Storage USA, Inc.

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Storage USA, Inc.

10440 Little Patuxent Parkway
Columbia, Maryland 21044
U.S.A.
(410) 739-9500
Fax: (410) 730-2850
Web site: http://www.sus.com

Public Company
Incorporated: 1985
Employees: 606
Sales: $107.31 million (1996)
Stock Exchanges: New York
SICs: 6798 Real Estate Investment Trusts

A self-administered and self-managed real estate investment trust, Storage USA, Inc. acquires, constructs, develops, owns, operates, and franchises self-storage facilities. The company is one of the largest operators in the self-storage industry. “What we do is straightforward,” Dean Jernigan, chairman and chief executive officer of Storage USA, explained in the company’s 1995 annual report. “The mission of Storage USA is to establish, meet, and strive to exceed shareholder expectations for sustained profitability and long-term equity growth by developing, constructing, acquiring, and managing quality self-storage facilities in major national markets while operating by the highest standards of integrity and business ethics.”

Dean Jernigan Starts Storage USA

Dean Jernigan founded Storage USA in 1985 in Memphis, Tennessee. Before starting the company, Jernigan worked for Fogelman Properties in its apartment business. He planned to apply principles from his apartment experience to self-storage. Two areas in particular captured his attention: training and hiring tested applicants as facility managers to ensure sound customer service and using computers to control access to facilities and for management information, especially e-mail.

Jernigan started Storage USA as a development company engaged in the establishment and construction of self-storage facilities. The company maintained this focus through 1992. Jernigan began by developing and building properties in densely populated areas and by emphasizing customer service. Located in “garden apartment” areas, Storage USA facilities were less expensive than alternative storage options. Well landscaped and aesthetically pleasing, facilities were easily accessible to the public—often on main thoroughfares—and convenient, with wide entrances and aisles for moving vans or other large vehicles. Many Storage USA facilities featured 24-hour access and climate-controlled space. (Climate-controlled space accounted for about 20 percent of total leased space in 1994.) Storage USA facilities also installed optimum security systems. The company offered lighted, fenced facilities, many with computer-controlled gates.

As Jernigan anticipated, facility managers were critical to the success of Storage USA facilities so the company recruited people with outstanding personalities and dedication to customer service. “The facility manager is always the key to success of a single facility,” indicated the company in an annual report, “and Storage USA works hard to find the right people who will create the best value and service for our customers.”

The Self-Storage Industry: 1970s-90s

Self-storage began as an industry around 1970. From the beginning, it was a relatively unsophisticated enterprise: A facility, small or large, offered low-cost storage space rented month-to-month to individuals or businesses. According to Jernigan in the Memphis Business Journal, ’ There are no ego players in self-storage. It’s just a nuts-and-bolts, down-in-the-trenches business.”

In its first 25 years, the industry remained dominated by small, entrepreneurial establishments. Though these small, often local establishments had limited access to capital, they nevertheless built most new self-storage facilities. In the future, however, as the self-storage industry evolves, large, public companies should begin to control development in high-demand markets. (During the 1990s, large self-storage enterprises included Storage USA; Public Storage, Inc., based in Pasadena, California; Shurgard Storage Centers of Seattle; and Mobile Mini, Inc., based in Tempe, Arizona.) Larger companies will have distinct advantages because they offer better security, full-time managers, and climate-controlled space—and because they have much needed capital. “Public companies will shift the development activity away from the small entrepreneur,” Jernigan predicted in the company’s 1996 annual report. “It is an evolution that will occur and one that Storage USA will lead.”

Storage USA’s Customers

From the beginning, the bulk of Storage USA’s customers rented the company’s units for personal use. Individuals used the facilities to store records, furniture, and other household items. As Jernigan explained to the Memphis Business Journal: “If you’re a typical consumer, it’s kind of hard to knock on your front door and ask, ‘Wouldn’t you like to rent a self-storage unit?’ You wake up Saturday morning and your wife says, ‘OK, today’s the day to clean out the garage. I don’t care what you do with it, just get it out of the garage.’ A demand has just been created.”

Commercial customers comprised the smaller portion of Storage USA’s clients. About 35 percent of space was rented to businesses and offices requiring space for files or warehousing. Law and accounting firms used units for housing legal documents. Hotels stored linens and bedding in Storage USA facilities, and fast-food chains kept packing materials in facility units. Storage USA marketed to commercial customers through Yellow Pages ads and signs, as well as through print ads purchased during each facility’s lease-up stage.

Growing Pains

Though successful, Storage USA grew slowly in its first seven years. “It was very, very difficult to build the company because capital for the product type is so scarce,” Jernigan explained to the Memphis Business Journal. The company refinanced in 1992 through GE Capital. Rapid expansion through acquisitions followed. Under Jernigan’s personal direction, Storage USA began purchasing existing facilities. In 1994 the company bought under-managed properties and improved them. In order to finance its acquisitions and manage debt effectively, Storage USA became a public company, with an initial public offering of 5.5 million shares in March 1994.

Acquiring More Units: Expansion in the 90s

In 1994, Storage USA purchased 38 self-storage centers. In March the company bought 26 centers in the continental United States for $62 million. Storage USA purchased another three centers in Connecticut, northern Virginia, and New Jersey for $9 million in May of that year. In June the company bought seven centers in New Mexico and Dallas for $11 million. Three more centers were purchased for $8 million in July. Storage USA financed these acquisitions using funds from its stock offerings, another of which followed in September. By December 1994, the company owned 96 facilities totaling 6.3 million square feet of rentable space. Storage USA also managed 29 facilities in 1994.

Acquisitions continued in 1995. Storage USA purchased 11 facilities in early 1995 in Albuquerque, New Mexico, Las Vegas, Nevada, San Diego, California, Los Angeles, California, Dallas, Texas and Atlanta, Georgia. These purchases increased the number of self-storage facilities owned, operated, or managed by the company to 126 in 23 states and the District of Columbia.

In April 1995, Storage USA signed a definitive agreement for 25 additional properties, including eight in California, one in Connecticut, one in Illinois, and one in New Jersey. The company also secured a $50 million loan from the First National Bank of Chicago for acquiring more properties. Storage USA now owned and managed 140 self-storage facilities in 23 states and the District of Columbia. The company issued another public offering of more than 4 million shares of common stock on June 7, 1995. Storage USA raised $107.6 million to repay debt and acquire more properties.

A Strategic Alliance

In March 1996, Storage USA announced a strategic alliance with Security Capital U.S. Realty. Storage USA sold 1.92 million shares of its common stock to U.S. Realty on July 15,1996, then used the resulting funds to repay debts and to purchase 12 additional self-storage facilities. “We are very pleased with the pace of acquisitions,” Jernigan reported through Business Wire, “and we appreciate the flexibility and cooperation of U.S. Realty in matching its equity infusion with our acquisition activity. This is just one example of the many positive benefits that this strategic alliance brings to Storage USA.” The company acquired 44 facilities in total as of July 1996, bringing the number of self-storage facilities owned and managed by Storage USA to 221 in 29 states and the District of Columbia.

Company Perspectives:

We at Storage USA are proud of our facilities and of our ability to add facilities through acquisition, conversion, and new development. We believe that our strong mix of properties and their features make us a leader in the self-storage industry. We never lose sight of the fact, however, that even the best facility will under perform in the hands of an indifferent, poorly trained property manager who lacks a passion for customer service. Our mission is to integrate our knowledge of the importance of location and appearance of a facility with the essential understanding of a customer’s needs and expectations. We look forward to continued successful execution of that mission.

By December 1996, Storage USA owned 241 facilities in 29 states for a total of 16.3 million square feet of storage space. The company also managed 27 facilities with 1.7 million square feet of space. These Storage USA facilities had an 80 percent occupancy rate with an average rent of $8.50 per square foot.

Award-Winning Facilities

Proof of Storage USA’s abilities with self-storage facilities came in 1997 when Mini-Storage Messenger Magazine, an industry trade journal, named two Storage USA facilities “Facility of the Year.” Built in high density areas, both facilities featured individual door alarms, closed-circuit cameras, intercoms, computerized access gates, and other modern security devices.

The Storage USA facility in Reston, Virginia, won in the magazine’s “conversion” category. Mini-Storage Messenger Magazine recognized the Reston facility for its aesthetics, performance, security, and location. Formerly a retail sales facility, this site needed major renovations to become a self-storage facility. As the company’s 1996 annual report recalled: “Converting the site to a self-storage facility that complied with the local community’s design request and provided features that best serve our customers’ needs required creativity and diligence in planning, design, and construction.” The Reston facility, which opened in the spring of 1996, incorporated state-of-the-art security measures such as individually alarmed units. Located near Dulles Airport, its exterior design pleased local residents because it blended well with the surrounding area and utilized planned lighting and landscaping.

The Clarendon, Virginia, facility, located near Washington, D.C., won in the “construction” category. Storage USA created this facility with an imaginative look despite unique development challenges. Neighborhood residents insisted that the facility blend with the surrounding buildings and maintain a sense of community. The county required the facility to meet certain height limits and look like a three-story walk-up from the nineteenth century. In addition, the county wanted the building’s first floor to be occupied by retail space.“ The end result is pleasing to zoning officials and neighborhood residents alike,” noted Storage USA’s 1996 annual report. “The oversized facade gives the appearance of a three-story town house complex. Behind the facade is actually a six-story building. Doors are ten feet tall and false windows are nearly as large to create a residential look to the property. This is enhanced by varied window styles, doorways and roof lines on each section which further promote the look of a residential building. Not a detail was missed in creating an aesthetically pleasing self-storage facility. Even the signage was tailored to meet local community desires.”

Strategy for the Future: Growth

In 1995, Storage USA planned to grow through the acquisition and development of facilities, by increasing occupancy, and by pricing aggressively. Jernigan, however, revealed in the 1995 annual report that the company’s “most significant challenge is to secure capital to continue our desired growth.” Yet he was optimistic for success. As he reported one year later in the company’s 1996 annual report: “We are in transition from a start-up, entrepreneurial company. We know that we are only a fraction of what we will be. Nothing is more powerful for motivating our Storage USA team than a mandate to grow and prosper. We have clear goals for shareholder return…. We will continuously improve our infrastructure of people and systems. We will attract professional managers to the ranks of outstanding executives we already have. We will accomplish our business plan. We will operate with integrity. We will rank at the top of our industry.”