Item 1. Business
General
SUSA Partnership, L.P. (the "Company" and the "Partnership") was formed by Storage USA, Inc. (the "GP"), general partner and holder of approximately 89% of the interest therein, to acquire, develop, construct, franchise, and own and operate self-storage facilities throughout the United States. We are the second largest owner and operator of self-storage space in the United States. At December 31, 2000, we owned 409 facilities containing 27.6 million net rentable square feet and managed 124 facilities for others (including 59 franchises) containing an additional 8.4 million net rentable square feet. Our owned and managed facilities are located in 31 states and the District of Columbia. The GP is structured as an umbrella partnership real estate investment trust, commonly referred to as an "UPREIT," in which substantially all of our business is conducted through the Partnership. Under this structure, we are able to acquire self-storage facilities in exchange for units of limited partnership interest, which permits the sellers to partially defer taxation of capital gains. In 1996, we formed Storage USA Franchise Corp ("Franchise"), a Tennessee corporation. As of December 31, 2000, the Partnership owned 100% of the non-voting common stock of Franchise, and had a 97.5% economic interest in Franchise. The Partnership accounted for Franchise under the equity method and included its share of the profit or loss of Franchise in Other Income. On January 2, 2001, the Partnership acquired all of the outstanding voting stock of Franchise. Accordingly, the Partnership will consolidate Franchise for accounting purposes beginning in 2001.
Business Strategy
Our business strategy involves a balanced combination of internal growth generated from our existing portfolio and external growth generated from the acquisition, development and franchising of new properties. Our internal growth strategy is to pursue an active leasing policy. This includes marketing available space and renewing existing leases at higher rents per square foot while controlling expense growth. In pursuing opportunities to expand the number of facilities in our system, we primarily seek to add facilities in those metropolitan areas in which we operate. We also selectively enter new markets that have desirable characteristics such as a growing population and a concentration of multifamily dwellings. Our intention is to acquire or develop facilities that have strong retail characteristics and that are attractively designed. By developing new facilitates, we believe long-term returns can be provided that could exceed returns achieved by acquired facilities and we are able to capitalize on unsaturated markets where suitable acquisition opportunities may be minimal or nonexistent. These locations may, in some instances, provide long-term returns greater than those available in typical suburban markets. We expect that our external growth strategy will continue 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.
Significant Developments During 2000
o On May 8, 2000, we announced the formation of a strategic alliance with Access Storage, S.A. and Millers Storage, S.A., the leading self-storage operators in Europe and Australia, respectively, to provide management advisory services. As part of the agreement, we received an option to purchase convertible debt and also to acquire up to a 20% interest in these companies, which are indirect affiliates of Security Capital Group Incorporated. These options were not exercised as of December 31, 2000. o Commencing May 1, 2000, we began offering our customers direct access to tenant insurance, which insures their goods against described perils, in all of our facilities. The net profits from the premiums written during 2000 accrued to the benefit of a charitable trust established by the Company. The Real Estate Investment Trust ("REIT") provisions of the Ticket to Work and Work Incentives Improvement Act of 1999 (the "Act") became effective January 2, 2001, allowing income from "non-customary" services for taxable REIT subsidiaries. In accordance with this change in the law, profits from premiums written subsequent to 2000 will accrue to the benefit of a taxable REIT subsidiary wholly owned by the Partnership, in this case Storage USA Franchise Corp ("Franchise"). o On July 7, 2000, the GP, the Partnership and Security Capital Group Incorporated ("Security Capital"), the U.S. based advisor to Security Capital U.S Realty ("U.S. Realty"), agreed that Security Capital's acquisition of the GP's common stock owned by U.S Realty would not be a "prohibited transfer" under the Strategic Alliance Agreement previously entered into by the Company and U.S Realty (see Strategic Alliance with Security Capital discussion for further details) and that in the event of such acquisition, Security Capital would be bound by the terms of the Strategic Alliance Agreement. Security Capital agreed, among other things, that in the event of such an acquisition, the standstill
provisions of the Strategic Alliance Agreement would be extended from June 5, 2003 to December 4, 2004. On January 16, 2001, SC Realty Corporation, an indirect wholly-owned subsidiary of Security Capital acquired all shares of the GP's common stock that were owned by U.S Realty.
Strategic Alliance with Security Capital
On March 19, 1996, the GP and the Partnership entered into a Strategic Alliance Agreement with Security Capital US Realty ("US Realty), which was subsequently amended. The Strategic Alliance Agreement, among other things, permits US Realty to purchase up to 42.5% of the GP's common stock and to participate in certain offerings of the GP's equity securities. At January 19, 2001, US Realty owned 43.5% of the GP's common stock. The incremental 1% of ownership above the agreed limit is the result of the GP's stock repurchase plan, which reduced the total number of outstanding shares by approximately 5%, thereby increasing U.S. Realty's proportionate ownership. On January 16, 2001, SC Realty Corporation, an indirect wholly-owned subsidiary of Security Capital acquired all shares of the GP's common stock that were owned by U.S Realty. Under a July 7, 2000 letter agreement, the GP agreed to permit this transaction, provided that Security Capital agreed to be bound by the Strategic Alliance Agreement and that, among other things, the standstill provisions of that agreement were extended from June 5, 2003 to December 4, 2004. The Strategic Alliance Agreement places several restrictions on the GP. Pursuant to the Strategic Alliance Agreement, and until the first to occur of: (A) December 4, 2004, which can be extended; and (B) the first date following the date on which Security Capital's ownership of the GP's common stock has been below 20% of the outstanding shares of common stock for a continuous period of 180 days, we may not:
o incur total indebtedness in an amount exceeding 60% of the value of our total assets (which is deemed to be equal to the market value of our outstanding equity (on a fully-diluted basis at a price of $31.30 per share) and debt as of March 1, 1996, plus the acquisition cost of properties acquired after March 1, 1996 (less any proceeds of property dispositions that are distributed to shareholders)),
o own real property other than self-storage facilities or land suitable for the development of self-storage facilities whose value exceeds 10% of the aggregate value of our real estate assets at cost,
o terminate the GP's eligibility for treatment as a REIT for federal income tax purposes.
Security Capital is restricted from acquiring more than 43.5% of the GP's common stock without its consent. Security Capital is also restricted from certain other activities with respect to the GP including, among others, a restriction on selling the GP's common stock until December 4, 2004 (provided it owns at least 20% of the GP's common stock,) except pursuant to transfers in compliance with Rule 144 of the 1933 Securities Act, transfers pursuant to a negotiated transaction with a third party that would not own more than 9.8% of the outstanding shares and transfers to its affiliates, or to banks or similar institutions for purposes of securing a loan. These restrictions lapse if the GP, among other things, defaults under the Strategic Alliance Agreement, another investor acquires more than 9.8% of the GP's outstanding common stock or other similar events occur. We believe that these limitations are generally consistent with our operating strategies and do not believe that they will materially restrict our operations or have a material adverse effect on our financial condition or results of operations, though there can be no assurance that they will not do so in the future.
Competition
Competition from other self-storage facilities exists in every market in which our facilities are located. We principally face competitors who seek to attract tenants primarily on the basis of lower prices. However, we usually do not seek to be the lowest price competitor. Rather, based on the quality of our facilities and our customer service-oriented managers and amenities, our strategy is to lead particular markets in terms of prices. We monitor the development of self-storage facilities in our markets. We have facilities in several markets where we believe overbuilding has occurred, including the following: o Nashville, TN (represents 2.4% of the Company's total portfolio square footage "sq. ft.") o Las Vegas, NV (represents 2.1% of the Company's total portfolio sq. ft.) o Albuquerque, NM (represents 1.6% of the Company's total portfolio sq. ft.) o Atlanta, GA (represents 1.5% of the Company's total portfolio sq. ft.) o West Palm Beach, FL (represents 0.9% of the Company's total portfolio sq. ft.) o Salt Lake City, UT (represents 0.4% of the Company's total portfolio sq. ft.) In these markets we may experience a minimal reduction in Physical Occupancy and less growth in rental rates than other markets. As a result of the geographic diversity of our portfolio, we do not expect the potential for excess supply in these markets to have a significant impact on our financial condition or results of operations. We are the second largest self-storage operator, with 36.3 million square feet in 410 owned and 130 managed (including 59 franchises) facilities as of February 20, 2001. There are three other significant publicly traded REITs and
numerous private and regional operators. These other companies may be able to accept more risk than we can prudently manage. This competition may reduce the number of suitable acquisition opportunities offered to us and increase the price required to acquire particular facilities. Further, we believe that competition could increase from companies organized with similar objectives. Nevertheless, we believe that the operations, development, and financial experience of our executive officers and directors along with our customer-oriented approach to management of self-storage facilities should enable us to compete effectively.
Inflation
We do not believe that inflation has had or will have a direct effect on our operations. Substantially all of the leases at our facilities allow for monthly rent increases, which provide us with the opportunity to achieve increases in rental income.
Seasonality
Our revenues typically have been higher in the third and fourth quarter primarily because we increase our rental rates on most of our storage units at the beginning of May. This also occurs to a lesser extent because self-storage facilities tend to experience greater occupancy during the late spring, summer, and early fall months due to greater incidence of persons moving during those periods. Accordingly, a greater percentage of our customers come to us as a result of moving. We believe that our tenant mix, rental structure, and expense structure provide adequate protection against undue fluctuations in cash flows and net revenues during off-peak seasons. Thus, we do not expect seasonality to materially affect our results of operations.
Employees
All persons referred to as our employees are employees of the Partnership or our subsidiaries (e.g. Franchise). As of December 31, 2000, we employed approximately 2,017 employees, of whom approximately 306 were employed part-time (fewer than 30 hours per week) on a regular basis. None of our employees are covered by a collective bargaining agreement. We believe our relations with our employees are good.
Trademarks and Service Marks
We use a number of service marks including "Storage USA," "Total Satisfaction Guaranteed" and "PropertyMax." The service marks and copyright registrations associated with our business expire over various periods of time, beginning in 2004. We intend to defend vigorously against infringement of our service marks and copyright registrations.
Governmental Regulation
The conduct of the self-storage business is regulated by various federal and state laws, both statutory and common law, including those relating to the form and content of rental agreements for individual storage spaces and requirements relating to collection practices and imposition of late fees. Franchise is subject to certain Federal and state laws, regulating the sale of franchises and other practices with respect to the franchisor/franchisee relationship. Taxation of Real Estate Investment Trusts ("REIT") is subject to governmental regulation and interpretation of the Internal Revenue Code. The provisions are discussed in greater detail below in "Qualification as a Real Estate Investment Trust." Development of self-storage facilities is impacted by governmental authorities at the local level on matters such as land use and zoning, which can restrict the availability of land for development. However, we do not believe any of these restrictions will have a material impact on the Company.
Qualification as a Real Estate Investment Trust
The GP operates and intends to continue to operate so as to qualify as a REIT under the federal income tax laws. Qualification as a REIT involves the application of highly technical and complex rules for which there are only limited judicial or administrative interpretations. There are no controlling authorities that deal specifically with many tax issues affecting a REIT that operates self-storage facilities. The determination of various factual matters and circumstances not entirely within the GP's control may affect its ability to qualify as a REIT. New regulations, administrative interpretations or court decisions could adversely affect the GP's qualification as a REIT or the federal income tax consequences of such qualification. If the GP were to fail to qualify as a REIT in any taxable year, it would not be allowed a deduction for distributions to shareholders in computing its taxable income. The GP also would be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Unless entitled to relief under certain Code provisions, the GP also would be disqualified from taxation as a
REIT for the four taxable years following the year during which qualification was lost. As a result, the cash available for distribution to shareholders would be reduced for each of the years involved. Although the G currently intends to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause the Board of Directors, with the consent of a majority of the shareholders, to revoke the REIT election. On December 17, 1999, the Ticket to Work and Work Incentives Improvement Act of 1999 (the "Act") was signed into law. The Act includes several REIT provisions (the "REIT Provisions"). The REIT Provisions were effective January 1, 2001 and overhaul the existing tax rules applicable to taxable subsidiaries of REITs. Under the REIT provisions, the GP is allowed to own all of the stock in taxable REIT subsidiaries ("TRSs"). In addition, a TRS is allowed to perform "non-customary" services to our tenants (i.e. those types of services that would taint the rents from our tenants if provided by us). The use of TRSs, however, are subject to restrictions, including the following: o no more than 20% of the REIT's assets may consist of securities of TRSs; o the tax deductibility of interest paid or accrued by a TRS to its affiliated REIT would be limited; and o a 100% excise tax would be imposed on non-arm's length transactions between a TRS and its affiliated REIT or the REIT's tenants. The GP and the Partnership intend to restructure ownership interests in current taxable subsidiaries and establish additional taxable subsidiaries where it will benefit them, now that the Act is effective. On January 2, 2001, the Company took its first action based upon the newly implemented REIT provisions, acquiring all of the outstanding voting stock of Franchise. A REIT, which complies with the Code and distributes at least 90% of its taxable income to its shareholders, does not pay federal tax on its distributed income ("90% REIT distribution test"). A REIT was required to distribute at least 95% of its taxable income to its shareholders prior to the enactment and subsequent implementation of the REIT provisions contained in the Act. Qualification as a REIT involves the application of highly technical and complex rules for which there are only limited judicial or administrative interpretations. The complexity of these rules is greater in the case of a REIT that holds its assets in partnership form. Furthermore, there are no controlling authorities that deal specifically with many tax issues affecting a REIT that operates self-storage facilities. Certain facts and circumstances not entirely within our control may affect our ability to qualify as a REIT. In addition, new regulations, administrative interpretations or court decisions could have a substantial adverse effect on our qualifications as a REIT or the federal income tax consequences. If the GP were to fail to qualify as a REIT, it would not be allowed a deduction for distributions to shareholders in computing its taxable income. In this case, the GP would be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Unless entitled to relief under certain Code provisions, the GP also would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. As a result, the cash available for distribution to shareholders would be reduced for each of the years involved. Although the GP currently intends to operate in a manner designed to qualify as a REIT it is possible that future economic, market, legal, tax or other considerations may cause the Board of Directors, with the consent of a majority of the shareholders, to revoke the REIT election.
Environmental Matters
We generally obtain Phase 1 environmental audits on all of our facilities from various outside environmental engineering firms. The purpose of the Phase 1 audits is to identify potential sources of contamination at these facilities and to assess the status of environmental regulatory compliance. The Phase 1 audits include the following: o historical reviews of the facilities; o reviews of certain public records; o preliminary investigations of the sites and surrounding properties; o visual inspection for the presence of asbestos; o PCBs and underground storage tanks; and o the preparation and issuance of a written report. A Phase 1 audit does not include invasive procedures, such as soil sampling or ground water analysis. In certain instances we obtain Phase 2 environmental audits or procedures in order to determine (using invasive testing) whether potential sources of contamination indicated in Phase 1 audits actually exist. While some of the self-storage facilities we have acquired have, in the past, been the subject of environmental remediation or underground storage tank removal, we are not aware of any contamination of facilities requiring remediation under current law. We will not take ownership of any acquisition facility prior to completing a satisfactory environmental review and inspection procedure. However, no assurance can be given that the Phase 1 and 2 audits have identified or will identify all significant environmental problems or that no additional environmental liabilities exist. Under various federal, state and local laws and regulations, an owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on properties. Such laws often impose such liability without regard to whether the owner caused or knew of the presence of hazardous or toxic substances and whether or not the storage of such substances was in violation of a tenant's lease. Furthermore, the cost of remediation or
removal of such substances may be substantial, and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner's ability to sell such real estate or to borrow using such real estate as collateral. In connection with the ownership and operation of our facilities, we may become liable for such costs. The environmental audit reports received by us have not revealed any environmental liability that we believe would have a material adverse effect on our business, assets or results of operations. We are not aware of any existing conditions that currently would be considered an environmental liability. Nevertheless, it is possible that these reports do not or will not reveal all environmental liabilities or that there are material environmental liabilities of which we are unaware. Moreover, no assurances can be given concerning the following: o that future laws, ordinances or regulations will not impose any material environmental liability; o that the current environmental condition of the facilities will not be affected by the condition of the properties in the vicinity of the facilities (such as the presence of leaking underground storage tanks); or o that tenants will not violate their leases by introducing hazardous or toxic substances into our facilities. We may be potentially liable as owner of the facility for hazardous materials stored in units in violation of a tenant's lease, although to date we believe we have not incurred any such liability. We believe that the facilities are in compliance in all material respects with all applicable federal, state and local ordinances and regulations regarding hazardous or toxic substances and other environmental matters. We have not been notified by any governmental authority of any material noncompliance, liability or claim relating to hazardous or toxic substances or other environmental substances in connection with any of our present or former properties.
Executive Officers of the Registrant
The following information relates to our executive officers:
Item 2.
Item 2. Properties
The following are definitions of terms used throughout this discussion of our properties: o "Physical occupancy" is the total net rentable square feet rented as of the date divided by the total net rentable square feet available. o "Economic occupancy" is determined by dividing the expected income by the gross potential income. o "Gross potential income" is the sum of all units available to rent at a facility multiplied by the market rental rate applicable to those units as of the date computed. o "Expected income" is the sum of the monthly rent being charged for the rented units at a facility as of the date computed. o "Rent Per Square Foot" is the annualized result of dividing gross potential income on the date by total net rentable square feet. o "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.
Self-Storage Facilities
Our self-storage facilities offer customers fully enclosed units. The customer furnishes his/her own lock, therefore each unit is controlled only by that customer. The average size of a Company-owned facility is 67,500 square feet and contains an average of 666 units. At December 31, 2000, the average rent per square foot for our owned facilities was $12.41. The average direct expense per square foot for a Company owned facility is $2.00. According to Self-Storage Almanac - 2001, the typical customer base for a self-storage facility is 72% residential, 19% commercial, 5% students and 4% military. At December 31, 2000, the average occupancy of the 409 facilities owned by us was 82% physical and 75% economic. Our self-storage facilities are located near major business and residential areas, and generally are clearly visible and easily accessible from major traffic arteries. Computer-controlled access gates, door alarm systems and video cameras, generally protect them. These facilities are typically constructed of one-story masonry or tilt-up concrete walls, with an individual roll-up door for each storage space and with removable steel interior walls to permit reconfiguration and to protect items from damage. Sites have wide drive aisles to accommodate most vehicles. At most of the facilities, a property manager lives in an apartment located on site. Climate-controlled space is offered in many facilities for storing items that are sensitive to extreme humidity or temperature. Some of the facilities provide paved, secure storage areas for recreational vehicles, boat and commercial vehicles. The facilities generally contain 400 to 1,000 units varying in size from 25 to 400 square feet. The majority of our tenants are individuals, ranging from high-income homeowners to college students to lower income renters, who typically store furniture, appliances and other household and personal items. Commercial users range from sales representatives and distributors storing inventory to small businesses that typically store equipment, records and seasonal items. The facilities generally have a diverse tenant base of 500 to 600 tenants, with no single tenant occupying more than one to two percent of the net rentable square feet of a facility.
Capital Expenditures and Maintenance
Due to the type of simple structures and durable materials used for the facilities, property maintenance is minimal compared to other types of real estate investments. The majority of our facilities are one story, with either tilt-up concrete or masonry load-bearing walls, easily moved steel interior walls, and metal roofs. Typical capital expenditures include replacing asphalt roofs, gates, air conditioning equipment and elevators (as contrasted with expense items such as repairing asphalt, repairing a door, pointing up masonry walls, painting trim and facades, repairing a fence, maintaining landscaping, and repairing damage caused by tenant vehicles). Maintenance within a storage unit between leasing typically consists of sweeping out the unit and changing a light bulb. Maintenance is the responsibility of the facility manager who resides in the apartment located at most of the facilities.
Item 3.
Item 3. Legal Proceedings.
Actions for negligence or other tort claims occur routinely in the ordinary course of our business, but none of these proceedings involves a material claim for damages (in excess of applicable excess umbrella insurance coverages). We do not anticipate that any amounts which we may be required to pay as a result of an adverse determination of such routine legal proceedings, individually or in the aggregate, or any other relief granted by reason thereof, will have a material adverse effect on our financial position or results of operation. On July 22, 1999, a purported statewide class action was filed against the GP 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 June 2001. The stay was entered in part because of a new statute passed by the Maryland legislature relating to late fees. The constitutionality of that statute has been challenged in an unrelated litigation not involving the Company. On November 15, 1999, a purported nationwide class action was filed against the GP 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 ruling may be appealed by the plaintiffs.
While the ultimate resolution of the two cases discussed above will not have a material adverse effect on the Company's financial position, if during any period the potential contingency should become probable, the results of operations in such period could be materially affected. On March 28, 2000, separate actions (now consolidated) were commenced in the Supreme Court of the State of New York, New York County, styled SMB Hochman Partners, et al. v. Goldman, et al., Index No. 601346/00 and Kramer, et al. v. Goldman, et al., Index No. 601347/00, by certain limited partnerships and their limited partners relating to the sale to the Partnership of two storage facilities located in Westchester County, New York. The consolidated action alleges fraud and breach of fiduciary duty by the general partners of the limited partnerships in connection with their negotiation of the sale of the facilities on behalf of the limited partnerships. It further alleges that the REIT and the Partnership aided and abetted the breach of fiduciary duty. The consolidated action seeks unspecified compensatory damages and $25 million in punitive damages. On March 19, 2001, all parties to the consolidated action released the Company and the GP from any liability and the actions against the Company and the GP have been dismissed with prejudice.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the GP's shareholders during the fourth quarter of our fiscal year ended December 31, 2000.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
No established public trading market exists for the Units. At January 31, 2001, there were 76 limited partners and 3,369,818 Units outstanding held by such limited partners. During 2000, the Partnership made the following quarterly cash distributions per Unit: $0.69 in the First Quarter; $ 0.69 in the Second Quarter; $ 0.69 in the Third Quarter; and $ 0.69 in the Fourth Quarter. The table below sets forth all issuances of Units made by the Partnership to persons other than the GP during the year ended December 31, 2000. All Units were issued in exchange for interests in self-storage facilities acquired by the Partnership. The offerings were exempt from registration pursuant to Section 4(2) and Regulation D under the Securities Act of 1933, as amended (investors are required to establish their status as accredited investors pursuant to an investor questionnaire):
Date of Units Price Issuance Issued Per Unit ------------------------------------------------------------
July 10, 2000 5,704 $ 35.63 September 25, 2000 34,070 $ 29.35 ------------------------------------------------------------
The Units may be redeemed for cash, or at the GP's option, common stock of the GP commencing one year after the issuance of the Units, as described in the Company's partnership agreement.
Item 6.
Item 6. Selected Financial Data.
The following schedule sets forth selected financial information of SUSA Partnership, L.P. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and with the Consolidated Financial Statements and Notes thereto in this report.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.
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" refer to SUSA Partnership, L.P., ("the Partnership"). References to the GP refer to Storage USA, Inc., general partner and holder of approximately 89% of the interest in the Partnership. The following are definitions of terms used throughout this discussion that will be helpful in understanding our business. o 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. o Scheduled Rent Per Square Foot means the average market rate per square foot of rentable space. o Net Rental Income means income from self-storage rentals less discounts. o Realized Rent Per Square Foot means the annualized result of dividing Net Rental Income by total square feet rented. o 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. o Net Operating Income ("NOI") means total property revenues less Direct Property Operating Costs. o Annual Capitalization Rate ("Cap Rate")/ Yield means NOI of a facility divided by the total capitalized costs of the facility.
o Funds from operations ("FFO") means net income, computed in accordance with generally accepted accounting principles ("GAAP"), excluding gains (losses) from sales of property, plus depreciation and amortization of revenue-producing property, and after adjustments for unconsolidated partnerships and joint ventures. o Same-Store Facilities includes 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 SUSA Partnership, L.P. is one of the largest owners and operators of self-storage space in the United States. We are a fully integrated, self-administered and self-managed real estate investment trust, and are engaged in the management, acquisition, development, construction and franchising of self-storage facilities. We are structured as an umbrella partnership real estate investment trust, commonly referred to as an "UPREIT," in which substantially all of our business is conducted through the Partnership. As of December 31, 2000, we owned, managed and franchised 533 facilities containing 36.0 million square feet in 31 states and the District of Columbia.
Internal Growth During 2000, we continued to pursue our internal growth strategy of aggressively marketing available space and renewing existing leases at higher rents per square foot, while controlling expense growth. We also reevaluated the amounts we charge our customers and implemented a revised late fee policy, which reduced our late fees, all as noted in our 1999 annual report. We believe that our internal growth can best be evaluated by examining the "year over year" results of our same-store facilities, excluding the impact on revenue of our change in late fee policy. When excluding the impact of late fees, this comparison yields revenue growth of 5.7% from 1999 to 2000, expense growth of 4.4% and overall NOI growth of 6.3% for the year. The following table details selected same-store statistics comparing 2000 results to 1999 results at the end of each quarter:
* excludes late fees.
The total impact of our change in late fee policy in 2000 for our same-store facilities was a $5.2 million reduction in revenue from 1999, or a 42.6% decrease. Inclusion of the late fee reduction outlined above produces 1.2% NOI growth for the first quarter of 2000, 1.9% for the second quarter, 1.6% for the third quarter, 3.8% for the fourth quarter, and 2.3% for the entire year. The following table details selected same-store statistics comparing 1999 results to 1998 results at the end of each quarter:
The following table displays the same-store results for fiscal year 2000 for our 10 largest same-store markets as measured by NOI. Same-store properties for fiscal year 2000 include all properties that we have owned since January 1, 1999. Again, the impact of late fees on revenue has been eliminated for comparison purposes.
*These 10 markets cover 68.6% of the same-store NOI. **Same-store revenue and NOI growth excludes late fees
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 SUSA Partnership, L.P., we acquired five facilities in 2000, at a cost of approximately $25 million. Three of the facilities acquired were formerly franchised properties located in Memphis, Tennessee, Queens, New York, and Tampa, Florida. The New York property was subsequently sold to the GE Acquisition Venture. The other two facilities acquired were from unrelated third parties, and are located in Denver, Colorado and Chicago, Illinois. We anticipate limited acquisition activity within the Company in 2001. The following table summarizes the number of facilities acquired in 2000, 1999 and 1998, the cost, net rentable square feet and the weighted average cost of acquisitions.
We calculate weighted average cost based on the duration of time for which the acquired facilities were owned during the year. The weighted average cost reflects the dollar amount of acquisitions that will impact our net income during the year of acquisition. From a development and expansion perspective, we opened 4 new facilities and expanded an additional 7 within the REIT during the year. Investments in development and expansion projects totaled $27.8 million during the year. The following table lists the newly developed properties opened in 2000, 1999 and 1998 and provides data relevant to their operating performance.
Six development properties are currently under construction within SUSA Partnership, L.P. The following tables summarize the details of those six projects. We anticipate moving into the planning and design stages on several new projects in 2001.
Off-Balance Sheet Ventures During the fourth quarter of 1999, we formed two joint ventures with General Electric Capital corporation ("GE Capital"), the GE Capital Development Venture and GE Capital Acquisition Venture, providing a total investment capacity of $400 million for acquisitions and development of self-storage properties. 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 December 31, 2000, the GE Development Venture had invested $40.9 million, of which $7.4 was funded through advances and investments by the Company. Six properties are open and operating and three properties remain in design and construction. The GE Acquisition Venture had invested $48.2 million as of December 31, 2000 in the acquisition of six properties, of which $13.3 was funded through advances and investments by the Company. We, along with GE capital, will continuously seek opportunities to invest the remaining venture funds. However, based upon the current real estate environment, along with our minimum return thresholds on invested capital, we are anticipating less than $100 million of investment activity through the ventures in 2001. For more information, see Note 4 "Advances and Investments in Real Estate" in our Notes to the Consolidated Financial Statements.
Financing In December of 2000, Storage USA Franchise Corp. ("Franchise") closed on a $10 million unsecured line of credit with a commercial bank. The line bears interest at a spread above LIBOR. In December of 1999, the GP announced a Board authorized plan to repurchase up to 5% of its common shares outstanding through open market and private purchases. In the third quarter of 2000, the GP completed the repurchase program. A total of 1.4 million common shares were repurchased, or approximately 5% of the outstanding common shares at December 1, 1999, at an average price of approximately $30 per share, representing a total cost of $42.1 million.
Results of Operations The following table reflects selected income and expense categories, for the years ended 2000, 1999 and 1998, based on a percentage of total revenues, and is referred to in the discussion that follows:
----------------------------------- 2000 1999 1998 - ----------------------------------------------------------------------------- REVENUES Rental and other property income 97.8% 98.4% 99.3% Service income 1.8% 0.8% 0.5% Other income 0.4% 0.8% 0.2% - ----------------------------------------------------------------------------- Total income 100.0% 100.0% 100.0% EXPENSES Property operations 24.6% 23.8% 25.0% Taxes 8.3% 8.4% 8.4% Costs of providing services 1.7% 0.7% 0.3% General and administrative 5.2% 5.6% 5.2% - -----------------------------------------------------------------------------
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 years ended December 31, 2000, 1999 and 1998:
(in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------- Rental Income $ 254,375 $ 243,185 $ 217,286 Other Property Specific Income 4,248 4,116 2,919 - ------------------------------------------------------------------------------- Total Rental and Other Property Income $ 258,623 $ 247,301 $ 220,205 - -------------------------------------------------------------------------------
Rental and other property income increased $11.3 million, or 4.6%, in fiscal year 2000 and $27.1 million, or 12.3%, in fiscal year 1999. Excluding the one-time impact of the change in our late fee policy, 2000 rental and other property income grew $17.4 million, or 7.5%. The primary contributors to the increase in rental and other property income are summarized in the following table.
The majority of the other rental income growth is attributed to prior period developed facilities still in the lease-up phase, as well as expanded facilities. The majority of the Same-Store Facilities revenue growth for 2000 was provided by an approximate 6.5% increase in Realized Rent per Square Foot, from $10.24 per square foot in 1999 to $10.91 for 2000. Physical occupancy during this period remained constant at 86%. For 1999, a Realized Rent per
Square Foot increase of 6.0%, from $9.27 to $9.83, contributed to the bulk of same-store rental income growth, with occupancy again remaining constant, at 87%, between 1999 and 1998. Service income consists of revenue derived from providing services to third parties and related joint ventures. These services include the management of self-storage facilities, as well as general contractor, development and acquisition services provided to the GE Capital Development and Acquisition Ventures ("GE Capital Ventures"). Following is a summary of service income for the years ended December 31, 2000, 1999 and 1998:
(in thousands) 2000 1999 1998 - ----------------------------------------------------------------------------- Management fees $ 2,904 $ 2,055 $ 1,079 General Contractor fees 633 - - Development fees 848 - - Acquisition fees 403 - - - ----------------------------------------------------------------------------- Total service income $ 4,788 $ 2,055 $ 1,079 - -----------------------------------------------------------------------------
Service income increased by $2.7 million from 1999 to 2000, and grew as a percentage of total income from 0.8% to 1.8%. The bulk of the increase, $1.9 million was due to the service fees received from the GE Capital Ventures. The Ventures had no activity until March 2000, so there are no comparable general contractor, development or acquisition fees for 1999. The remaining increase, as well as the $976 thousand increase from 1998 to 1999, was due to fees received for managing facilities owned by third parties. The number of managed or franchised properties remitting fees to the Partnership has risen from 64 at the conclusion of 1998, to 102 in 1999, to 124 in 2000. Other income consists solely of the Company's proportionate share of the net income of equity investments including joint ventures and Franchise. Following is a summary of other income for the years ended December 31, 2000, 1999 and 1998:
(in thousands) 2000 1999 1998 - ---------------------------------------------------------------------------- Fidelity joint venture $ 1,417 $ 851 $ - GE joint ventures (538) - - Franchise (290) 457 297 Other ventures 508 547 133 - ---------------------------------------------------------------------------- Total other income $ 1,097 $ 1,855 $ 430 - ----------------------------------------------------------------------------
Total other income decreased $758 thousand from 1999 to 2000, or 40.9%. As was the case with service income, the equity loss recognized in 2000 relating to the GE Capital Ventures, $538 thousand, has no comparable amount in 1999 due to the timing of the commencement of the ventures. Timing was also the primary factor in the $566 thousand, 66.5%, increase in income from the Fidelity Venture. The Fidelity Venture was formed in June 1999, so only seven month's income was recorded as of December 1999, compared to a full year in 2000. The decrease in income from Franchise, $747 thousand, was primarily due to increases in losses recognized on equity participations in franchised facilities and a decrease in overall general contracting fees. From 1998 to 1999, other income grew $1.4 million, or 331%. As a percentage of revenues, cost of property operations and maintenance decreased from 25.0% in 1998 to 23.8% in 1999, and then increased to 24.6% in 2000. Actual expenses rose $4.5 million, or 8.2% in 1999, and $5.1 million, or 8.5% in 2000. 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 happened in 1999, and was generally the case in 2000, with some exceptions. First, the impact of our reduction in late fees was apparent, reducing 2000 income, and thereby increasing the percentage of property operations costs. Second, salary expense increased between the two periods, primarily due to two strategic initiatives commencing in 1999: the national reservation center and the internal information technology help desk. These departments started operations in 1999, and had gradually increasing expenses as staffing progressed. Comparatively, year 2000 contains expenses for these two mature departments for a full year. Health insurance expense also showed a significant increase, due to increased claims and participating employees, following what we believe is a national trend. We expect this trend to continue, and estimate a 15% to 20% increase in health insurance costs for 2001. 2000 property and liability insurance costs were also significantly higher than in 1999. 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. We expect these premiums to increase again from 20% to 30%. Premiums over the twelve month period will be approximately $500 thousand higher that those that were in place under the previous policy. Finally, 2000 utility expenses exceeded those of 1999 due to the unusually mild winter in 1999. Tax expense as a percentage of revenues was 8.3% in 2000, 8.4% in 1999 and 8.4% in 1998. Tax expense as a percentage of revenues trends down as a result of revenue growth outpacing tax expense growth. In 1999, a number of our larger properties were reassessed by their respective tax jurisdictions, causing an
increase in expense, and offsetting any decrease caused by revenue growth. The normal trend began to reassert itself again in 2000, as total taxes increased only $742 thousand, or 3.5%, substantially less than the 5.3% total revenue growth. Taxes in 1999 increased $2.6 million, or 13.9%. Costs of providing services increased $2.8 million from 1999 to 2000, and increased as a percentage of revenues from 0.7% to 1.7%. These costs increased $1 million from 1998 to 1999, and increased as a percentage of revenues from 0.3% to 0.7%. This was due primarily to the new services provided in 2000, general contracting, development and acquisition services, and their corresponding costs. The costs of providing management services also increased as 22 more managed/franchised properties were added to the Storage USA system between December 31 of 1999 and 2000. General and administrative expenses ("G&A") as a percentage of revenues increased from 5.2% in 1998 to 5.6% in 1999, and then decreased back down to 5.2% in 2000. Actual expenses increased $2.5 million from 1998 to 1999, or 21.9%, but decreased from 1999 to 2000 by $453 thousand, or 3.2%. The 1999 growth in G&A was attributable to the continued expansion of our administration, acquisition and development, management information systems, human resources, and legal departments in connection with the implementation of our internal and external growth strategies. These expenses leveled off in 2000. Also impacting 1999 growth was $600 thousand of expense recognized in connection with a Tennessee law enacted in 1999 that subjected limited partnerships and limited liability corporations to the Tennessee Excise and Franchise Tax. During the second quarter of 2000, the State of Tennessee passed legislation that granted REITs substantial relief from this law. The legislation was retroactive to the beginning of 2000 and substantially eliminated the applicability of the Tennessee Excise and Franchise taxes to the GP. Fiscal year 2000 G&A was also positively impacted by the classification of development, construction and acquisition department overhead as part of the cost of providing services, continued benefits from various cost containment programs and lower management bonus accruals. The increase in depreciation and amortization expense by $4.3 million in 2000 and $5.3 million in 1999 primarily reflects our acquisition of approximately $86 million of depreciable assets in 2000, and $63 million in 1999. Interest income and expense are netted together and the breakout of income and expense is as follows:
For the year ended December 31, ---------------------------------------- (in thousands) 2000 1999 1998 - ---------------------------------------------------------------------------- Interest income $ 13,413 $ 13,078 $ 8,660 Interest expense (58,650) (54,375) (45,239) - ---------------------------------------------------------------------------- Interest expense, net $(45,237) $(41,297) $(36,579) - ----------------------------------------------------------------------------
Interest expense increased $4.3 million, or 7.9%, from 1999 to 2000, and increased $9.1 million, or 20.2% from 1998 to 1999. These interest expense increases were primarily from the sources listed in the table below and were offset by capitalized interest of $5.0 million in 2000, $4.5 million in 1999 and $3.5 million in 1998.
Interest income grew by $335 thousand, or 2.6%, in 2000, compared to $4.4 million, or 51.0%, in 1999. Approximately $4.2 million of the increase in 1999 was from interest earned on advances from us to franchisees of Franchise. Another $793 thousand related to restricted escrow funds from the Fidelity transaction. The remainder of the increase was from interest earned on amounts outstanding under the GP's 1995 Employee Stock Purchase and Loan Plan and earnings on overnight deposits. In 2000, interest on loans to franchisees grew $1.3 million. Although advances on loans to franchisees of Franchise decreased from December 31, 1999 to 2000, from $117 million to $111 million, weighted average advances actually increased from $116 million in 1999 to $117 million in 2000. Interest rates on these loans also increased, reflecting the change in the prime rate. Restricted escrow funds from the Fidelity transaction were used to acquire new self-storage facilities in 1999. There was no interest connected with these funds in 2000. Gains/(losses) on exchange of storage facilities of $1.2 million in 2000, $181 thousand in 1999, and ($284) thousand in 1998 represent gains/(losses) on the disposition of our investments in storage facilities that were exchanged for cash and other self-storage facilities. $414 thousand of the 2000 gain relates to the sale of two Columbus, Indiana storage facilities; $295 thousand to the sale of a non-operating development project in White Marsh, Maryland to a franchisee; $268 thousand to the sale of an operating facility in Queens, New
York; and the remaining $198 thousands to adjustments from the resolution of contingencies on prior period acquisitions. In 1999 we sold 40 properties, including the 32 in the Fidelity joint venture. The $37.1 million gain on the Fidelity transaction was deferred until such time as we dispose of interests in the Fidelity Venture. The diverse group of properties involved in 1999 dispositions encompassed 20 states and the District of Columbia. In 1998 we sold one property in California. Minority interest expense as a percentage of revenues approximates well less than 1%, and has shown minimal fluctuation in recent years: an $11 thousand decrease from 1998 to 1999; and a $39 thousand increase from 1999 to 2000. Distributions to preferred unitholders increased significantly from 1998 to 1999, $5.0 million, as the actual issuance of the $65 million in Preferred Partnership Units took place in November of 1998. Distributions remained constant at approximately $5.8 million for 1999 and 2000, as there were no further issuances of Preferred Partnership Units.
Liquidity and Capital Resources Cash provided by operating activities was $115.6 million in 2000 as compared to $100.1 million in 1999 and $107.2 million in 1998. These increases are primarily a result of the significant expansion of our property portfolio, including our owned properties, as well as our franchised and joint venture properties. The items affecting the operating cash flows are discussed more fully in the "Results of Operations" section. During fiscal year 2000, we received $21.7 million in proceeds from the disposition of self-storage facilities. $19.9 million of the total proceeds related to our transfer of nine development projects to the GE Capital Development Venture during the first quarter of 2000. We received an additional $1.8 million for the sale of three operating properties, two land parcels and a development facility still under construction. One of the operating properties was sold to the GE Acquisition Venture in which consideration included a note receivable for $7.1 million. The sale of the development facility also included a note receivable, of $2.2 million. Of the $144.9 million in proceeds from dispositions in 1999, $131.0 related to the 32 properties transferred to the Fidelity Venture. $95.3 million of the $109.5 million invested in acquisitions and improvements in 1999 also pertained to the Fidelity Venture, as proceeds from the initial transfer were redeployed in tax-free exchanges for additional properties and development land parcels. We invested cash totaling $30.1 million in 2000 in the acquisition and improvement of self-storage facilities compared to $109.5 million during 1999 and $201.9 million during 1998. $11.6 million of the $30.1 million invested in 2000 represents our investment in five acquired facilities. An additional $203 thousand in Partnership Units and $13.7 million in assumed loans to former Franchisees consummated the acquisitions. The remaining $18.5 million reflects improvements to existing self-storage facilities and our corporate offices. We invested cash of $37.9 million in 2000, $71.5 million in 1999, and $58.9 million in 1998 for land held for development and construction of self-storage facilities. We also used cash of $10.5 million in 2000, $40.4 million in 1999 and $81.6 million in 1998 for advances and investments in real estate. In 2000, the total of $10.5 million consisted of $5.9 million in financing to franchisees of Storage USA Franchise Corp ("Franchise"), and $4.6 million in equity contributions to the GE capital joint ventures. In 1999, $38.3 million was advanced to franchisees of Franchise, and $2.1 in equity contributions were made to the GE Capital joint ventures. The entirety of the $81.6 million in 1998 represents loans to franchisees of Franchise. During 2000, proceeds were also received from certain franchisees, as three repaid their loans during the period, generating $11.3 million in cash. Franchisee loan repayments totaled $41.9 million in 1999, $7.7 million in 1998. There were six development properties in process with $34.5 million invested at December 31, 2000. The total budget for these projects is $49.1 million, with $14.6 remaining to be invested. In addition to these development projects, we have 20 expansions of existing facilities in process with a total of $10.4 million invested at December 31, 2000. These projects have a total budget of $33.3 million and will require an additional $22.9 million investment. We have $8.0 million of loan commitments to franchisees to fund as of December 31, 2000. We also expect to invest during 2001 approximately $8.3 million as part of our required equity contributions in the GE Capital joint ventures. As noted above, we sometimes acquire facilities in exchange for Units. The Units are redeemable after one year for cash or, at our option, shares of the GP's 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 December 31, 2000 we had 3.4 million Units outstanding, of which the following Units were redeemable: o 82 thousand Units for an amount equal to the fair market value ($2.6 million, based upon a price per Unit of $31.75 at December 31, 2000) payable in cash or, at our option, by a promissory note payable in quarterly installments over two years with interest at the prime rate. o 3.3 million Units for amounts equal to the fair market value ($106.0 million, based upon a price per Unit of $31.75 at December 31, 2000) payable by us in cash or, at our option, in shares of the GP's 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 the GP's 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. In December of 1999, the GP announced a Board authorized plan to repurchase up to 5% of its common shares outstanding through open market and private purchases. During 1999, the GP repurchased 250,000 shares of common stock at a total cost of $7.2 million. In 2000, the GP completed the plan by buying back an additional 1.2 million shares at a total cost of $34.9 million. In all, 1.4 million shares were repurchased at a total cost of $42.1 million, representing an average price of approximately $30 per share. 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. As of December 31, 2000, the GP can issue under currently effective shelf registration statements up to $650 million of common stock, preferred stock, depositary 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 borrowings of $62.8 million in 2000, $34.7 million in 1999 and $38.9 million in 1998. Borrowings would have been greater in 1999 had we not used $39.4 million of the proceeds received from the Fidelity Venture to reduce the lines of credit. 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 also have a $40 million line of credit with a commercial bank. The line bears interest at a spread over LIBOR, matures on July 1, 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 December 31, 2000. Our overall debt policy, which is subject to change at the discretion of our Board of Directors, is to limit total indebtedness to the lessor of 50% of total assets at cost or that amount that will sustain a minimum debt service ratio of 2.5:1. In November 1998, we issued $65 million of 8.875% Cumulative Redeemable Preferred Partnership Units in a private placement. The proceeds from the issuance were used to pay down our line of credit. We expect to incur approximately $5.1 million for scheduled maintenance and repairs during the next twelve months and approximately $6.2 million to conform facilities acquired from 1994 to 1999 to our standards. In the second quarter of 2000, we committed to several new leases relating to our corporate headquarters office space in Memphis. The leases have a term of fifteen years with estimated annual payments of $3.0 million. We have rented a portion of this space to others under several subleases at the same rent and substantially similar terms to our primary leases and expect to receive approximately $937 thousand annually from such subleases. 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, and distribution and GP dividend requirements. 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, including the disposition of individually targeted properties, issuing additional Preferred Partnership Units and forming additional joint ventures.
Funds from Operations We believe funds from operations ("FFO") should be considered in conjunction with net income and cash flows to facilitate a clear understanding of our operating results. 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 National Association of Real Estate Investment Trust's (NAREIT) definition of FFO. Our FFO may not be comparable to similarly titled measures of other REITs that calculate FFO differently. In calculating FFO per share, 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 years ended December 31, 2000, 1999 and 1998:
*Excludes $295 gain on sale of undepreciated land in the first quarter of 2000.
At its meeting on October 27, 1999, the National Association of Real Estate Investment Trusts ("NAREIT") clarified that FFO should include non-recurring results of operations, except those defined as "extraordinary items" under generally accepted accounting principles (GAAP). The clarification of FFO was effective January 1, 2000. Since we have historically not added back non-recurring items to our calculation, the modification of the FFO definition did not have a material impact on previously reported FFO information. During 2000, we declared distributions per unit of $2.76, which is an increase of 3% over the 1999 distribution per unit of $2.68. Distributions per unit increased 4.7% from 1998 to 1999. As a qualified REIT, the GP is required to distribute a substantial portion of its net income as dividends to its shareholders. While our goal is to generate and retain sufficient cash flow to meet our operating, capital and debt service needs, the GP's 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 See Note 14, "Recent Accounting Developments" in the Notes to Consolidated Financial Statements.
Forward Looking Statements and Risk Factors All statements contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations section that are not historical facts are 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 and returns, and future capital requirements, 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 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:
o 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 and control our expenses, thus reducing our net income.
o Competition for development or acquisition sites could drive up costs, making it unfeasible for us to develop or acquire properties in certain markets. o New development opportunities could be limited due to an inability to obtain zoning and other local approvals. o 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. o 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. o Costs related to compliance with laws, including environmental laws could increase, reducing our net income. o General business and economic conditions could change, adversely affecting occupancy and rental rates, thereby reducing our revenue. o Unfavorable outcome(s) in the pending litigation described in Item 3 of this Form 10-K could ultimately reduce our net income.
o 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. o 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. o 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.
Item 7.A. Qualitative and Quantitative Disclosures 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 the repricing of fixed rate debt at 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. If interest rates increased by 25 basis points, our annual interest expense would have increased by approximately $390 thousand during 2000, based on balances outstanding during the year ending December 31, 2000.
Item 8.
Item 8. Financial Statements and Supplementary Data.
SUSA Partnership, L.P.'s Consolidated Balance Sheets as of December 31, 2000 and 1999 and its Consolidated Statements of Operations, Cash Flows and Shareholders' Equity for each of the years in the three-year period ended December 31, 2000, together with the Report of PricewaterhouseCoopers LLP, independent public accountants, are included under item 14 of this report and are incorporated herein by reference. Selected Quarterly Financial Data is presented in Note 15 of the Notes to the Consolidated Financial Statements.
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.
For non-employee Directors, the information required hereunder is incorporated herein by reference from the captions "Election of Directors" in the GP's definitive proxy statement to be filed with respect to the GP's 2001 Annual Meeting of Shareholders. For executive officers, the information required hereunder is included in Part 1, following Item 1 in this Annual Report on Form 10-K.
Item 11.
Item 11. Executive Compensation.
Incorporated herein by reference from the captions "Executive Compensation," "Stock Options," Long Term Incentive Plans," "Board Activity," "Executive Change in Control Severance Agreements and Employment Agreements," Report of the Storage USA Committee on Executive Compensation," "Is There Any Other Information I Should Know," and "Indebtedness by Executives to Storage USA" in the GP's definitive proxy statement to be filed with respect to the GP's 2001 Annual Meeting of Shareholders.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated herein by reference from the caption "Beneficial Ownership of Storage USA Common Stock" in the GP's definitive proxy statement to be filed with respect to the GP's 2001 Annual Meeting of Shareholders.
Item 13.
Item 13. Certain Relationships and Related Transactions.
Incorporated herein by reference from the caption "Transactions with Management and Others; Certain Business Relationships" and "Indebtedness by Executives to Storage USA" in the GP's definitive proxy statement to be filed with respect to the GP's 2001 Annual Meeting of Shareholders.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
The following documents are filed as a part of this report: (a) Financial Statements and Schedules:
1. Financial Statements:
See Index to Financial Statements below, which is incorporated herein by reference.
2. Financial Statement Schedules:
Schedule III, Real Estate and Accumulated Depreciation as of December 31, 2000
Schedule IV, Mortgage Loans on Real Estate as of December 31, 2000
All other schedules have been omitted since the required information is presented in the financial statements and the related notes or is not applicable.
(b) Reports on Form 8-K
On February 7, 2001, the GP filed a current report on Form 8-K. The filing included information regarding the lawsuit styled: West 125th St. Associates, L.L.C. vs. Storage USA, Inc. and SUSA Partnership, L.P., discussed in Item 3, Legal Proceedings.
(c) Exhibits The exhibits are required by Item 601 of Regulation S-K are listed in the Index to Exhibits, which is incorporated by reference.
SUSA Partnership, L.P.
Report of Independent Accountants
To the Partners of SUSA Partnership, L.P.
In our opinion, the financial statements listed in the accompanying index appearing under Item 14(a)(1) on page 22 present fairly, in all material respects, the financial position of SUSA Partnership, L.P. (the "Company") and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index appearing under Item 14(a)(2) on page 22 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Memphis, Tennessee January 31, 2001
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
SUSA Partnership, L.P.
Notes to Consolidated Financial Statements
NOTE 1 ORGANIZATION
SUSA Partnership, L.P. (the "Company and the "Partnership") was formed by Storage USA, Inc. (the "GP"), general partner and holder of approximately 89% of the interest therein, to acquire, develop, construct, franchise and own and operate self-storage facilities throughout the United States. The GP is structured as an umbrella partnership real estate investment trust ("UPREIT") in which substantially all of the GP's business is conducted through 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 partially defer taxation of capital gains. Under the terms of the of the partnership agreement, all proceeds from the issuance of common stock by the GP are contributed to the Partnership in exchange for Units. At December 31, 2000 and 1999, respectively, the GP had an approximate 88.8% and 88.4% partnership interest in the Partnership. In 1996, the Company formed Storage USA Franchise Corp ("Franchise"), a Tennessee corporation. As of December 31, 2000, the Partnership owned 100% of the non-voting common stock of Franchise. The Partnership accounts for Franchise under the equity method and includes its share of the earnings or loss of Franchise in Other Income. On January 2, 2001, the Company acquired all of the outstanding voting stock of Franchise. Accordingly, the Company will consolidate Franchise for accounting purposes beginning in 2001. At December 31, 2000, the Company owned and managed 533 self-storage facilities containing approximately 36,015,000 square feet located in 31 states and the District of Columbia.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation The consolidated financial statements include the accounts of the Company and SUSA Management. All intercompany balances and transactions have been eliminated. The Company accounts for Franchise under the equity method and includes its share of the earnings or loss of Franchise in Other Income.
Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Segment Reporting The "Property Operations" division is responsible for the operation of the Company's owned and managed facilities. Property Operations represents the only reportable segment of the Company. Performance for the division is measured through evaluating total property revenues and property expenses exclusive of general and administrative expenses and depreciation and amortization. All of the Company's facilities are located in the United States.
Federal Income Taxes No provision for income taxes is provided since all taxable income or loss or tax credits are passed through to the partners.
The GP operates so as to qualify to be taxed as a Real Estate Investment Trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). Generally, a REIT that complies with the Code and distributes at least 95% of its taxable income to its shareholders does not pay federal tax on its distributed income. Therefore, the statement of operations contains no provision for federal income taxes relating to the GP.
Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents.
Revenue Recognition Rental income is recorded when due from tenants. Rental income received prior to the start of the rental period is deferred and included in rents received in advance.
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). A summary of these amounts follows:
For the years ended December 31, ---------------------------------------- (in thousands) 2000 1999 1998 - -------------------------------------------------------------------------------- Rental Income $ 254,375 $ 243,185 $ 217,286 Other Property Specific Income 4,248 4,116 2,919 - -------------------------------------------------------------------------------- Total Rental and Other Property Income $ 258,623 $ 247,301 $ 220,205 - --------------------------------------------------------------------------------
Service Income Service income consists of revenue derived from providing services to third parties and related joint ventures. These services include the management of self-storage facilities, as well as general contractor, development and acquisition services provided to the General Electric Capital Corporation ("GE Capital") Development and Acquisition Ventures ("GE Capital Ventures"). Commencing with the third quarter of 2000, general contractor fees were recognized as income to Franchise. Below is a summary of service income:
For the years ended December 31, ---------------------------------------- (in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------ Management fees $ 2,904 $ 2,055 $ 1,079 General Contractor fees 633 - - Development fees 848 - - Acquisition fees 403 - - - ------------------------------------------------------------------------------ Total service income $ 4,788 $ 2,055 $ 1,079 - ------------------------------------------------------------------------------
Other Income Other income consists solely of the Company's proportionate share of the net income/(loss) of equity investments including joint ventures and Franchise, as outlined below:
For the years ended December 31, ---------------------------------------- (in thousands) 2000 1999 1998 - ----------------------------------------------------------------------------- Fidelity joint venture $ 1,417 $ 851 $ - GE joint ventures (538) - - Franchise (290) 457 297 Other ventures 508 547 133 - ----------------------------------------------------------------------------- Total other income $ 1,097 $ 1,855 $ 430 - -----------------------------------------------------------------------------
Interest Expense, net Interest income and expense are netted together and the breakout of income and expense is as follows:
For the years ended December 31, ---------------------------------------- (in thousands) 2000 1999 1998 - --------------------------------------------------------------------------- Interest income $ 13,413 $ 13,078 $ 8,660 Interest expense (58,650) (54,375) (45,239) - --------------------------------------------------------------------------- Interest expense, net $ (45,237) $ (41,297) $ (36,579) - ---------------------------------------------------------------------------
Interest is capitalized during the period of construction on accumulated investments relating to the development of certain qualifying properties. During 2000, 1999, and 1998, total cash paid by the Company for interest was $65.3 million, $55.5 million, and $41.6 million, respectively, which includes $5.0 million, $4.4 million, and $3.5 million, which was capitalized in 2000, 1999, and 1998, respectively.
Interest Rate Management Agreements The Company periodically enters into interest rate risk 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. No such agreements were outstanding as of December 31, 2000. Gains and losses, if any, on these transactions are deferred and amortized over the terms of the related debt as an adjustment to interest expense. Any up-front premium is amortized over the effective period of the corresponding agreement as an adjustment to interest expense. Changes in the fair value of the interest rate risk management agreements are not recognized in the financial statements. In the event that any corresponding anticipatory transaction is no longer likely to occur, the Company would mark the derivative to market and would recognize any adjustment in the consolidated statement of operations. The Company does not enter into interest rate risk management agreements for trading or speculative purposes.
Investment in Storage Facilities Storage facilities are recorded at cost. Depreciation is computed using the straight line method over estimated useful lives of 40 years for buildings and improvements, and three to ten years for furniture, fixtures and equipment. Expenditures for significant renovations or improvements that extend the useful life of assets are capitalized. Repairs and maintenance costs are expensed as incurred. Certain costs, principally payroll, directly related to real estate development, are capitalized. Upon disposition, both the asset and accumulated depreciation accounts are relieved, and the related gain or loss is credited or charged to the income statement. If there is an event or a change in circumstances that indicates that the basis of the Company's property may not be recoverable, the Company's policy is to assess any impairment of value. Impairment is evaluated based upon comparing the sum of the expected future cash flows (undiscounted and without interest charges) to the carrying value of the asset. If the cash flow is less, an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
Minority Interest Minority interest reflects the ownership interest of the limited partners in several facilities in which the Partnership is the general partner. The limited partners' share of the net income of the Partnership is charged to minority interest expense and increases the Company's liability. Distributions to the limited partners reduce the Company's liability.
Reclassifications Certain previously reported amounts have been reclassified to conform to the current consolidated financial statement presentation with no impact on previously reported net income or shareholders' equity.
NOTE 3 INVESTMENTS IN STORAGE FACILITIES
Investments in storage facilities consisted of the following at December 31,
2000 1999 - ---------------------------------------------------------------------------- (in thousands) Land $ 418,507 $ 402,033 Buildings and improvements 1,197,701 1,143,786 Tenant improvements 7,338 1,036 Furniture, fixtures and equipment 42,525 34,167 Development in progress, including land 44,654 89,870 - ---------------------------------------------------------------------------- Total 1,710,725 1,670,892 Less: accumulated depreciation (132,527) (94,538) - ---------------------------------------------------------------------------- $1,578,198 $1,576,354 - ----------------------------------------------------------------------------
The above cost balances include facilities acquired through capital leases of $31.5 million at December 31, 2000 and $31.3 million at December 31, 1999. Also included above is $22.8 million at December 31, 2000 and $11.8 million at December 31, 1999 of corporate office furniture and fixtures. Accumulated depreciation associated with the facilities acquired through capital leases was $1.4 million at December 31, 2000 and $771 thousand at December 31, 1999.
The following summarizes activity during the periods:
- -------------------------------------------------------------------------------- (in thousands) Cost: Balance at December 31, 1998 $ 1,616,215 Property Acquisitions 86,879 Land acquisitions and joint venture development 71,004 Facility expansions 529 Improvements and other 16,723 Properties exchanged/disposed (120,458) - -------------------------------------------------------------------------------- Balance at December 31, 1999 $ 1,670,892 - -------------------------------------------------------------------------------- Property Acquisitions 18,883 Land acquisitions and joint venture development 37,398 Facility expansions 4,975 Improvements and other 14,357 Properties exchanged/disposed (35,780) - -------------------------------------------------------------------------------- Balance at December 31, 2000 $ 1,710,725 - --------------------------------------------------------------------------------
Accumulated Depreciation: Balance at December 31, 1998 $ 73,496 Additions during the period 33,625 Properties exchanged/disposed (12,583) - -------------------------------------------------------------------------------- Balance at December 31, 1999 $ 94,538 Additions during the period 38,062 Properties exchanged/disposed (73) - -------------------------------------------------------------------------------- Balance at December 31, 2000 $ 132,527 - --------------------------------------------------------------------------------
NOTE 4 ADVANCES AND INVESTMENT IN REAL ESTATE
Advances During 1997, the Company began offering construction advances to franchisees of Franchise to fund the development of franchised self-storage facilities. The loans are collateralized by the property and have a term of four years. Interest only is due on the loans during the first two years, with amortization of principal commencing in the third year based upon a 25-year schedule. Accordingly, limited principal is repaid during the loan term. The Company will advance the funds for construction and start-up costs at a market interest rate based on a spread over the 30-day LIBOR rate or the prime rate and adjusted monthly. Typically advances represent 70%-90% of the anticipated cost of the project at the prime rate plus one half to one percentage point. In consideration for coordinating the financing as well as other value derived by the franchisee, Franchise typically receives an equity interest in the facility. The equity interest typically allows Franchise to share in 40% to 45% of the positive cash flows of the facility, and if sold, the sale of the facility. Due to the Company's equity participation in the underlying projects (through its 97.5% economic interest in Franchise) all related activity is being accounted for as direct investments in and advances to real estate joint ventures, with current guidance regarding the appropriate recognition of projects' profits and losses being followed by the Company. As of December 31, 2000, the Company is committed to advance an additional $8.0 million for similar construction loans. Based upon management assessment of current and historical loss experience, loan portfolio trends, prevailing economic and business conditions, specific loan review and other relevant factors, the need for impairment reserves associated with these advances is considered. No such allowances have been established as of December 31, 2000 and 1999. The table below summarizes certain information related to these advances:
December 31, ----------------------------------- (in thousands) 2000 1999 - -------------------------------------------------------------------------------- Advances (collateralized by first mortgages) $ 111,476 $ 117,022 Interest rates at end of period 8.00%-10.50% 8.25%-10.00% W/A interest rate during period (1) 9.86% 8.50% - --------------------------------------------------------------------------------
(1) W/A = Weighted average
Scheduled maturities of advances outstanding at December 31, 2000 are $10.6 million in 2001, $38.3 million in 2002, $55.2 million in 2003 and $7.4 million thereafter. Some of these loans can be extended for an additional year at the option of the franchisee.
Joint Ventures Fidelity Venture On June 7, 1999, the Company formed a joint venture with Fidelity Management Trust Company (the "Fidelity Venture"). The Company contributed 32 self-storage facilities with a fair value of $144.0 million to the Fidelity Venture in return for a 25% interest and cash proceeds of approximately $131.0 million, representing Fidelity Management Trust Company's 75% interest in the joint venture and the Company's proportionate share of proceeds from a $93.6 million non-recourse note obtained by the joint venture. The note is secured and has a fixed interest rate of 7.76%. The Company accounts for its investment in the Fidelity Venture under the equity method. The Company's original basis in the Fidelity Venture was equal to 25% of the Company's historical cost basis in the self-storage facilities of approximately $91.2 million, less the approximate $23.4 million in debt proceeds distributed from the joint venture. A $37.1 million gain on the transaction, net of disposition costs, was deferred until such time the Company disposes of its interest in the Fidelity Venture or the underlying properties are sold. Under the terms of the venture agreement, cash flow from operations and liquidation of the venture will be distributed to each member based on its proportionate equity interest. The Company manages the Fidelity Venture and continues to operate all of the venture's assets for a fee. The Company recognized $1.4 million in equity earnings from the Fidelity Venture and $1.4 million in management fees for operating the venture's properties in 2000, compared to $845 thousand and $780 thousand, respectively, in 1999. As of December 31, 2000 and 1999, the Company had a recorded negative investment balance in the Fidelity Venture of $300 thousand and $175 thousand respectively. The following table summarizes certain financial information related to the Fidelity Venture:
December 31, ------------------------------- (in thousands) 2000 1999 - ------------------------------------------------------------------------ Income Statement: Property revenues $23,017 $12,847 Property expenses 7,566 3,939 Net Operating Income 15,451 8,908 Net income 5,666 3,381 Balance Sheet: Total assets $147,918 $149,475 Total debt 91,768 92,976 - ------------------------------------------------------------------------
GE Capital Corp 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 will be operated by the Company under a five-year management contract. In addition to the property management, the Company will provide certain fee-based services for 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. During the first quarter of 2000, the Company transferred nine projects that were in various stages of development into the GE Capital Development Venture, representing projected aggregate total costs of $53.0 million. The projects were transferred to the Development Venture at the Company's cost of $26.0 million. The Company received $19.9 million in cash, and recorded an investment in the venture of $6.5 million, representing a 25% interest. On February 14, 2000, the Development Venture closed on a debt facility with a commercial bank. Under the facility, the Development Venture can borrow up to 50% of the cost of each project. The borrowings are supported by mortgages which are non-recourse to the joint venture partners, except for an environmental indemnification and construction completion guaranty that SUSA Partnership, L.P. will provide. The facility bears interest at various spreads over the Eurodollar Rate. As of December 31, 2000, the Development Venture had six properties open and operating and three in design and construction. During the second quarter, the Acquisition Venture closed on a debt facility with a group of commercial banks. Under this facility, the Acquisition venture can borrow up to 50% of the lesser of the cost or appraised value of the acquired properties. The facility is secured by those properties, and bears interest at various spreads over LIBOR. The Acquisition Venture acquired six self-storage facilities during 2000 for a cost of approximately $45.2 million. Four of the properties are located in Chicago, two in New York City. In connection with the closing of these joint ventures, GE Capital received warrants for the purchase of 1.25 million shares of the GP's common stock at $42 per share. These warrants may be exercised at any time within a five-year period. There were also investment advisory fees incurred in the closing of the
GE Capital Ventures. A total of $3.2 million has been paid, $1.7 million relating to the GE Development Venture, and $1.5 million to the GE Acquisition Venture. These amounts are included in the Company's recorded investment in the joint ventures. The Company has recognized during 2000 certain fees related to the GE Capital Ventures as summarized below:
(in thousands) - ------------------------------------------------------------ General contractor fees $1,018 Development fees 848 Acquisition fees 403 Management fees 159 - ------------------------------------------------------------ $2,428 - ------------------------------------------------------------
$385 thousand of the general contractor fees was earned by Franchise. The Company recognized $287 thousand in equity earnings losses from the GE Capital Ventures for 2000, as well as $251 thousand in additional expenses relating to the amortization of the difference between the Company's cost and the underlying equity in the Ventures' net assets. As of December 31, 2000 and 1999, the Company had a combined recorded investment of $20.8 million and $2.7 million, respectively, in the GE Capital Ventures. The following table summarizes certain financial information related to the Ventures as of December 31, 2000:
Development Acquisition Total GECC (in thousands) Venture Venture Ventures - ------------------------------------------------------------------------------- Income Statement: Property revenues $ 423 $ 2,332 $ 2,755 Property expenses 662 1,116 1,778 Net Operating Income (240) 1,215 975 Net income (789) 106 (683) Balance Sheet: Total assets $ 42,475 $ 50,707 $93,182 Total third party debt 19,727 15,143 41,942 - -------------------------------------------------------------------------------
Other Ventures The Company has equity interests in several single facility joint ventures. As of December 31, 2000 and 1999, the Company had a combined recorded investment balance in the other joint ventures of $207 thousand and $650 thousand, respectively.
NOTE 5 OTHER ASSETS
Other assets consist of the following at December 31:
(in thousands) 2000 1999 - -------------------------------------------------------------------------------- Deposits $ 4,449 $ 4,147 Accounts receivable 4,192 4,855 Mortgages receivable 4,019 4,449 Notes receivable 6,389 7,445 Other receivables 8,237 4,988 Advancements and investments in Franchise 9,464 13,906 Deferred costs of issuances of unsecured notes (net of amortization) 8,291 10,006
Other 6,345 6,824 - -------------------------------------------------------------------------------- $ 51,386 $ 56,620 - --------------------------------------------------------------------------------
Deferred financing costs are amortized using the interest method over the terms of the related debt.
NOTE 6 BORROWINGS
The following is a debt maturity schedule as of December 31, 2000:
Notes Payable The Partnership has issued various senior unsecured notes (the "Notes") due on various dates. The Notes are redeemable at any time at the option of the Partnership in whole or in part, at a redemption price equal to the sum of: (a) the principal amount of the Notes being redeemed plus accrued interest or (b) a "make-whole" amount as more fully defined in the Notes' prospectus. The Notes are not subject to any mandatory sinking fund and are an unsecured obligation of the Partnership. The Notes contain various covenants restricting the amount of secured and unsecured indebtedness the Partnership may incur. The amounts, maturities and interest rates of the notes are as follows:
December 31, - --------------------------- 2000 1999 Maturity Interest - --------------------------------------------------------------------- (in thousands) $ 100,000 $ 100,000 November, 2003 7.13% 100,000 100,000 July, 2006 6.95% 100,000 100,000 December, 2007 7.00% 100,000 100,000 June, 2017 8.20% 100,000 100,000 July, 2018 7.45% 100,000 100,000 December, 2027 7.50% - --------------------------------------------------------------------- $ 600,000 $ 600,000
The proceeds from the issuances of the Notes were used to fund the purchase of acquisitions and repay debt incurred under the revolving lines of credit, which are used to finance the acquisition of self-storage facilities and for working capital.
Line of Credit Borrowings
(in thousands) 2000 1999 - -------------------------------------------------------------------------------- Total lines of credit at December 31 $240,000 $240,000 Borrowings outstanding at December 31 $168,333 $105,500 Weighted average daily borrowing during the year $156,093 $93,122 Maximum daily borrowing during the year $194,283 $123,093 Weighted average daily interest rate during the year 7.68% 6.39% - --------------------------------------------------------------------------------
During 1999, the Company renegotiated its existing line of credit with a group of commercial banks, expanding the borrowing capacity under the line to $200 million and extending the maturity to May 25, 2002. This line bears interest at various spreads over LIBOR based on the Company's long-term debt ratings. At December 31, 2000, the Company also had a $40 million line of credit with a commercial bank. The line bears interest at spreads over LIBOR, matures on July 1, 2001 and is renewable at that time. Neither of these agreements have compensating balance requirements. The agreement imposes several limitations on the Company. The most restrictive of these requires the Company to maintain minimum levels of debt service coverage and limits the level of the Company's total borrowings as a percentage of its assets.
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.
During 1998, the Company issued $15.2 million of unsecured, non-interest bearing notes in exchange for interest in self-storage facilities. The notes were issued at various maturities through 2001. The Company also consummated deferred unit agreements totaling $13.0 million in exchange for interest in self-storage facilities. The agreements have various maturities through 2002, at which time units of limited partnership interest in the Partnership will be issued to satisfy the agreements. During 1998, the Company signed a lease agreement on several self-storage facilities. The lease is being accounted for as a capital lease. An initial deposit of $7.6 million was made at the time of closing and minimum lease payments totaling $9.2 million will be paid to the lessor through 2003 at which time the Company has the option to purchase the facilities for $29.0 million. If the Company does not exercise this option the Lessor has the option to sell the facilities to the Company for $29.3 million. Minimum lease payments broken out between principal and interest by maturity are shown below.
(in thousands) 2001 2002 2003 - ----------------------------------------------------------------------------- Principal $121 $296 $23,480 Interest $1,788 $1,772 $1,168 - ----------------------------------------------------------------------------- Minimum lease payment $1,909 $2,068 $24,648
NOTE 8 FINANCIAL INSTRUMENTS
The Company's carrying amounts and fair value of its financial instruments were as follows as of December 31:
The Company, in determining the fair values set forth above, used the following methods and assumptions:
Advances Advances accrue interest based on a spread over the 30-day LIBOR rate or the prime rate and adjusted monthly and therefore fair value approximates carrying value.
Mortgage and Notes Payable and Line of Credit Borrowings The Company's line of credit borrowings bear interest at variable rates and therefore cost approximates fair value. The fair value of the mortgage and notes payable were estimated using discounted cash flow analysis, based on the Company's current incremental borrowing rate at December 31, 2000 and 1999, for similar types of borrowing arrangements.
NOTE 9 COMMITMENTS AND CONTINGENCIES
Lease Agreements The Company has various lease agreements for office space. Total future minimum rental payments and corresponding revenues from subtenant payments are outlined below:
Rental expense under these operating leases approximated $2.8 million in 2000, $1.2 million in 1999, and $1.0 million in 1998. Corresponding sublease income totaled $824 thousand in 2000. There was no sublease income in 1999 or 1998.
Construction Financing The Company is committed to advance an additional $8.0 million in construction financing to franchisees of Franchise as described in Note 4. The Company is also a limited guarantor on the financing of three open and operating projects in which Franchise has either a partnership interest or an option to purchase the facility at various times after completion. Under the terms of the guarantee, the Company has the option, upon notice by the financial institution of an event which would require payment by the Company under the guarantee, of (a) purchasing the note and all related loan documents without recourse or (b) payment of the guarantee. At December 31, 2000, the Company was guarantor on $8.8 million of these financing arrangements, of which $0 was outstanding.
Redemption of Units At December 31, 2000, there were 3.4 million Limited Common Partnership Units ("Units") outstanding. Certain Units are redeemable for an amount equal to their fair market value ($2.6 million based upon a price per Unit of $31.75 at December 31, 2000) payable by the Company in cash or by a promissory note payable in quarterly installments over two years with interest at the prime rate. Units held by other Limited Partners are redeemable, at the option of such Limited Partners, beginning on the first anniversary of their issue, for amounts equal to the then fair market value of their Units ($106 million redeemable at December 31, 2000, based upon a price per Unit of $31.75 at December 31, 2000) payable by the Company in cash or, at the option of the Company, in shares of the GP's common stock at the exchange ratio of one share for each Unit.
NOTE 10 DISTRIBUTIONS (UNAUDITED)
The Company distributed the following amounts per unit to holders of common Units during 2000, 1999 and 1998.
2000 1999 1998 - ------------------------------------------------------------------ Distributions $ 2.76 $ 2.68 $ 2.56
NOTE 11 PARTNERS' CAPITAL
Stock-Based Compensation Plan The GP applies Accounting Principles Board (APB)25 and related interpretations in accounting for its stock-based compensation plan. In accordance with SFAS123 "Accounting for Stock-Based Compensation", the GP elected to continue to apply the provisions of APB25. However, pro forma disclosures as if the GP adopted the cost recognition provisions of SFAS123 are required and are presented below along with a summary of the plan and awards. The shareholders of the GP have approved and the GP has adopted the Storage USA, Inc. 1993 Omnibus Stock Plan (the "Plan"). The GP has granted options to certain GP directors, officers and key employees to purchase shares its common stock at a price not less than the fair market value at the date of grant. Options granted to employees generally vest over a three to five year period. There are 4 million shares available to be issued under the Plan.
The GP has utilized a Black-Scholes option-pricing model with the following assumptions in order to estimate the fair value of its stock options:
- ------------------------------------------------------------------------------ 2000 1999 1998 - ------------------------------------------------------------------------------ Risk-free interest rates 5.77% 6.35% 4.57% Estimated dividend yields 9.26% 8.86% 7.50% Volatility factors of the expected market price of the GP's common shares 23.42% 22.80% 20.30% Expected life of the options (years) 7 7 7 Weighted average fair value $2.36 $3.35 $2.56 - ------------------------------------------------------------------------------
The following pro forma disclosures were computed assuming the fair value of the options is amortized to compensation expense over the vesting period of the options:
Employee Stock Purchase and Loan Plan As of December 31, 2000, the GP had issued 558 thousand shares of its common stock under the its 1995 Employee Stock Purchase and Loan Plan. Pursuant to the terms of the plan, the GP and certain officers entered into stock purchase agreements whereby the officers purchased common stock at the then current market price. The GP provides 100% financing for the purchase of the shares with interest rates ranging from 5.8% to 9.2% per annum payable quarterly. The underlying notes have personal guarantees and are collateralized by the shares and mature between 2002 and 2007.
Dividend Reinvestment and Stock Purchase Plan In 1995, the GP adopted the Dividend Reinvestment and Stock Purchase Plan. Under the plan, the GP offers holders of its common stock the opportunity to purchase, through reinvestment of dividends or by additional cash payments, additional shares of its common stock. The shares of common stock for participants may be purchased from the GP at the greater of the average high and low sales price or the average closing sales price on the investment date or in the open market at 100% of the average price of all shares purchased for the plan. During 2000 and 1999, 7,603 and 3,813 shares, respectively, were issued under the plan.
Stock Purchase Agreement On March 1, 1996, the GP entered into a Stock Purchase Agreement with Security Capital U.S. Realty (U.S.Realty) to purchase shares of the GP's common stock. As of December 31, 2000, U.S.Realty owned 11,765,654 shares of the GP's common stock, which represents 43.6% of the outstanding shares of the Company. On March 19, 1996, U.S.Realty also executed a Strategic Alliance Agreement and a Registration Rights Agreement with the Company, which has subsequently been amended. The Strategic Alliance Agreement generally provides that U.S.Realty may nominate a number of directors to the Company's Board of Directors proportionate to its ownership of the GP's common stock and provides certain restrictions on further acquisition or sales of the GP's common stock as well as certain restrictions on the GP. On January 16, 2001, SC Realty Corporation, an indirect wholly-owned subsidiary of Security Capital Group, Incorporated acquired all outstanding shares of the GP's common stock owned by U.S. Realty. As of December 31, 2000, three nominees of Security Capital serve on the GP's Board of Directors. During 2000, the Company paid Security Capital Group, Incorporated or its affiliates $1.3 million for various services received by the Company during the year. The payments included $1.2 million for investment advisory services and $137 thousand for real estate research and insurance related services.
General Partner Contributions In 1997, the GP issued 2,461,000 shares of common stock for an aggregate purchase price of $90.4 million. The proceeds from these issuances were contributed to the Partnership in exchange for additional Units. The Partnership used the net proceeds to repay debt incurred under its revolving lines of credit to finance the acquisitions of self-storage facilities and for working capital. In December of 1999, the GP announced a Board authorized plan to repurchase up to 5% of its common shares outstanding through open market and private purchases. The plan was completed in 2000, with 1.2 million shares purchased at a cost of $34.9 million in 2000, and 250 thousand shares at a cost of $7.2 million in 1999. The total 1.4 million shares acquired under the plan were purchased at an average price of $30 per share, representing a total purchase price of $42.1 million.
NOTE 12 PREFERRED UNITS
On November 12, 1998, the Partnership issued 650,000 units of $100 par value 8.875% Cumulative Redeemable Preferred Partnership Units (the "Preferred Units") valued at $65 million in a private placement. The Partnership has the right to redeem the Preferred Units after November 1, 2003 at the original capital contribution plus the cumulative priority return to the redemption date to the extent not previously distributed. The Preferred Units are exchangeable for 8.875% Series A Preferred Stock of the GP on or after November 1, 2008 (or earlier upon the occurrence of certain events) at the option of 51% of the holders of the Preferred Units.
NOTE 13 POST EMPLOYMENT BENEFIT PLAN
The Company contributes to a 401(k) savings plan (a voluntary defined contribution plan) for the benefit of employees meeting certain eligibility requirements and electing participation in the plan. Each year through 1999, the Company was obligated to make a matching contribution on the employee's behalf equal to 50% of the participant's contribution to the plan, up to 2% of the participant's compensation. Additionally, Company profit sharing contributions to the plan were determined annually by the Company. Plan changes effective January 1, 2000 eliminate the discretionary profit sharing contributions, but increase the matching contributions. The Company is now obligated to make a matching contribution on the employee's behalf equal to 100% of the first 3% of employee deferrals plus 50% of the next 2% (up to 5%), for a total potential match of 4%, if the employee contributes 5%. Company contributions totaled $2.0 million, $969 thousand, and $661 thousand during 2000, 1999 and 1998, respectively. $571 thousand of the 2000 total reflects additional contributions relating to a Voluntary Compliance Resolution filed with the I.R.S. for plan years 1994 through 1998.
NOTE 14 RECENT ACCOUNTING DEVELOPMENTS
On February 27, 1998, the AICPA Accounting Standards Executive Committee (AcSEC) issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use", which is effective for fiscal years beginning after December 15, 1998. SOP 98-1 sets forth guidelines for the capitalization of costs relating to internal-use software. In connection with the new SOP, the Company capitalized approximately $351 thousand and $600 thousand of qualifying costs in 2000 and 1999, respectively. On June 16, 1998, FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), which is effective for fiscal years beginning after June 15, 2000. SFAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities. Under this statement derivatives are recognized at fair market value and changes in fair market value are recognized as gains or losses. The adoption of SFAS 133 is not expected to have a material impact on the financial position or results of operation of the Company.
NOTE 15 QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of quarterly results of operations for 2000 and 1999:
NOTE 16 LEGAL PROCEEDINGS
On July 22, 1999, a purported statewide class action was filed against the GP 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 the Company was required to respond to these motions, the case was stayed until June 2001. The stay was entered in part because of a new statute passed by the Maryland legislature relating to late fees. The constitutionality of that statute has been challenged in an unrelated litigation not involving the Company. On November 15, 1999, a purported nationwide class action was filed against the GP 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 ruling may be appealed by the plaintiffs. While the ultimate resolution of the two cases discussed above will not have a material adverse effect on the Company's financial position, if during any period the potential contingency should become probable, the results of operations in such period could be materially affected. On March 28, 2000, separate actions (now consolidated) were commenced in the Supreme Court of the State of New York, New York County, styled SMB Hochman Partners, et al. v. Goldman, et al., Index No. 601346/00 and Kramer, et al. v. Goldman, et al., Index No. 601347/00, by certain limited partnerships and their limited partners relating to the sale to the Partnership of two storage
facilities located in Westchester County, New York. The consolidated action alleges fraud and breach of fiduciary duty by the general partners of the limited partnerships in connection with their negotiation of the sale of the facilities on behalf of the limited partnerships. It further alleges that the GP and the Partnership aided and abetted the breach of fiduciary duty. The consolidated action seeks unspecified compensatory damages and $25 million in punitive damages. On March 19, 2001, all parties to the consolidated action released the Company and the GP from any liability and the actions against the Company and the GP have been dismissed with prejudice.
Schedule IV SUSA Partnership, L.P. Mortgage Loans on Real Estate as of December 31, 2000
Column A, Description: The Company's whole loan portfolio at December 31, 2000, which primarily consists of first mortgages on self-storage facilities, is presented in the following table (dollar amounts in thousands):
Notes:
(1) Reconciliation of carrying amounts of mortgage loans (amounts in thousands):
Balance at December 31, 1999 $117,022 Additions during 2000 Loan Advances 16,404 Other - Accrued interest 2,488 Deductions during 2000 Collections of Principal (24,438) -------------- Balance at December 31, 2000 $111,476 ==============
(2) Single franchisees of Storage USA Franchise Corp. may be mortgagees on a number of loans. Typically, each loan is secured by a single self-storage facility. (3) Interest only is due on the loans during the first two years with amortization of principal commencing in the third year based upon a 25-year schedule. (4) As of February 28, 2001, no interest was delinquent on these loans.
(5) The geographic distribution of the Company's whole loan portfolio at December 31, 2000 is as follows (dollar amounts in thousands):
State or Territory Loans Carrying Amount ----------------------------------------------------------- Texas 8 $22,950 California 8 8,674 Missouri 3 12,351 Florida 3 6,653 New York 2 10,440 Pennsylvania 2 8,894 New Jersey 2 7,100 New Mexico 2 6,598 Colorado 2 5,041 Alabama 2 4,384 Other states, 1 loan each 6 18,391 --------------------------- 40 $111,476 ---------------------------
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 our behalf by the undersigned, thereunto duly authorized.
SUSA PARTNERSHIP, L.P. BY STORAGE USA, INC., GENERAL PARTNER
By: /s/ Christopher P. Marr --------------------------- Christopher P. Marr Chief Financial Officer (Principal Financial and Accounting Officer)
POWER OF ATTORNEY
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.
EXHIBIT INDEX
Certain of the following documents are filed herewith. Certain other of the following documents have been previously filed with the Securities and Exchange Commission and, pursuant to Rule 12b-32, are incorporated herein by reference.
Exhibit No. Description ----------- -----------
3.1 Amended and Restated Charter of Storage USA, Inc. (the "GP"), (filed as Exhibit 3.1 to our Registration Statement on Form S-3 (File No. 333-44641), and incorporated by reference herein).
3.2* Restated and Amended Bylaws of the GP.
4* Specimen Common Stock Certificate.
10.1* Agreement between the GP and certain executive officers prohibiting conflicting self-storage interests.
10.2* GP's 1993 Omnibus Stock Plan.
10.3* SUSA Partnership, L.P. (the "Partnership") 401(k) Savings Plan.
10.4** Form of Registration Rights Agreement relating to Partnership unit issuances in 1994.
10.5++ Form of Agreement of General Partners relating to certain Partnership unit issuances in 1995 and schedule of beneficiaries.
10.6++ Form of Registration Rights Agreement relating to certain issuances of Partnership units after 1994 and schedule of beneficiaries.
10.7++ Form of Stock Purchase Agreement in connection with the GP's 1995 Employee Stock Purchase and Loan Plan, and schedule of participants.
10.8++ Form of Promissory Note in connection with the GP's 1995 Employee Stock Purchase and Loan Plan, and schedule of issuers.
10.9++++ Second Amended and Restated Agreement of Limited Partnership of the Partnership, dated as September 21, 1994 (the "Partnership Agreement").
10.10 First Amendment to the Partnership Agreement, dated March 19, 1996 (filed as Exhibit 10.3 to our Current Report on Form 8-K/A, filed April 1, 1996, and incorporated by reference herein).
10.11 Second Amendment to the Partnership Agreement, dated as of June 14, 1996 (filed as Exhibit 10.0 to our Current Report on Form 8-K/A filed July 17, 1996, and incorporated by reference herein).
10.12 Third Amendment to Partnership Agreement, dated as of August 14, 1996 (filed as Exhibit 10.1 to our Amendment No. 1 to a Registration Statement on Form S-3 (File No. 333-04556), and incorporated by reference herein).
10.13 Strategic Alliance Agreement, dated as of March 1, 1996, between the GP and Security Capital Holdings S.A. and Security Capital U.S. Realty (filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on April 1, 1996, and incorporated by reference herein).
10.14 Amendment No. 1 to Strategic Alliance Agreement, dated June 14, 1996, between the GP, the Partnership, Storage USA Trust, Security Capital U.S. Realty and Security Capital Holdings, S.A. (filed as Exhibit 10.2 to our Amendment No. 1 to Registration Statement on Form S-3 (File No. 333-04556), and incorporated by reference herein).
10.15 Registration Rights Agreement, dated as of March 19, 1996, between the GP, Security Capital Holdings, S.A. and Security Capital U.S. Realty (filed as Exhibit 10.2 to the Company's Current Report on Form 8-K, filed on April 1, 1996, and incorporated by reference herein).
10.16 Indenture, dated November 1, 1996, between the Partnership and First National Bank of Chicago, as Trustee (filed as Exhibit 10.1 to our Current Report on Form 8-K, filed on November 8, 1996, and incorporated by reference herein). 10.17+ First Amendment to the Adoption Agreement for our 401(k) Plan.
10.18 Amended and Restated Revolving Credit Agreement dated December 23, 1997 (filed as an exhibit to our current Report on Form 8-K, filed on January 20, 1998,) and incorporated by reference herein.
10.19## Second Amendment to Strategic Alliance Agreement dated as of November 20, 1997, between the GP and Security Capital U.S. Realty.
10.20## Fourth Amendment to the Second Amended and Restated Agreement of Limited Partnership of SUSA Partnership, L.P. dated as of November 12, 1998.
10.21## Amendment No. 3 to the GP's 1993 Omnibus Stock Plan, dated as of December 16, 1996.
10.22## Amendment No. 4 to the GP's 1993 Omnibus Stock Plan, dated as of November 4, 1998.
10.23## The GP's 1996 Officers' Stock Option Loan Program, effective as of December 16, 1996.
10.24## Form of Restricted Stock Award pursuant to the GP's 1993 Omnibus Stock Plan.
10.25## The GP's 1998 Non-Executive Employee Stock Option Plan, effective as of November 4, 1998.
10.26## The GP's 1999 Shareholder Value Plan, effective as of January 1, 1999.
10.27## Employment Agreements for: Larry Hohl, Executive VP and Senior Operating Officer, dated as of September 1, 1998, John McConomy, Executive VP and General Counsel, dated as of July 24, 1998, Richard Stern, Senior VP, Development, dated as of May 15, 1998, Morris J Kriger, Executive VP, Acquisitions, dated as of December 6, 1995.
10.28### Second Amended and Restated Unsecured Revolving Credit Agreement, dated as of May 26, 1999.
10.29### Limited Liability Company Agreement of Storage Portfolio I LLC, by and between SUSA Partnership, L.P. and FREAM No. 18, LLC, dated May 13, 1999.
10.30### First Amendment to Limited Liability Company Agreement of Storage Portfolio I LLC, dated as of June 7, 1999.
10.31### Amendment No. 2 to the GP's 1995 Employee Stock Purchase and Loan Plan, dated as of May 5, 1999.
10.32#### Form of Severance Agreement between the GP and Dean Jernigan, Chairman, President and Chief Executive Officer, effective August 16, 1999.
10.33#### Form of Severance Agreement between the GP and Christopher P. Marr, Chief Financial Officer, effective August 16, 1999.
10.34#### Form of Change of Control Severance Agreement between the GP and each of: (I) John W. McConomy, Executive Vice President, General Counsel and Secretary; (II) Karl T. Haas, Executive Vice President Operations; (III)Morris J. Kriger, Executive Vice President Acquisitions; (IV) Francis C. ("Buck") Brown, III, Senior Vice President Human Resources; (V) Richard B. Stern, Senior Vice President Development; (VI) Russell W. Williams, Senior Vice President Sales and Marketing; and (VII)Mark E. Yale, Senior Vice President Financial Reporting, effective August 16, 1999.
10.35#### Form of Change of Control Severance Agreement between the GP and each of: (I) Teresa K. Corona, Vice President, Investor Relations, (II) Michael P. Kenney, Vice President Operations - Western Division, (III)Stephen R. Nichols, Vice President Operations - Eastern Division, (IV) Richard J. Yonis, Vice President Operations - Central Division, effective August 16, 1999.
10.36#### Amendment No. 3 to the GP's 1995 Employee Stock Purchase and Loan Plan dated as of August 5, 1999.
10.37#### Amended and Restated Amendment No. 4 to the GP's 1993 Omnibus Stock Plan dated as of November 4, 1998.
10.38#### Employment Agreement between the GP and Christopher P. Marr, Chief Financial Officer, dated as of August 4, 1999.
10.39#### Employment Agreement between the GP and Bruce F. Taub, Senior Vice President, Capital Markets, dated as of June 12,1998.
10.40x Storage USA Press Release dated December 1, 1999, announcing joint ventures With GE Capital Corporation.
10.41x Storage USA Press Release dated December 1, 1999, announcing approval of repurchase program.
10.42x Summary of Material Terms of the GE Capital Transactions.
10.43xx Limited Liability Company Agreement of Storage Development Portfolio, L.L.C., dated November 30, 1999 between SUSA Partnership, L.P. and Storage Ventures, L.P.
10.44xx Limited Liability Company Agreement of Storage Acquisition Portfolio, L.L.C., dated November 30, 1999 between SUSA Partnership, L.P. and Storage Ventures, L.P.
10.45xx Warrant Purchase Agreement dated November 30, 1999 between the GP and Storage Ventures, L.P.
10.46xx Common Stock Warrant, dated November 30, 1999 issued by the GP to Storage Ventures, L.P.
10.47xx Participation Rights Letter dated November 12, 1999 from the GP to Security Capital U.S. Realty Management.
10.48xxx Amendment No. 5 to the GP's 1993 Omnibus Stock Plan, dated February 2, 2000.
10.49xxx Form of Change of Control Severance Agreement between the GP and each of (I) Bruce F. Taub (II) Carol E. Shipley.
10.50xxxx Form of Employment Agreement between the GP and Dean Jernigan, effective February 3, 2000.
10.51xxxx Form of Employment Agreement between the GP and Christopher P. Marr, effective February 3, 2000.
10.52xxxx Form of Employment Agreement between the GP and John W. McConomy, effective February 3, 2000.
10.53xxxx Form of Employment Agreement between the GP and Francis C. Brown III, effective February 3, 2000.
10.54xxxx Form of Employment Agreement between the GP and Mark E. Yale, effective February 3, 2000.
10.55 Press Release, dated April 26, 2000, filed as an exhibit to our current Report on Form 8-K, filed on May 2, 2000, and incorporated by reference herein.
10.56& Amendment No. 4 to the GP's 1995 Employee Stock Purchase and Loan Plan dated as of May 3, 2000.
10.57& Employment Agreement between the GP and Bruce F. Taub, Senior Vice President, Acquisitions, dated as of February 3, 2000.
10.58 Letter Agreement, dated July 7, 2000, between Security Capital Group Incorporated and the GP, filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, and incorporated by reference herein.
10.59 Form of Restricted Share Unit Award pursuant to the GP's 1993 Omnibus Stock Plan.
10.60 Form of Employment Agreement between the GP and Edwin F. Ansbro, effective January 1, 2001.
10.61 Form of Change of Control Severance Agreement between the GP and Edwin F. Ansbro, effective January 1, 2001.
21 Subsidiaries of Registrant.
23 Consent of Independent Accountants.
* Filed as an Exhibit to the GP's Registration Statement on Form S-11, File No. 33-74072, as amended, and incorporated by reference herein.
** Filed as an Exhibit to the GP's Registration Statement on Form S-11, File No. 33-82764, as amended, and incorporated by reference herein.
*** Filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 1994, and incorporated by reference herein.
+ Filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated by reference.
++ Filed as an Exhibit to our Current Report on Form 8-K, as amended to Form 8-K/A Filed November 17, 1995, and incorporated by reference herein.
++ Filed as an Exhibit to our Current Report on Form 8-K, filed May 30, 1995, and incorporated by reference herein.
++++ Filed as an Exhibit to the GP's Registration Statement on Form S-3, File No. 33-91302, and incorporated by reference herein.
# Filed as an Exhibit to our Current Report on Form 8-K, filed November 20, 1998, and incorporated by reference herein.
## Filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and incorporated by reference.
### Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterended June 30, 1999, and incorporated by reference herein.
#### Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, and incorporated by reference herein.
x Filed as an Exhibit to our Current Report on Form 8-K, filed December 1, 1999, and incorporated by reference herein.
xx Filed as an Exhibit to our Current Report on Form 8-K/A, filed December 9, 1999, and incorporated by reference herein.
xxxx Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, and incorporated by reference herein.
& Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, and incorporated by reference herein.