, PA-NJ 14 3.4% 4.4% 4.2% 6.3% 6.1% (1.8)% (1.8)%
Dallas-Forth Worth, TX 12 3.3% 5.2% 7.3% 7.3% 8.6% (1.9)% (1.2)%
San Francisco-Oakland-San Jose, CA 9 3.2% 5.1% 7.1% 8.4% 8.2% (3.0)% (1.0)%
Memphis, TN-AR-MS 21 2.9% 1.8% 2.8% 4.2% 4.9% (2.2)% (1.9)%
Phoenix,-Mesa, AZ 15 2.8% 1.1% 1.3% 1.0% 1.7% 0.1% (0.4)%
Detroit, Ann Arbor-Flint, MI 11 2.7% 5.8% 6.5% 9.3% 8.9% (3.2)% (2.2)%
(1) The percentage change in Realized Rent per Square Foot plus
the percent change in occupied square feet approximates the
percentage change in net rental income.
(2) Rent Per Square Foot.
External Growth
Our external growth strategy continues to focus on a combination of
on-balance sheet and joint venture activity to facilitate the
acquisition of existing facilities and the development of new
properties.
On-Balance Sheet
Within Storage USA, we acquired one self-storage facility during the
first quarter of 2001. The facility is located in the St. Louis,
Missouri market, contains 61 thousand square feet, and required a total
investment of approximately $4.6 million. There were no additional
acquisitions during the second quarter of 2001, and we anticipate
limited acquisition activity within the REIT for the remainder of 2001.
15
16
From a development and expansion perspective, we opened three newly developed
facilities within the REIT during the first six months of 2001, and completed
the expansion of three additional facilities, as outlined in the following
table.
DEVELOPMENTS EXPANSIONS
-------------------------------------------------------------------------------
Number of Expected Net Rentable Number of Expected Net Rentable
Quarter ended Facilities Investment Square Feet Facilities Investment Square Feet
- -----------------------------------------------------------------------------------------------------------------------------------
(amounts in thousands except number of facilities)
March 31, 2001 1 $ 6,442 79 1 $ 987 18
June 30, 2001 2 18,157 188 2 2,393 51
-------------------------------------------------------------------------------
Total year-to-date 3 $24,599 267 3 $3,380 69
===============================================================================
We plan to continue the development of three new facilities within the REIT. The
following chart summarizes the details of these three projects as well as our
expansion projects under construction or in construction planning as of June 30,
2001:
# of Square Expected Investment Remaining
Properties Feet Investment to Date Investment
- ------------------------------------------------------------------------------------------------------------------------------
(amounts in thousands except for number of facilities)
Total development in process 3 291 $ 24,703 $19,934 $ 4,769
Total expansions in process 16 356 30,196 12,835 17,361
---------------------------------------------------------------------
Total 19 647 $ 54,899 $32,769 $22,130
=====================================================================
The following table presents the anticipated timing of completion and the total
expected dollar amounts invested in opening the facilities in the process of
being newly developed or expanded.
3rd Qtr 01 4th Qtr 01 1st Qtr 02 Thereafter Total
- -----------------------------------------------------------------------------------------------------
(amounts in thousands)
Development $4,665 $ -- $20,038 $ -- $24,703
Expansions 4,467 16,514 1,900 7,315 30,196
-----------------------------------------------------------------------
Total $9,132 $16,514 $21,938 $7,315 $54,899
=======================================================================
Off-Balance Sheet Ventures
As of June 30, 2001, the GE Capital Development Venture had invested $47.5
million, $8.7 million of which represents our advances and investments. Six
properties are open and operating and three properties remain in design and
construction.
During the first quarter of 2001, the GE Capital Acquisition Venture acquired
two properties and leasehold interests in five others for a cost of
approximately $23.3 million. Six of the properties are located in the Boston
metropolitan area and one in Northern New Jersey. There have been no subsequent
acquisitions to date. The GE Acquisition Venture had invested a total of $76.6
million as of June 30, 2001, $9.4 million of which was funded through our
advances and investments.
Other Initiatives
Commencing May 1, 2000, we began offering our customers direct access to tenant
insurance, allowing them the ability to insure their stored goods against
described perils. The net profits from the premiums written during 2000 accrued
to the benefit of a charitable trust we established. With the January 1, 2001
implementation of the REIT provisions of the Ticket to Work and Work Incentives
Improvement Act of 1999 (the "Act"), taxable REIT subsidiaries gained the
ability to provide certain "non-customary" services to tenants. Accordingly,
tenant insurance is
16
17
now being provided as a service to Storage USA tenants through Franchise Corp.,
which is in turn recording the revenues and associated expenses.
RESULTS OF OPERATIONS
The following table reflects the profit and loss statement for the quarter ended
June 30, 2001 and June 30, 2000, and for the six months ended June 30, 2001 and
June 30, 2000, based on a percentage of total revenues and is used in the
discussion that follows:
Three months ended | Six months ended
June 30, | June 30,
2001 2000 | 2001 2000
- -----------------------------------------------------------|--------------------
|
REVENUE |
Rental and other property income 95.8% 97.9% | 96.7% 97.4%
Service and other income 4.2% 2.1% | 3.3% 2.6%
---------------------|--------------------
Total Income 100.0% 100.0% | 100.0% 100.0%
---------------------|--------------------
|
EXPENSES |
Property operations 24.1% 23.8% | 25.2% 24.6%
Taxes 7.8% 8.4% | 7.8% 8.4%
Cost of Providing Services 2.9% 1.5% | 2.5% 1.8%
General and administrative 6.7% 5.6% | 6.5% 4.7%
Rental and other property income increased $7.4 million, or 11.7% in the quarter
ended June 30, 2001 compared to the same quarter in 2000, and increased $14.8
million, or 12.0%, in the six months ended June 30, 2001 compared to the like
period in 2000. The primary contributors to the rise in rental and other
property income are summarized in the table below.
RENTAL INCOME GROWTH IN 2001 OVER 2000 FOR
COMPARABLE PERIODS ENDED JUNE 30
Three months Six months
ended June 30 ended June 30
- ----------------------------------------------------------------------------------------
(in thousands)
Same-store facilities $4,519 $ 9,132
Prior year acquisitions 471 896
Prior year developments 496 911
Current year acquisitions 75 112
Current year developments 10 10
Dispositions 3 (41)
Consolidation of Franchise Corp. 392 745
Other lease-up, expansion and development facilities 1,458 3,076
--------------------------------
$7,424 $14,841
================================
The largest contributor to the increases in rental and other property income was
the Same-Store group of properties. Rental and other property income grew $4.5
million from the second quarter of 2000 to the second quarter of 2001 due to an
increase in realized rent per square foot of 7.7%, from $10.94 to $11.78. The
$9.1 million growth from the six months ended June 30, 2000 to the same period
in 2001 is due to an increase in realized rent per square foot of 7.5%, from
$10.73 to $11.54. In both instances, realized rent per square foot rose due to
increased rates coupled with reduced discounting, with relatively constant
occupancy. Rental and other property income from our single 2001 acquisition
yielded another $75 thousand in growth for the quarter, and $112 thousand for
the six months ended June 30. The timing of 2000 acquisitions produced rental
and other property income growth of $471 thousand for the second quarter of 2001
as compared to the second quarter of 2000, and growth of $896 thousand for the
six months ended June 30, 2001 as compared to the same period in 2000. The
timing of the opening of 2000 internally developed facilities also added to the
growth: $496 thousand for the quarter and $911 thousand for the six months ended
June 30. In both cases, there are a full quarter's and a full six month's rental
and other property income in 2001, compared to partial periods in 2000,
depending upon timing. Growth in rental and other property income also occurred
due to occupancy increases at our facilities currently in lease-up (including
expansions and pre-2000 developments): a total of
17
18
$1.5 million for the quarter, and $3.1 million for the six months ended June 30,
2001 as compared to the same period in 2000. Finally, growth was further
impacted by the consolidation of Franchise Corporation, commencing January 1,
2001. For properties held jointly with Franchise Corp., only Storage USA's
portion of revenues and expenses were recorded in prior years. This change
produces a $392 thousand increase for the quarter, and a $745 thousand increase
for the six months ended June 30, 2001.
Service and other income increased by $1.7 million from the second quarter of
2000 to the same period in 2001, and by $1.4 million from the first six months
of 2000 to the same period in 2001. Service income also grew as a percentage of
total revenue: from 2.1% in 2000 to 4.2% in 2001 in the second quarter; and from
2.6% in 2000 to 3.3% in 2001 for the six months ended June 30. Management fees
rose $296 thousand from the second quarter of 2000 to the same period in 2001,
and $540 thousand from the six months ended June 30, 2000 to the same period in
2001, due to an increased number of managed and franchised facilities paying
fees to us. There were 116 such properties as of June 30, 2000, versus 137 as of
June 30, 2001. Total fees received from the GE Capital Ventures, acquisition,
development and general contractor fees, fell $287 thousand in the second
quarter of 2001 as compared to the same period in 2000, and fell $1.1 million in
the first six months of 2001 as compared to the same period in 2000. This
reduction is primarily due to the completion of six developed properties within
the GE Development Venture by the conclusion of 2000, and consequently less
development and general contractor fees to assess for 2001. Franchise services
income, which includes both tenant insurance income and franchise royalty
revenue, increased $934 thousand for the quarter, and $1.7 million for the six
months ended June 30, 2001, as compared to the same period in 2000. This was due
to no comparable activity in 2000, as the recognition of tenant insurance income
and the consolidation of Franchise activity did not commence until 2001. Income
from equity investments and other increased $829 thousand in the second quarter
of 2001 as compared to the same quarter last year, and increased $234 thousand
for the six months ended June 30, 2001 as compared to the same period last year.
A portion of the increase relates to a gain through the liquidation of an equity
participation held by Franchise in the second quarter of 2001.
Three months Three months Six months Six months
ended ended ended ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
- -------------------------------------------------------------------------------------------------------------------
(in thousands)
Management fees $ 982 $ 686 $ 1,838 $ 1,298
Acquisition, development and
general contractor fees 294 581 459 1,574
Franchise services income 934 -- 1,705 --
Income/(loss) from equity investments and
other 912 83 663 429
----------------------------------------------------------------
TOTAL SERVICE AND OTHER INCOME: $ 3,122 $ 1,350 $ 4,665 $ 3,301
================================================================
As a percentage of revenues, cost of property operations and maintenance
increased from 23.8% to 24.1% between the second quarter of 2000 and the same
period in 2001. Actual expenses rose $2.4 million, from $15.5 million in 2000 to
$17.9 million in 2001. For the six months ended June 30, cost of property
operations and maintenance as a percentage of revenues increased from 24.6% in
2000 to 25.2% in 2001, reflecting a $4.7 million expense increase, from $31.2
million in 2000 to $35.9 million in 2001. The trend for the cost of property
operations as a percentage of revenues is to decrease over time due to
Same-Store Facility revenue growth outpacing expense growth. This was generally
the case here, except for a few notable exceptions. Incentives and bonuses at
the property level grew in 2001, as our facility managers benefited from their
roles in our revenue growth. Utilities expense also increased significantly from
2000 to 2001 due to severe weather conditions in a number of markets during the
first quarter plus generally escalating energy costs. The initial harsh winter
months also produced a large increase in snow removal expense. Health insurance
expense also experienced growth, due to increased claims and number of
participating employees. We believe the growing costs are a national trend,
which we expect will continue. We have experienced a 25% increase in total
health insurance costs for the six months ended June 30, 2001 versus the same
period in 2000. Property and liability insurance costs are also significantly
higher through the first six months of 2001, compared to the same period in
2000. Effective July 1, 2000, higher premiums went into effect relating to our
renewal of this coverage for the policy period July 1, 2000 through June 30,
2001. This trend will continue as premiums rose again upon our 2001 renewal,
approximately 36%.
Tax expense as a percentage of revenues was 7.8% for the second quarter of 2001
and for the six months ended June 30, 2001, compared to 8.4% for the same
periods in 2000. Tax expense as a percentage of revenues tends to trend down as
a result of Same-Store Facility revenue growth outpacing tax expense growth.
18
19
Costs of providing services increased from $979 thousand in the second quarter
of 2000 to $2.1 million in the same period in 2001, and increased as a
percentage of revenues from 1.5% to 2.9%. For the six months ended June 30,
costs of providing services increased from $2.3 million in 2000 to $3.6 million
in 2001, and increased as a percentage of revenues from 1.8% to 2.5%. Much of
the increase was caused by the recording of costs, including administrative
expenses and claims, associated with our tenant insurance program in 2001, with
no comparable expenses in 2000. The program commenced in May 2001, when all
proceeds were ultimately forwarded to a charitable trust, which in turn incurred
the related expenses. Beginning in 2001, however, revenue and expenses are
recognized by Franchise Corp., which is now consolidated. The costs of providing
management services also increased from 2000 to 2001, as 21 additional managed
properties were added to the Storage USA system between June 30 of 2000 and
2001.
General and administrative expenses ("G&A") as a percentage of revenues
increased from 5.6% in the second quarter of 2000 to 6.7% for the same period of
2001, indicative of a G&A expense increase from $3.6 to $5.0 million between the
two periods. G&A expenses as a percentage of revenues also increased from 4.7%
for the first six months of 2000 to 6.5% for the comparable period in 2001,
indicative of an expense increase from $5.9 to $9.3 million between the two
periods. During the second quarter of 2001, we incurred approximately $750
thousand of legal and consulting expenses associated with various corporate
initiatives and projects. Additional G&A growth was driven by occupancy expense
increases we experienced due to relocating the Memphis, TN corporate offices in
October of 2000, legal fees due to efforts associated with the cases discussed
in the "Legal Proceedings" section and in previous filings and the recording of
higher management bonus accruals during the first six months of 2001 compared to
2000. Total G&A expenses also grew approximately $424 thousand for the quarter,
and $665 thousand for the six months ended June 30, due to the inclusion of
Franchise costs, as the accounting treatment for Franchise changed from the
equity method to consolidation in January 2001.
Depreciation and amortization expense increased from $10.1 million in the second
quarter of 2000 to $10.4 million for the same period in 2001. For the six months
ended June 30, depreciation and amortization expense increased from $19.3 in
2000 to $20.3 million in 2001. This was due to a $66.7 million increase in
depreciable assets since June 30, 2000.
Interest income and expense are netted together for presentation. The breakout
of income and expense follows:
Three months Three months Six months Six months
ended ended ended ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
- -----------------------------------------------------------------------------------------------------
(in thousands)
Interest income $ 2,541 $ 3,334 $ 5,616 $ 6,674
Interest expense (14,918) (14,294) (30,326) (28,311)
-----------------------------------------------------------------------
NET INTEREST EXPENSE $ (12,377) $ (10,960) $ (24,710) $ (21,637)
=======================================================================
Capitalized interest: $ 958 $ 1,165 $ 2,101 $ 2,583
Interest expense grew $624 thousand from the second quarter of 2000, $14.3
million, to the same period in 2001, $14.9 million. For the six months ended
June 30, interest expense increased $2.0 million, from $28.3 in 2000 to $30.3
million in 2001. The interest expense increase was primarily from the sources
listed in the following table and was offset by capitalized interest of $1.2
million in the second quarter of 2000 and $2.6 million for the six months ended
June 30, 2000, and $958 thousand and $2.1 million for the comparable periods in
2001.
Three months ended June 30, | Six months ended June 30,
----------------------------------------------|--------------------------------------------
2001 2000 | 2001 2000
----------------------------------------------|--------------------------------------------
Wtd Avg Wtd Avg | Wtd Avg Wtd Avg
Wtd Avg Interest Wtd Avg Interest | Wtd Avg Interest Wtd Avg Interest
Debt Borrowing Rate Borrowing Rate | Borrowing Rate Borrowing Rate
- --------------------------------------------------------------------------|--------------------------------------------
|
Notes payable 600,000 7.37% 600,000 7.37% | 600,000 7.37% 600,000 7.37%
Lines of credit 165,206 5.80% 137,988 7.57% | 171,342 6.50% 133,199 7.41%
Mortgages payable 65,922 7.50% 69,133 7.50% | 66,231 7.50% 69,505 7.50%
Leases & other borrowings 39,069 7.50% 42,991 7.50% | 38,985 7.50% 42,806 7.50%
19
20
Interest income decreased $793 thousand from the second quarter of 2000 to the
same period in 2001, from $3.3 million in 2000 to $2.5 million in 2001. For the
six months ended June 30, interest income decreased approximately $1.1 million,
from $6.7 million in 2000 to $5.6 million in 2001. The overall decreases in
advances to franchisees and the decline of interest rates on those loans,
reflecting the change in the prime rate during the six months ended June 30,
2001, were the primary causes of the reduction in interest income. On June 30,
2000, advances to franchisees totaled $121.5 million, compared to $109.9 million
on June 30, 2001.
We recorded an $890 thousand gain on the sale of storage facilities in 2000, due
to the sale of two Columbus, Indiana storage facilities and a non-operating
development project in White Marsh, Maryland. No dispositions occurred in the
first six months of 2001.
Minority interest expense represents the portion of income allocable to holders
of limited partnership interest in the Partnership ("Units") and distributions
payable to holders of preferred units. Minority interest expense increased from
$3.4 million in the first quarter of 2000 to $3.5 million for the same quarter
in 2001, a $144 thousand, or 4.3%, increase. This was due to the growth in net
income between the two periods, partially offset by a decrease in weighted
average Partnership Units outstanding, from 3.4 million at June 30, 2000 to 3.2
million at June 30, 2001. For the six months ended June 30, minority interest
expense decreased $53 thousand from 2000 to 2001, a reduction of less than 1%,
due to the same two factors influencing the second quarter's change in expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $65.2 million during the six months
ended June 30, 2001 as compared to $36.8 million during the same period in 2000.
Significant items affecting the operating cash flows are discussed more fully in
the "Results of Operations" section.
We invested $9.4 million in the first six months of 2001 in the acquisition and
improvement of self-storage facilities compared to $13.0 million during the same
period in 2000. $4.6 million of the $9.4 million for 2001 reflects our single
acquisition in the St. Louis, Missouri market, with the remaining $4.8 million
representing improvements. For 2000, $3.1 million of the $13.0 million total
reflects a single property acquired in the Denver, Colorado market, with the
remaining $9.9 million representing improvements. In the six months ended June
30, 2001, there were no sales or exchanges of storage facilities. This contrasts
sharply with the $21.7 million in proceeds received from dispositions in the
corresponding six months of 2000, including $19.9 million from the transfer of
nine development projects to the GE Capital Development Venture.
In addition to improvements, we invested $18.4 million in the first six months
of 2001 and $18.7 million in the first six months of 2000 for development and
construction of self-storage facilities. There were 3 internally developed
facilities and 16 expansions of existing facilities in process with $32.8
million cumulative invested at June 30, 2001. The total budget for these
facilities is $54.9 million, of which $22.1 million remains to be invested. We
also invested $8.1 million in advances and investments in real estate during the
first six months of 2001, compared to $9.8 million one year ago. In 2001, we
have invested $4.7 million in cash in the GE Capital Ventures, and provided $3.4
million in financing to franchisees of Franchise. Proceeds were also received
from certain franchisees, as two repaid their loans during the first six months
of 2001, generating $6.9 million in cash. We also received full payment on a
$7.2 million loan to the GE Capital Acquisition Venture, and $1.9 million in
distributions from other joint ventures. We have $1.1 million of loan
commitments to franchisees to fund as of June 30, 2001. Additionally, we expect
to invest up to $3 million as part of our required equity contributions in the
GE Capital joint ventures during the remainder of 2001.
Sometimes we acquire facilities in exchange for Units. The Units are redeemable
after one year for cash or, at our option, shares of our common stock. Sellers
taking Units instead of cash are able to defer recognizing a taxable gain on the
sale of their facilities until they sell or redeem their Units. At June 30, 2001
we had 3.1 million Units outstanding, of which the following Units were
redeemable:
- - 82 thousand Units for an amount equal to the fair market value ($3.0
million, based upon a price per Unit of $36.00 at June 30, 2001)
payable in cash or, at our option, by a promissory note payable in
quarterly installments over two years with interest at the prime rate.
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- - 3.1 million Units for amounts equal to the fair market value ($108.8
million, based upon a price per Unit of $36.00 at June 30, 2001)
payable by us in cash or, at our option, in shares of our common stock
at the initial exchange ratio of one share for each Unit.
We anticipate that the source of funds for any cash redemption of Units will be
retained cash flow or proceeds from the future sale of our securities or other
indebtedness. We have agreed to register any shares of our common stock issued
upon redemption of Units under the Securities Act of 1933.
Between November 1996 and July 1998, the Partnership issued $600 million of
notes payable. The notes are unsecured obligations of the Partnership, and may
be redeemed at any time at the option of the Partnership, subject to a premium
payment and other terms and conditions. The combined notes carry a weighted
average interest rate of 7.37% and were issued at a price to yield a weighted
average of 7.42%. The terms of the notes are staggered between seven and thirty
years, maturing between 2003 and 2027.
We initially fund our capital requirements primarily through the available lines
of credit with the intention of refinancing these with long-term capital in the
form of equity and debt securities when we determine that market conditions are
favorable. At June 30, 2001, we can issue under currently effective shelf
registration statements up to $650 million of common stock, preferred stock,
depository shares and warrants and can also issue $250 million of unsecured,
non-convertible senior debt securities of the Partnership. Our lines of credit
bear interest at various spreads over LIBOR. We had net repayments in the six
months ended June 30, 2001 of $8.4 million. For the same period in 2000, net
borrowings totaled $49.5 million. We currently have a $200 million unsecured
revolving credit line with a group of commercial banks, bearing interest at a
spread of 120 basis points over LIBOR, based on our current debt rating, which
matures in May of 2002. We are currently working with the bank group to
renegotiate the facility, which would result in the maturity being extended
through 2004. We also have a $40 million line of credit with a commercial bank.
The line bears interest at spread over LIBOR, matures on August 31, 2001, and is
renewable at that time. Additionally, in December of 2000, Franchise closed on a
$10 million unsecured line of credit with a commercial bank, which bears
interest at a spread over LIBOR, matures on December 29, 2001 and is renewable
at that time. Franchise is fully drawn on the line as of June 30, 2001.
We paid approximately $37.8 million in dividends during the first six months of
2001, compared to $38.0 million for the same period in 2000. The decrease
between the two periods was primarily due to a reduction in the number of shares
outstanding, reflecting our 1999-2000 stock repurchase initiative. There were
approximately 27.7 million weighted average shares outstanding through the six
months ended June 30, 2000 compared to 27.2 million weighted average shares for
the same time period in 2001. This more than offset the 2.9% increase in the
dividend rate between the two periods. Preferred unit dividends remained
constant at $2.9 million for the six months ended June 30, 2000 and 2001, as the
number of units and rate remained unchanged. Distributions to minority interests
decreased from $5.0 million in the first six months of 2000 to $4.6 million in
2001, mainly due to a reduction in total Partnership units outstanding. There
were 3.5 million weighted average Partnership units outstanding through the
first six months of 2000, compared to 3.3 million for the same period in 2001.
Again, there was a 2.9% rate increase, corresponding to dividends, but this was
more than offset by the decrease in Partnership units outstanding.
As noted previously, in December of 1999, we authorized a plan to repurchase up
to 5% of our common shares outstanding and in the third quarter of 2000, we
completed that repurchase program. During the first six months of 2000, we
repurchased 858 thousand shares at a cost of $26.0 million.
We have incurred approximately $1.7 million in the first six months of 2001 for
both scheduled maintenance and repairs and the conforming of facilities acquired
from 1994 to 2000 to our standards. We expect to incur an additional $5.6
million in the remaining six months of the year.
We believe that borrowings under our current credit facilities combined with
cash from operations will provide us with necessary liquidity and capital
resources to meet the funding requirements of our remaining development and
expansion pipeline, commitments to provide financing to franchisees, equity
commitments of the GE Capital Joint Ventures, dividend and distribution
requirements, and scheduled property related capital expenditures. Additionally,
no significant maturities are scheduled under any of our borrowings until 2003.
We are currently pursuing several strategies to generate additional cash funding
in 2001 and 2002, including the disposition of individually targeted properties,
issuing additional preferred Partnership Units and forming additional joint
ventures.
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QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to certain financial market risks, the most predominant being
fluctuations in interest rates on existing variable rate debt and construction
advances to franchisees and the repricing of fixed rate debt upon maturity.
Changes in interest rates also effect the fair value of our fixed rate mortgage
debt. However, this risk is limited since we plan to hold these mortgages until
maturity. We monitor interest rate fluctuations as an integral part of our
overall risk management program, which recognizes the unpredictability of
financial markets and seeks to reduce the potentially adverse effect on our
results. The effect of interest rate fluctuations historically has been small
relative to other factors affecting operating results, such as rental rates and
occupancy.
Our operating results are affected by changes in interest rates primarily as a
result of borrowing under our lines of credit and construction advances made to
franchisees. If interest rates increased by 25 basis points, our interest
expense for the six months ended June 30, 2001 would have increased by
approximately $214 thousand, based on average outstanding balances during that
period. But that expense increase would have been offset by a corresponding
increase of approximately $141 thousand in interest income. Our line of credit
borrowings are tied to LIBOR and our advances to franchisees to the prime rate.
Movement in these indices will not necessarily parallel each other.
FUNDS FROM OPERATIONS ("FFO")
We believe FFO should be considered in conjunction with net income and cash
flows when evaluating our operating results because it provides investors an
understanding of our ability to incur and service debt and to make capital
expenditures. FFO should not be considered as an alternative to net income, as a
measure of our financial performance or as an alternative to cash flows from
operating activities as a measure of liquidity. FFO does not represent cash
generated from operating activities in accordance with GAAP and is not
necessarily indicative of cash available to fund cash needs. We follow the
current National Association of Real Estate Investment Trust's (NAREIT)
definition of FFO which, effective January 1, 2000, includes non-recurring
results of operations, except those defined as "extraordinary items" under GAAP.
Since we have historically not added back non-recurring items to our
calculation, we were not required to restate prior period FFO amounts. Our FFO
may not be comparable to similarly titled measures of other REITs that calculate
FFO differently. In calculating FFO, we add back only depreciation and
amortization of revenue-producing property. As such, our FFO may not be
comparable to other REITs that may add back total depreciation and amortization.
The following table illustrates the components of our FFO for the three months
and six months ended June 30, 2001 and June 30, 2000:
FUNDS FROM OPERATIONS ATTRIBUTABLE Three Months Three Months Six Months Six Months
TO COMPANY SHAREHOLDERS: Ended Ended Ended Ended
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
- ----------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
Net Income $ 17,151 $ 15,084 $ 31,137 $ 29,762
Gain on Sale of Assets* -- -- -- (595)
Depreciation & Amortization 10,352 10,097 20,326 19,291
Depreciation from Unconsolidated Entities 342 183 789 335
Less Depreciation of Non-Revenue Producing
Property (899) (998) (2,010) (1,912)
-------- -------- -------- --------
Consolidated FFO $ 26,946 $ 24,366 $ 50,242 $ 46,881
Minority Interest Share of Gain on Sale -- -- -- 67
Minority Interest Share of Depreciation &
Amortization from Unconsolidated Entities (36) (20) (85) (37)
Minority Interest Share of Depreciation &
Amortization (984) (1,011) (1,968) (1,944)
-------- -------- -------- --------
FFO Available to Company Shareholders $ 25,926 $ 23,335 $ 48,189 $ 44,967
======== ======== ======== ========
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*Excludes $295 gain on sale of undepreciated land in the first quarter of 2000.
During the second quarter of 2001, we declared a dividend per share of $0.71,
which is an increase of 2.9% over the second quarter 2000 dividend of $0.69. To
date, $1.42 per share in dividends have been declared in 2001, compared to $1.38
in 2000, again a 2.9% increase. As a qualified REIT, we are required to
distribute a substantial portion of our net taxable income as dividends to our
shareholders. While our goal is to generate and retain sufficient cash flow to
meet our operating, capital and debt service needs, our dividend requirements
may require us to utilize our bank lines of credit and other sources of
liquidity to finance property acquisitions and development, and major capital
improvements. See "Liquidity and Capital Resources" section.
RECENT ACCOUNTING DEVELOPMENTS
As indicated in the Notes to the Consolidated Financial Statements, the
Financial Accounting Standards Board (FASB) recently issued FASB Statement No.
141, "Business Combinations", and No. 142, "Goodwill and Other Intangible
Assets". Both of these statements will be effective for fiscal year 2002. Due to
the limited amount of goodwill and other intangibles that we have previously
recorded, the adoption of these statements is not expected to have a material
impact on either our financial position or our results of operations.
LEGAL PROCEEDINGS
On July 22, 1999, a purported statewide class action was filed against the REIT
and Partnership in the Circuit Court of Montgomery County, Maryland, under the
style Ralph Grunewald v. Storage USA, Inc. and SUSA Partnership, L.P., case no.
201546V, seeking recovery of certain late fees paid by tenants and an injunction
against further assessment of similar fees. The Company filed a responsive
pleading on September 17, 1999, setting out its answer and affirmative defenses.
The Company believes that it has defenses to the claims in the suit and intends
to vigorously defend it. The Plaintiff filed a Motion for Partial Summary
Judgment and a Motion for Class Certification, but before Storage USA was
required to respond to these motions, the case was stayed until 30 days after
the conclusion of appellate proceedings in an unrelated case, not involving the
Company, challenging the constitutionality of a new statute passed by the
Maryland legislature relating to late fees. While an estimate of the possible
loss or range of losses cannot be currently made, we do not believe this case
will have any material adverse effect upon the Company's financial position.
However, if, during any period, the potential contingency should become
probable, the results of operations in such period could be materially affected.
On November 15, 1999, a purported nationwide class action was filed against the
REIT and Partnership in the Supreme Court of the State of New York, Ulster
County, under the style West 125th Street Associates, L.L.C. v. Storage USA,
Inc. and SUSA Partnership, L.P., case no 99-3278, seeking the recovery of
certain late and administrative fees paid by tenants and an injunction against
similar fees. The Company filed a responsive pleading on January 28, 2000 and
the case was transferred to New York County, case no. 401589/00. On July 6, 2000
the Plaintiff filed an Amended Complaint and a Motion for Class Certification.
On February 6, 2001, the New York Supreme Court, in an oral ruling by Justice
Gammerman, declined to certify either a New York or nationwide class. The
Company has reached an agreement with the plaintiff to settle and dismiss the
plaintiff's individual claims. On August 10, 2001, the parties executed a
stipulation discontinuing the action with prejudice. The terms of the settlement
are confidential, but do not have a material impact on the Company's financial
position or results of operations.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
Certain information included in this Form 10-Q that is not historical fact is
based on our current expectations. This includes statements regarding
anticipated future development and acquisition activity, the impact of
anticipated rental rate increases on our revenue growth, our 2001 anticipated
revenues, expenses, net income growth, returns, and future capital requirements
and sources, among others. Words such as "believes", "expects", "anticipate",
"intends", "plans" and "estimates" and variations of such words and similar
words also identify forward looking statements. Such statements are forward
looking in nature and involve a number of risks and uncertainties and,
accordingly, actual
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results may differ materially. The following factors, among others, may affect
the Company's future financial performance and could cause actual results to
differ materially from the forward-looking statements:
- - Changes in the economic conditions in the markets in which we operate,
such as unexpected increases in supply and competition, unexpected
changes in financial resources of our customers, or unexpected
increases in prevailing wage levels or in insurance, taxes or
utilities, could negatively impact our ability to raise our rents or
control our expenses, thus reducing our net income.
- - Competition for development or acquisition sites could drive up costs,
making it unfeasible for us to develop or acquire properties in certain
markets.
- - New development opportunities could be limited due to an inability to
obtain zoning and other local approvals.
- - Amounts that we charge for late fees have been and are the subject of
litigation against us and are, in some states, the subject of
governmental regulation. Consequently, such amounts could decrease,
materially affecting the results of operations.
- - The conditions affecting the bank, debt and equity markets could
change, increasing our cost of capital or reducing its availability on
terms satisfactory to us either of which could reduce our returns or
restrict our growth.
- - Costs related to compliance with laws, including environmental laws
could increase, reducing our net income.
- - General business and economic conditions could change, adversely
affecting occupancy and rental rates, thereby reducing our revenue.
- - Unfavorable outcome(s) in the pending litigation described in Item 2 of
this Form 10-Q could ultimately reduce our net income.
- - Changes in tax laws or market conditions could make real estate
investment less attractive relative to other investment opportunities.
Such changes would reduce the number of buyers for real estate and
adversely affect real estate asset values.
- - Construction costs and the timing of a development project may exceed
our original estimates, resulting in reduced returns on investment and
delayed realization of returns.
- - The level of on-balance sheet development could exceed current
expectations resulting in higher than anticipated dilution to our
earnings.
We caution you not to place undue reliance on any such forward-looking
statements. We assume no obligation to update any forward-looking statements as
a result of new information, subsequent events or any other circumstances. Such
statements speak only as of the date that they are made.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See disclosure in the section entitled "Qualitative and Quantitative Disclosure
About Market Risk" in Management's Discussion and Analysis of Financial
Condition and Results of Operations.
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PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See disclosure in the section entitled "Legal Proceedings" in Management's
Discussion and Analysis of Financial Condition and Results of Operations on page
23.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 2, 2001, we held our Annual Meeting of Shareholders.
One matter was submitted to the shareholders for consideration: the election of
nine Directors (being all of our Directors).
Election of Nine Directors:
DIRECTOR: FOR WITHHELD
--------- --- --------
C. Ronald Blankenship 24,406,773 49,308
Howard P. Colhoun 24,407,391 48,690
Alan B. Graf, Jr. 24,407,959 48,122
Dean Jernigan 24,408,517 47,564
Mark Jorgensen 24,408,401 47,680
Caroline S. McBride 24,405,891 50,190
John P. McCann 24,408,345 47,736
William D. Sanders 24,408,005 48,076
Harry J. Thie 24,408,195 47,886
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibit 3.1 Articles of Amendment to the Amended and Restated Charter
of Storage USA, Inc., filed with the Secretary of the State of
Tennessee on May 28, 1997. (Filed as an Exhibit to our Current Report
on Form 8-K, filed May 30, 1997, and incorporated herein by reference).
Exhibit 3.2 Articles of Amendment to the Amended Charter of Storage
USA, Inc., designating and fixing the rights and preferences of the 8
7/8% Series A Cumulative Redeemable Preferred Stock, as filed with the
Secretary of State of the State of Tennessee on November 12, 1998.
(Filed as an Exhibit to our Current Report on Form 8-K, filed November
12, 1998, and incorporated herein by reference).
Exhibit 10.1 Amendment No. 1 to Shareholder Value Plan, dated as of
August 1, 2001.
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b. Reports on Form 8-K
On May 24, 2001, we filed a current report on Form 8-K. The filing
included information relating to our change in independent accountants,
from PricewaterhouseCoopers, LLP to Arthur Andersen, LLP for the fiscal
year ending December 31, 2001.
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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, 2001
Storage USA, Inc.
By: /s/ Christopher P. Marr
-----------------------
Christopher P. Marr
Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1* Articles of Amendment to the Amended and Restated Charter of
Storage USA, Inc., filed with the Secretary of the State of
Tennessee on May 28, 1997.
3.2** Articles of Amendment to the Amended Charter of Storage USA,
Inc., designating and fixing the rights and preferences of the
8 7/8% Series A Cumulative Redeemable Preferred Stock, as
filed with the Secretary of State of the State of Tennessee on
November 12, 1998.
10.1 Amendment No. 1 to Shareholder Value Plan, dated as of August
1, 2001.
* Filed as an Exhibit to our Current Form 8-K, filed May 30, 1997, and
incorporated by reference herein.
** Filed as an Exhibit to our Current Form 8-K, filed November 12, 1998
and incorporated by reference herein.