ITEM 1. BUSINESS
THE COMPANY
GENERAL
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 (the "IPO") on November 16, 1994. As of December 31, 1996, the Company owned 165 self-storage facilities in 18 states and was a partner in two joint ventures that owned one operating self-storage facility and one self-storage facility under development.
Substantially all of the Company's assets and interest 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 93.61% ownership interest therein as of December 31, 1996. 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.
Storage Realty Management Co. (the "Management Company") manages self-storage facilities owned by unrelated third parties and conducts other business, such as the sale of locks, the processing of customer property insurance and the rental of trucks, at various facilities. Through its ownership of the preferred stock of the Management Company, the Operating Partnership receives substantially all of the economic benefits of the business carried on by the Management Company.
The Company derives its revenue principally from the Operating Partnership, which is generated primarily by (a) the Operating Partnership's rental of self-storage units at its facilities, (b) revenues (for financial reporting purposes) of the Management Company, and (c) earnings from joint ventures.
The Company believes that it is the fifth largest operator of self-storage facilities in the United States, based on the number of facilities operated. As of December 31, 1996, the Company (through its interest in the Operating Partnership) owned 165 self-storage facilities in 18 states in the Southern, Mid-Atlantic, Midwest and Western regions of the United States, including South Carolina (22), Texas (22), Missouri (20), Florida (18), Tennessee (18), Georgia (17), North Carolina (11), Colorado (8), Kansas (6), Illinois (5), Kentucky (5), Alabama (4), Mississippi (3), Wisconsin (2), Oklahoma (1), Louisiana (1), Ohio (1) and Virginia (1). The Operating Partnership, through joint ventures, has a 15% ownership interest in an operating self-storage facility in Louisiana and a 25% ownership interest in a self-storage facility under development in Missouri. Additionally, the Management Company manages ten facilities for unaffiliated third parties. The facilities which the Operating Partnership owns or in which the Operating Partnership owns a joint venture interest, together with the facilities managed for unrelated third parties by the Management Company are referred to herein as the "Facilities".
In 1996, the Company acquired 46 self-storage facilities for a combined purchase price of $116.6 million. The Company acquired facilities in Florida (7), Texas (5), Kansas (5), Missouri (5), Tennessee (4), Kentucky (4), Georgia (3), Colorado (3), South Carolina (2), Wisconsin (2), Alabama (1), Illinois (1), Oklahoma (1), North Carolina (1), Virginia (1) and Ohio (1). In 1996, the Company exchanged two of its facilities in Oklahoma with a publicly-held self-storage REIT for its facility in Florida (included in the acquisition totals above).
The Company is self-administered and self-managed. The Company has elected and expects to continue to qualify as a real estate investment trust for federal income tax purposes.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
Business Objectives
The Company's primary objectives are to increase cash available for distribution and enhance shareholder value. These objectives are accomplished by (a) managing the Facilities and expanding them where economically feasible, (b) acquiring existing self-storage facilities, (c) converting other commercial real estate into self-storage facilities, and (d) developing new self-storage facilities. The Company's strategies for accomplishing these objectives are:
Internal Growth Strategies
The Company's internal growth strategy is to increase cash flow at the Facilities (and any additional facilities hereafter acquired) by (a) aggressively increasing rents on a regular basis, (b) containing costs and improving operating leverage, and (c) selectively expanding the Facilities, which includes the addition of climate controlled space.
* Increasing Rents - Revenues are increased through the use of sales and marketing programs that are customized for each location and an aggressive leasing program. The Company pursues an objective of being a price leader in its local markets and will attempt to increase rents at all of the Facilities throughout the year. The Company has a general policy that, as occupancy of all same-size units at a particular Facility nears 90%, it will consider increasing rents applicable to these units. The Company plans to continue this strategy at the Facilities and to implement it at facilities that may be acquired or developed in the future.
* Containing Costs and Improving Operating Leverage - The Company seeks to increase cash flow by containing facility operating expenses and spreading corporate overhead expense over an increasing number of facilities. The Company believes that new facilities can be added to the portfolio with very little additional overhead expense because of the Company's operating procedures, decentralized regional managers and management information systems. Through the use of area managers and regional managers, the Company operates with only one level of management between on-site managers and senior management.
* Expanding the Facilities - Many of the Facilities maintain levels of occupancy that when combined with local demand may make it economically feasible to expand existing storage space. In 1996, the Company completed the expansion of four Facilities that totaled 58,050 square feet. Additionally, in several of the Company's markets, there is increasing demand for climate controlled space which the Company currently rents for a premium over non-climate controlled space. In 1996, the Company completed climate-controlled conversions at six Facilities that totaled 18,450 square feet. The Company is exploring opportunities to add new climate controlled space or convert existing space to climate controlled space at the Facilities and other facilities that may be acquired in the future.
External Growth Strategies
The Company's external growth strategy focuses on (a) selectively acquiring additional self-storage facilities, (b) converting other real estate properties into self-storage facilities, and (c) developing new facilities. The Company's management consists of experienced acquisition, development, operations and finance personnel who, when evaluating potential opportunities for acquisition, development and conversion, analyze employment, population and income trends, proximity to major transportation arteries, retail centers and commercial services, visibility and other market data. However, certain potential financing techniques to support acquisition, development or conversion, such as incurrence of debt or issuance of additional equity securities, involve potential leveraging of the Company or dilution to existing shareholders.
* Acquiring Existing Facilities - The Company intends to acquire self-storage facilities that are (a) in the Company's geographic regions of operations where the Company can achieve greater market penetration and economies of scale or in attractive new markets and in new geographic regions where the Company can acquire sufficient facilities to achieve economies of scale, (b) available at attractive prices or currently underperforming and (c) capable of enhanced performance through the application of the Company's management expertise. The Company focuses on acquisitions of Facilities of sufficient size to provide attractive operating efficiencies. The Company believes attractive opportunities exist to acquire self-storage facilities because of the fragmented ownership throughout the industry and the shortage of skilled operators. By actively targeting underperforming facilities or facilities where the Company can apply its proven management techniques, the Company believes that it will be able to enhance its yields by maximizing cash flows at such properties. In addition, the Company believes it has the ability to attract potential sellers of self-storage properties by offering Units in exchange for such properties, thus allowing the sellers to defer taxes which would otherwise be payable upon a profitable sale of property. In 1996, the consideration for ten of the facilities acquired by the Company included 406,759 Units valued at $8,743,000.
* Converting Other Real Estate into Self-Storage Facilities - The Company also has the ability to perform complex conversions of other real estate buildings into self-storage facilities, especially in metropolitan markets where new development or acquisitions may not be economically feasible. The Company believes that in certain markets the costs relating to conversion or redevelopment can be substantially less than those of acquisition or development. Additionally, the Company believes that conversions can simultaneously provide rapid in-fill of current regions of the Company's markets at attractive capitalization rates. Previously completed conversion projects include an automobile dealership in St. Louis, Missouri, and a hotel in New Orleans, Louisiana, and a 68,000 square foot former shoe warehouse in Atlanta, Georgia that commenced operations in March 1996.
* Developing New Facilities - The Company intends to develop self-storage facilities in certain of its markets where there are favorable demographics and where suitable acquisitions may not be available. New development may be done by the Company or by joint ventures in which the Company has an interest. The Company's management (through BHC) developed 36 self-storage facilities between 1974 and the IPO. This development capability will allow the Company the opportunity to grow when acquisition opportunities are not plentiful or economically attractive. In making its decision to develop a facility, the Company obtains information such as census data for the relevant market with respect to population density, income levels and the relative proportions of rental, commercial and residential space. In addition, the Company weighs the costs of acquisition, as measured by recent market sales or bids, versus the costs of development, including construction, land acquisition and site preparation. The Company intends to develop self-storage facilities where it believes there are strong barriers to entry, such as a limited number of suitable sites with the requisite zoning. The Company also intends to focus on development of facilities of sufficient size to provide attractive operating efficiencies.
DISPOSITIONS AND EXCHANGES
Management constantly reviews the Facilities comprising the Company's portfolio. The Company has no current intention to dispose of any of the Facilities, but may do so in the future. Any decision to dispose of a particular Facility would be based on a variety of factors, including, but not limited to, (a) the strategic fit with the rest of the Company's portfolio, (b) the potential to continue to increase cash flow and value in the particular market, (c) the current market value and (d) alternate uses of capital.
The Company may dispose of Facilities for cash or other consideration or may exchange Facilities with other entities, including other publicly-held self-storage REITs. During 1996, the Company exchanged two of its facilities in Oklahoma City, Oklahoma and $1,400,000 in additional consideration with Storage USA, Inc. for its facility in Jacksonville, Florida.
CAPITAL STRATEGY
Mortgages and Notes Payable:
The Company intends to maintain a conservative capital strategy and currently has a policy of limiting the amount of debt related to the Facilities as reflected on the Company's consolidated balance sheet, including debt of joint ventures in which the Company owns an interest, ("Company Debt") to less than 50% of the market value of the issued and outstanding Common Shares (including interests exchangeable for Common Shares) plus Company Debt ("Total Market Capitalization"). At December 31, 1996, the Company's Debt-to-Total Market Capitalization was 15.4%. The Company does not believe that this limit will restrict its operations or have a material adverse effect on its financial condition or results of operations, although there can be no assurance that it will not do so in the future. The Board of Trustees can change the policy at any time in light of then current economic conditions and other relevant factors.
The expansion of existing facilities, the acquisition, conversion and development of additional self-storage facilities, and the repayment of indebtedness, including 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 using (a) net cash provided by operating activities, (b) any portion of net cash flow not currently distributed, (c) borrowings under the revolving line of credit and (d) the second funding under the Senior Notes (as described below). 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.
The Company has a $100 million unsecured revolving line of credit that may be used to fund the acquisition, development or conversion of additional facilities. The credit line expires in January 1998, with a one-year extension at the Company's option upon satisfaction of certain conditions, and bears interest at a floating rate of LIBOR plus 162.5 basis points (7.267% at December 31, 1996).
CAPITAL STRATEGY (continued)
MORTGAGES AND NOTES PAYABLE: (continued)
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 is expected to be funded during April 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% (125 basis points over comparable Treasuries) 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% (135 basis points over comparable Treasuries). The proceeds of the financing are being utilized to repay indebtedness under the revolving line of credit, to finance the acquisition of additional self-storage facilities and for general corporate purposes.
Issuance of Common Shares and Units:
On November 16, 1994, the Company completed the IPO with the public offering of 5,760,000 Common Shares at $17.50 per Common Share. Net of underwriting discounts and offering costs, the Company received $92,051,000 from the IPO. Concurrent with the IPO, the Original Investors transferred their interests in the Predecessor Company, the management business of BHC and other assets, to the Operating Partnership as set forth in the registration statement on Form S-11 relating to the IPO. Additionally, the Predecessor Company purchased 50,000 Common Shares pursuant to a concurrent private placement. Accordingly, the Original Investors received a 1.7% interest in the Company and 4.7% interest in the Operating Partnership.
During June and July 1995, the Company completed a public offering of 2,875,000 Common Shares at $20.00 per Common Share. Net of underwriting discounts and offering costs, the Company received $53,561,000 from this offering. The net proceeds have been used to repay indebtedness under the revolving line of credit, which was incurred in connection with the acquisition of facilities, and to acquire additional self-storage facilities.
During July 1996, the Company completed a public offering of 4,140,000 Common Shares at $20.25 per Common Share. Net of underwriting discounts and offering costs, the Company received $78,894,000 from this offering. The net proceeds were used to repay indebtedness under the revolving line of credit and a short-term acquisition loan, which was incurred in connection with the acquisition of facilities.
In November 1996, the Company filed a shelf registration statement covering $150,000,000 of equity securities. This registration statement has been declared effective and should permit the Company to access the equity markets efficiently when it deems appropriate. However, no assurance can be given that market conditions will be favorable for such an offering.
In connection with the acquisition of Facilities during 1995, the Company issued 183,774 Units valued at $3,652,000. In connection with the acquisition of Facilities during 1996, the Company issued 406,759 Units valued at $8,743,000.
The Units in the Operating Partnership not held by the Company can be exchanged for Common Shares of the Company on a one-for-one basis or redeemed in cash at the Company's option. As of December 31, 1996, no Units had been converted to Common Shares or redeemed for cash.
COMPETITION
All of the Facilities are located in developed areas that include other self-storage facilities. The number of competitive self-storage facilities in a particular area could have a material effect on the Company's ability to lease self-storage units at the Facilities or at any newly developed or acquired facilities and on the rents charged. The Company may be competing with others that have greater resources than the Company and whose officers and directors have more experience than the Company's officers and Trustees. In addition, other forms of storage properties, warehouses and single-family housing provide alternatives to potential customers of self-storage facilities.
REGULATION
Environmental Matters
The Company is subject to federal, state, and local environmental laws, ordinances and regulations that apply to the development of real property, including construction activities, the ownership of real property, and the operation of self-storage facilities.
In developing properties and constructing facilities, the Company utilizes environmental consultants to determine whether there are any flood plains or wetlands or environmentally sensitive areas that are part of the property to be developed. If flood plains are identified, development and construction are planned so that flood plain areas are preserved or alternative flood plain capacity is created in conformance with federal and local flood plain management requirements.
Stormwater discharge from a construction facility is evaluated in connection with the requirements for stormwater permits under the Clean Water Act. This is an evolving program in most states. It is anticipated that general stormwater permits will be applicable to the Company's activities, and individual permits will not be required for existing or new development.
Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property may become liable for the costs of removal or remediation of certain hazardous or toxic substances on, under or in such property. Such laws, ordinances and regulations often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of hazardous or toxic substances, or the failure to properly remediate such substances, when released, may adversely affect the owner's ability to sell or lease such real estate or to borrow using such real estate as collateral, and may cause the property owner to incur substantial remediation costs. In addition to claims for cleanup costs, the presence of hazardous substances on a property could result in a claim by a private party for personal injury or a claim by an adjacent property for property damage.
The Company has not been notified by any governmental authority of any material noncompliance, claim, or liability in connection with any of the Facilities. The Company has not been notified of a claim for personal injury or property damage by a private party in connection with any of the Facilities in connection with environmental conditions.
A Phase I environmental assessment for each of the Facilities has been prepared by an independent environmental consultant. The purpose of each such report was to identify, to the extent reasonably possible and based on reasonably available information, whether the environmental quality of the Facility had been affected by hazardous or toxic substances, including petroleum products and asbestos.
REGULATION (continued)
Environmental Matters (continued)
The scope of the Phase I environmental assessment for each such Facility generally included: (a) a review of reasonably available maps, aerial photographs and other public information to analyze the past and present uses of the site; (b) limited inquiries of federal, state and local agencies having jurisdiction over certain environmental matters; and (c) an on-site assessment of the Facility to inspect for evidence of past or present on-site waste disposal, visible surface contamination, above-surface and subsurface storage tanks, drums, barrels and other storage containers, current waste streams and management practices, ACMs, and PCB transformers. In addition, as part of the Phase I environmental assessment, abutting properties and nearby sources of potential contamination were identified and evaluated for potential impact to the Facility, to the extent reasonably possible.
In connection with the acquisition of 25 facilities (the "Balcor/Colonial Facilities") from Balcor/Colonial Storage Income Fund - 86 (the "Seller") in May 1996, the Seller had a Phase I environmental assessment for each of the Balcor/Colonial Facilities prepared by an independent environmental consultant. The purpose and scope of such assessments was generally the same as set forth above with respect to Phase I environmental assessments of the other Facilities. None of these Phase I environmental assessments recommended any further investigation (except, in one instance, to confirm radon test results which was subsequently confirmed) at any of the Balcor/Colonial Facilities. However, based on the historical use of two of the sites, the Company engaged environmental consultants to conduct a limited subsurface soil and groundwater investigation to confirm the opinions expressed in the Phase I assessments of these sites. The results of such investigations indicated the presence of certain substances, the presence of which may require monitoring, reporting or remediation. Based on the investigations, remedial action plans were prepared based on the maximum remediation effort that could be required under the appropriate state law. The Seller had placed $250,000 into escrow to be used towards a portion of the cost of remediation of these sites. Based on the remedial action plans, the Company received the full $250,000 held in escrow. Based upon the information which the Company has obtained and the receipt of the escrowed funds, the Company does not currently expect the aggregate cost of the remedying environmental conditions at these two Balcor/Colonial Facilities to have a material adverse effect on the financial condition or results of operations of the Company, although there can be no assurance that this will be the case.
The environmental assessments, and in certain circumstances further investigation, have not revealed, nor is the Company aware of, any environmental condition with respect to the Facilities that is expected to have a material adverse effect on the Company's financial condition or results of operations. No assurances can be given, however, that (a) the environmental assessments and further investigation which have been conducted with respect to the Facilities or which will be conducted with respect to the facilities that may be acquired or developed in the future, have revealed, or will reveal, all potential environmental liabilities, (b) any prior owner or operator of the real property on which the Facilities are located did not create any material environmental condition not known to the Company, or (c) an environmental condition does not otherwise exist as to any one or more of the Facilities, which liabilities or conditions could have a material adverse effect upon the financial condition or results of operations of the Company.
Americans with Disability Act
Under the Americans with Disability Act ("ADA"), all public accommodations are required to meet certain federal requirements related to physical access and use by disabled persons. While the Company believe that the Facilities comply in all material respects with these physical requirements (or would be eligible for applicable exemptions from material requirements because of adaptive assistance provided), a determination that the Company is not in compliance with the ADA could result in the imposition of fines, injunctive relief, damages or attorney's fees. If the Company were required to make modifications to comply with the ADA, the Company's ability to make expected distributions to its shareholders could be adversely affected; however, management believes that such effect would be minimal.
REGULATION (continued)
Local Regulation
As with all real property, self-storage facilities must conform to local zoning ordinances. The Facilities' operations have not been subjected to any material zoning complaints. Typically, self-storage facilities are not a permitted use within the commercial and retail areas desired by the Company for the development of a new facility. Therefore, the Company must generally obtain a variance to undertake the development of a new facility. The zoning classifications for self-storage have been narrowed repeatedly so that new self-storage development within major metropolitan areas is becoming increasingly difficult. The restrictive zoning regulations may keep the industry restricted to all but those who have the expertise to show the benefits of self-storage to a community and have the credentials necessary to persuade zoning boards to rezone or grant variances.
INSURANCE
Management believes that each of the Facilities is covered by adequate fire, flood and property insurance provided by reputable companies and with commercially reasonable deductibles and limits. The Company maintains comprehensive liability, all-risk property insurance coverage with respect to the Facilities with policy specifications, limits and deductibles customarily carried for similar properties. In addition, the Company maintains a policy insuring against environmental liabilities resulting from tenant storage on terms customary and standard for the industry. The Company also has obtained or continued existing title insurance insuring fee title to each of the Facilities owned by the Company in an aggregate amount which the Company believes to be adequate.
EMPLOYEES
As of February 14, 1997, the Company (through the Operating Partnership and the Management Company) employed a total of 506 persons of which (a) 460 work at the Facilities, (b) nine work in the regional offices and (c) 37 work at the home office. The Company believes that relations with their employees are good.
STORAGE REALTY MANAGEMENT CO.
The Management Company manages ten Facilities owned by unrelated third parties. The managed Facilities contain approximately 470,000 net rentable square feet and are located in the following seven states: Florida (4), North Carolina (1), Georgia (1), Alabama (1), Missouri (1), Kansas (1) and Virginia (1). While the Management Company does not intend to actively expand this aspect of its operations, management of additional facilities in the future may be considered as a precursor to acquisition by the Operating Partnership or in order for the Company to become familiar with an attractive new market. Additionally, the Management Company conducts various other businesses, such as the sale of locks, the processing of customer property insurance and the rental of trucks, at various Facilities.
BHC owns 95% of the voting common stock of the Management Company, which is generally entitled to dividends equal to 4.75% of all distributions. The remaining 5% of the voting common stock, entitled to .25% of all distributions, is owned by the Operating Partnership. The Operating Partnership owns 100% of the nonvoting preferred stock of the Management Company. The nonvoting preferred stock is entitled to dividends equal to 95% of all distributions of the Management Company. The charter of the Management Company requires the quarterly distribution as dividends of its net cash flow, subject to the discretion of the board of directors that there are funds legally available therefor. Such provision may not be changed without the consent of the holder of the preferred stock. Accordingly, the Operating Partnership expects to receive substantially all of the available net cash flow from the Management Company through ownership of the preferred stock and thereby will receive substantially all of the economic benefit of the operations carried on by the Management Company.
THE INDUSTRY
The self-storage industry is an integral part of the commercial and residential real estate markets, serving the storage needs of businesses and consumers. Initially developed in the early 1960s in the southwestern portion of the United States, self-storage facilities were built in response to the growing need for low-cost accessible storage. A number of factors have accelerated the demand for storage facilities including, among others, a more mobile society, with individuals moving to new homes and new cities needing short-term storage for their belongings, the increasing cost of residential housing (resulting in smaller houses), the increased popularity of apartments and condominiums, more individuals with growing discretionary income (resulting in the accumulation of more possessions and the purchase of items such as boats and recreational vehicles which cannot be stored at residences), the growing number of small businesses and the escalating cost of other storage alternatives. In addition to traditional use by consumers, many retail stores and other businesses use self-storage facilities to store goods received from warehouses or, in some instances, directly from manufacturers, through just-in-time delivery systems. Self-storage facilities serve as additional storage capacity for households acquiring goods or businesses building inventory or producing storable items, such as new products or records.
In addition to providing affordable, accessible storage space for personal and business use, many facilities offer climate controlled units as well as outside storage pads for vehicles and boats. With the advent of resident managers, storing goods became a far more convenient process for customers (i.e. tenants renting self-storage space), resulting in increased customer awareness and appreciation. Rental units are usually secured by customer locks and only the customer has the key, thus ensuring controlled access. Facilities are generally fenced, have locked gates and are lighted at night. Computerized access gates for self-storage have made the overall storage process more convenient for the customer.
The successful development of self-storage facilities is becoming increasingly sophisticated. Specialized skills in areas such as site selection, design and unit mix are critical to the development of successful new self-storage projects on a cost efficient basis. Furthermore, new development in self-storage has become more difficult due to the lack of available capital, pressure from zoning boards and municipalities, and increases in building costs as new facilities are required to meet rigorous landscaping and other aesthetically oriented standards.
ITEM 2.
ITEM 2. PROPERTIES
As of December 31, 1996, the Facilities owned by the Company consisted of 165 self-storage facilities located in 18 states containing approximately 8,491,000 net rentable square feet and 71,000 units. For these Facilities, the average net rentable square footage per property was approximately 51,500 and the average number of units per property was approximately 430. As of December 31, 1996, the weighted-average occupancy in these owned Facilities on a square footage basis was approximately 86%.
As of December 31, 1996, the Company, through joint ventures, had a 15% ownership interest in an operating self-storage facility and a 25% ownership interest in a self-storage facility under development.
As of December 31, 1996, the Facilities managed by the Management Company consisted of ten self-storage facilities located in seven states containing approximately 470,000 rentable square feet.
The table on the following pages sets forth the location of and other information relating to the Company's portfolio of owned Facilities and those Facilities in which the Company has a joint venture interest. The table does not include those Facilities managed by the Management Company.
FACILITIES OWNED BY OPERATING PARTNERSHIP:
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are not subject to any pending material legal proceedings. The Company and its subsidiaries are parties to a variety of legal proceedings arising in the ordinary course of their business. It is management's opinion that the ultimate resolution of these matters will not have a material adverse impact on the financial condition, results of operations or liquidity of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the Company's shareholders for a vote since the last annual meeting of shareholders held on May 8, 1996.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information required by this item is hereby incorporated by reference to the material appearing on page 25 of the Company's 1996 Annual Report (the "Annual Report") under the caption "Shareholder and Investor Information."
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is hereby incorporated by reference to the data appearing on the inside front cover of the Annual Report under the caption "Selected Financial Data."
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this item is hereby incorporated by reference to the material appearing on pages 9 through 12 of the Annual Report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is hereby incorporated by reference to the "Report of Independent Auditors," "Storage Trust Realty Consolidated Balance Sheets as of December 31, 1996 and 1995," "Storage Trust Realty and Predecessor Company Consolidated and Combined Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994," "Storage Trust Realty and Predecessor Company Consolidated and Combined Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994," "Storage Trust Realty and Predecessor Company Consolidated and Combined Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994" and "Storage Trust Realty and Predecessor Company Notes to Consolidated and Combined Financial Statements" appearing in the Annual Report on pages 13 through 23.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is hereby incorporated by reference to the material appearing on pages 2 through 4 of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 7, 1997 (the "Proxy Statement"), under the captions "Election of Trustees" and "Management - Trustees and Executive Officers" and page 14 of the Proxy Statement under the caption "Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference to the material appearing on pages 6 through 11 of the Proxy Statement under the captions "Executive Compensation - Summary Compensation Table," " - Option Grants," " - Aggregated Option Exercises in 1996 and Year-End Option Values," " - Option Plan," " - Incentive Compensation," " - Retirement Savings Plan," " - Compensation of Trustees," " - Non-competition Agreements and Termination of Employment," "Compensation Committee Interlocks and Insider Participation," " - Executive Compensation Committee Report on Executive Compensation" and " - Performance Graph."
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is hereby incorporated by reference to the material appearing on pages 13 and 14 of the Proxy Statement under the caption "Security Ownership."
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is hereby incorporated by reference to the material appearing on page 12 of the Proxy Statement under the caption "Certain Relationships and Related Transactions."
PART IV
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: February 27, 1997 By /s/ Michael G. Burnam ---------------------------------- Michael G. Burnam Chief Executive Officer and Trustee
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of Storage Trust Realty
We have audited the consolidated balance sheets of Storage Trust Realty (the "Company") as of December 31, 1996 and 1995, and the related consolidated and combined statements of operations, shareholders' equity and cash flows of Storage Trust Realty and Predecessor Company for each of the three years in the period ended December 31, 1996, and have issued our report thereon dated January 22, 1997 (except for Note 9, as to which the date is January 31, 1997); such consolidated and combined financial statements and report are included in the Company's 1996 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedule of Storage Trust Realty listed in Item 14.