STORAGE EQUITIES INC, 424B5, 1995-04-24

STORAGE EQUITIES INC
424B5, 1995-04-24
REAL ESTATE INVESTMENT TRUSTS

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<PAGE>

FILED PURSUANT TO RULE 424(b)(5)
REGISTRATION NO. 33-54755

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THIS +
+PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN +
+OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN +
+WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO +
+REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH +
+JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, APRIL 24, 1995
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 12, 1994)

1,500,000 SHARES

[LOGO OF PUBLIC STORAGE]

STORAGE EQUITIES, INC.

% CUMULATIVE PREFERRED STOCK, SERIES F
(STATED VALUE $25.00 PER SHARE)

----------

Dividends on the shares of % Cumulative Preferred Stock, Series F (the
"Preferred Stock") of Storage Equities, Inc. (the "Company") are cumulative
from the date of issue and are payable quarterly, commencing on June 30, 1995.
See "Description of Preferred Stock--Dividends."

Except in certain circumstances relating to the Company's maintenance of its
ability to qualify as a real estate investment trust, the Preferred Stock is
not redeemable prior to April 30, 2005. On or after April 30, 2005, the
Preferred Stock will be redeemable at the option of the Company, in whole or in
part, at $25 per share, plus dividends accrued and unpaid to the redemption
date. See "Description of Preferred Stock--Redemption" and "Certain Federal
Income Tax Considerations--Tax Treatment of the Company" in the accompanying
Prospectus.

Application will be made to list the Preferred Stock on the New York Stock
Exchange ("NYSE"). See "Underwriting."

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"CERTAIN CONSIDERATIONS" IN THE ACCOMPANYING PROSPECTUS.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(2)(3)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share....................... $ $ $
- -------------------------------------------------------------------------------------------
Total(4)........................ $ $ $
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>

(1) Plus accrued dividends, if any, from the date of issue.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $200,000.
(4) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional 225,000 shares of Preferred Stock on the same terms set
forth above to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be $ , $ and $
respectively. See "Underwriting."

----------

The shares of Preferred Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that delivery of the shares of
Preferred Stock will be made in New York, New York on or about May , 1995.

----------

SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE ROBINSON-HUMPHREY COMPANY, INC.

, 1995
<PAGE>

Storage Equities' Facilities

[MAP OF UNITED STATES APPEARS HERE WHICH INDICATES BY REGION THE
PERCENTAGE OF MINI-WAREHOUSES IN WHICH THE COMPANY HAS AN INTEREST.]

North Western.................... 14%
North Eastern.................... 14%
Mid Western...................... 12%
South Western.................... 22%
South Central.................... 21%
South Eastern.................... 17%
----
100%

At December 31, 1994, Storage Equities had ownership interests in
402 facilities located in or near major metropolitan areas in 37
states.

[PHOTOGRAPH APPEARS HERE OF The familiar orange Public
AERIAL VIEW OF MINI-WAREHOUSE Storage logo is prominently
FACILITY ALONG MAJOR displayed at the Company's
THOROUGHFARES.] mini-warehouse facilities.

The Company seeks facilities that [PHOTOGRAPH APPEARS HERE OF
are located along major thoroughfares. MINI-WAREHOUSE FACILITY, ENTRANCE
AND SIGN WITH PUBLIC STORAGE LOGO.]
<PAGE>

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

PROSPECTUS SUPPLEMENT SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere or incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus. Unless otherwise indicated, all information in this
Prospectus Supplement assumes that the Underwriters' over-allotment option will
not be exercised. Investors should carefully consider the information set forth
under the heading "Certain Considerations" in the accompanying Prospectus.

THE COMPANY

Storage Equities, Inc. (the "Company"), an equity real estate investment
trust ("REIT"), owns more mini-warehouse space in the United States than any
competitor and is the largest owner of mini-warehouses operated under the
"Public Storage" name. At December 31, 1994, the Company had equity investments
in 386 mini-warehouses with approximately 22.6 million square feet of space.
The Company's mini-warehouses, which are located primarily in or near major
metropolitan markets in 37 states, offer relatively low-cost, easily accessible
and enclosed storage space for both personal and business use. See "Business."

The Company's primary objective is to maximize shareholder value by
increasing funds from operations per share of Common Stock through internal
growth and acquisitions of additional mini-warehouse investments. The Company
believes that its access to capital, geographic diversification and operating
efficiencies resulting from its size will enhance its ability to achieve this
objective. The net proceeds of this offering of Preferred Stock (the
"Offering") will be used to reduce bank borrowings, which were used to make
additional investments in mini-warehouses. The Company believes that its mini-
warehouse investments made since December 31, 1994 generated an unleveraged
cash yield of approximately 10% for the latest 12-month period for which
information is available. See "Use of Proceeds."

The Company believes that its mini-warehouses have attractive operating
characteristics. During 1994, the Company's mini-warehouses had a profit margin
(net operating income before depreciation expense ("net cash flow") divided by
rental income) of 64.1% and an average occupancy level of 90% compared with an
average break-even occupancy level (before depreciation expense and debt
service) of only 28%. The Company's tenant base, which is comprised of more
than 170,000 individuals and businesses, has an average occupancy term of 12
months, and no one mini-warehouse accounts for more than 1% of revenues. In
addition, the Company's mini-warehouses are characterized by a low level of
capital expenditures to maintain their condition and appearance.

The Company further believes that its operating results have benefitted from
favorable industry trends and conditions. Notably, the level of new mini-
warehouse construction has decreased since 1988 while consumer demand has
increased. In addition, in recent years consolidation has occurred in the
fragmented mini-warehouse industry. The Company believes that it is well-
positioned to capitalize on this consolidation trend due to its demonstrated
access to capital and national presence. The Company's operator, Public Storage
Management, Inc. ("PSMI"), is the largest mini-warehouse operator in the United
States and Canada, operating approximately the same square footage of mini-
warehouse space as the next ten largest operators combined and approximately
four times as much space as the next largest operator.

S-3
<PAGE>

The Company's five senior officers have been responsible for the acquisition
of more than 350 mini-warehouses, the development of more than 650 mini-
warehouses and the management of more than 1,000 mini-warehouses during their
average 16 years of experience with the Public Storage organization. In
addition, the Company's senior management has a significant ownership position
in the Company with officers, directors and their affiliates beneficially
owning approximately 9,358,000 shares or 28% of the Company's Common Stock as
of March 31, 1995. Approximately 2,165,000 of these shares were purchased for
cash at market prices during 1994.

The Company is currently advised by Public Storage Advisers, Inc. (the
"Adviser") and its facilities are operated by PSMI and Public Storage
Commercial Properties Group, Inc. ("PSCP"). The Adviser, PSMI and PSCP are
subsidiaries of Public Storage, Inc. ("PSI"), and the Company's executive
officers and certain directors are affiliated with PSI. All are subject to
various conflicts of interest arising out of their relationships with entities
that own and operate mini-warehouses. The Company is currently considering a
transaction by which it would become self-advised and self-managed. See "--
Proposed Restructuring." All operations are under the general supervision of
the Company's Board of Directors (the "Board of Directors"), including
investments in new facilities and transactions with affiliates. Of the
Company's investments, 211 were made jointly with seven of a group of eight
public limited partnerships organized by PSI (these eight partnerships are
referred to herein collectively as the "PSP Partnerships"). The Company has
elected to be taxed as a REIT under the Internal Revenue Code of 1986, as
amended (the "Code"). See "Certain Considerations--Conflicts of Interest and
Transactions with Affiliates" and "Certain Federal Income Tax Considerations"
in the accompanying Prospectus.

PROPOSED RESTRUCTURING

The Company has formed a special committee of independent directors to
consider a transaction in which the Company would be combined with the Adviser,
PSMI and PSCP and substantially all of the United States real estate
investments of PSI. As a result of this transaction, the Company would become
self-advised and self-managed. The special committee selected Robertson,
Stephens & Company, L.P. as financial adviser in March 1995 to render advice in
connection with the restructuring. Although no terms have been established, it
is expected that the Company would issue shares of its common stock in the
transaction. There is no agreement relating to this transaction and no
assurance that an agreement can be reached or that a transaction can be
completed. Any such transaction would be subject to, among other things, prior
approval of holders of Common Stock (but not holders of any series of preferred
stock) and a fairness opinion from Robertson, Stephens & Company, L.P.

PSI, organized in 1972, has been engaged, directly and through subsidiaries,
in the acquisition, development and construction of mini-warehouses and, to a
lesser extent, other commercial properties in the United States and Canada. As
of December 31, 1994, PSMI and PSCP operated approximately 1,150 facilities in
the United States, including the Company's approximately 402 facilities, and
PSI had direct or indirect ownership interests in approximately 1,060
facilities in the United States, including the Company's facilities.

GROWTH STRATEGIES

The Company's growth strategies focus on improving the operating performance
of its existing properties and on increasing its ownership of mini-warehouses
through additional investments. Major elements of these strategies are as
follows:

. Increase net cash flow of existing properties. The Company seeks to increase
the net cash flow generated by its existing properties by (i) increasing
average occupancy rates and (ii) achieving higher levels of realized monthly
rents per occupied square foot. Average occupancy at the Same-Store mini-
warehouses (248 mini-warehouses in which the Company has invested since January
1989) has increased from 86.1% in 1992 to 90.3% in 1994. Similarly, realized
monthly rents per occupied square foot have increased approximately 7% during
this same period. These factors have resulted in net cash flow growth at Same-
Store mini-warehouses of approximately 6%, 9% and 7% in 1992, 1993 and 1994,
respectively, over the prior year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations."

S-4
<PAGE>

.Acquire properties operated by PSMI. The Company believes its relationship
with "Public Storage" enhances its ability to identify attractive acquisition
opportunities. In addition to the facilities in which the Company has an equity
interest, PSMI operates more than 700 mini-warehouses under the "Public
Storage" name on behalf of approximately 100 ownership entities. From time to
time, some of these owners desire to sell their mini-warehouses, providing the
Company with a source of additional acquisition opportunities. These properties
exhibit net cash flow growth comparable to the Company's mini-warehouses and
the Company believes they include some of the better located, better
constructed mini-warehouses in the industry. Because of common property
operation, the Company is provided with reliable operating information prior to
acquisition and these properties are easily integrated into the Company's
portfolio. From January 1, 1992 through December 31, 1993, the Company acquired
a total of 36 mini-warehouses which were operated under the "Public Storage"
name (2.1 million square feet of space at an aggregate purchase price of $83.2
million). For 1994, the net cash flow generated by these properties provided an
unleveraged cash yield of approximately 11.6%. During 1994, the Company
acquired an additional 44 such properties.

.Acquire properties operated by other operators. The Company believes its
relationship with Public Storage enhances its ability to identify attractive
acquisition opportunities and capitalize on the overall fragmentation in the
mini-warehouse industry. Of the more than 20,000 mini-warehouses in the United
States, the Company believes that the ten largest operators manage less than
11% of the total space. PSMI's presence in and knowledge of substantially all
of the major markets in the United States provides the Company with local
market information on rates, occupancy and competition. From January 1, 1992
through December 31, 1993, the Company acquired a total of 16 mini-warehouses
(967,000 square feet of space at an aggregate purchase price of $34.5 million)
operated by other operators. For 1994, the net cash flow generated by these
properties provided an unleveraged cash yield of approximately 12.2%. During
1994, the Company acquired an additional 27 such properties.

.Access to acquisition capital. The Company believes that its strong financial
position enables it to access capital for growth. The Company's long-term debt,
as a percentage of shareholders' equity, has decreased from 60% at December 31,
1990 to 13% at December 31, 1994, thereby significantly reducing refinancing
risks. The Company currently has a $115 million credit facility (LIBOR plus
1.25%) with a bank group led by Wells Fargo Bank, which the Company uses as a
temporary source of acquisition financing. The Company seeks to ultimately
finance all acquisitions with permanent sources of capital. From January 1,
1992 through March 31, 1995, the Company has issued approximately $443 million
of perpetual preferred and common equity to finance such acquisitions. See
"Business--Borrowings" and "--Limitations on Debt."

.Conservative distribution policy. The Company seeks to retain significant
funds (after funding its distributions and capital improvements) for additional
property acquisitions and debt reduction. From January 1, 1992 through December
31, 1994, the Company retained approximately $24.1 million for such purposes.
During 1994, the Company distributed only 54.1% of its funds from operations
("FFO") allocable to Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."

.Increasing FFO allocable to Common Stock. From 1992 through 1994, FFO
allocable to Common Stock increased 93%, while the weighted average number of
shares of Common Stock increased only 51%. The growth in FFO allocable to
Common Stock reflects the addition of 124 new facilities to the Company's
portfolio from January 1, 1992 through December 31, 1994, improved operations
from the Same-Store mini-warehouses, the reinvestment of retained cash flow and
a significant reduction in debt. See "--Summary Financial Information."

OPERATING STRATEGIES

S-5
<PAGE>

country. Including the Company's mini-warehouses, as of December 31, 1994, PSMI
operated 1,099 mini-warehouses aggregating approximately 64.8 million square
feet located in 38 states and four provinces in Canada. The major elements of
the Company's and PSMI's operating strategies are as follows:

.Achieve and maintain high occupancy levels. Subject to market conditions,
PSMI generally seeks to achieve average occupancy levels in excess of 90% and
to eliminate promotions prior to increasing rental rates. Average occupancy for
the Company's Same-Store mini-warehouses has increased from 86.1% in 1992 to
90.3% in 1994, and promotions have been reduced from approximately $2.4 million
in 1992 to approximately $380,000 in 1994. The Company believes that in many
markets where it has achieved high occupancy levels and eliminated or minimized
promotions, it may have opportunities to increase rental rates.

.Benefit from PSMI's economies of scale. Through its affiliation with PSMI, the
Company is able to realize economies of scale. By combining the purchasing
requirements of the 1,099 mini-warehouses that it operates, PSMI is able to
pass on savings to the Company. For example, the Company believes that its
insurance premiums are approximately 70% less than they would be if its
properties were not insured under the "Public Storage" group policy.

.Participate in PSMI's marketing and advertising programs. The Company believes
that its participation in the Public Storage marketing and advertising programs
improves its competitive position in the market. PSMI is the only mini-
warehouse operator regularly using television advertising in several markets
around the country, and PSMI's in-house Yellow Pages staff designs and places
advertisements in approximately 700 directories in 80 markets. In addition,
PSMI offers a toll-free referral system, 800-44-STORE, which services
approximately 100,000 calls per year from potential customers inquiring as to
the nearest Public Storage mini-warehouse. By combining the advertising and
marketing programs of more than 1,000 mini-warehouses, PSMI achieves
significant per facility savings which are passed on to the Company.

.Focus on major markets. The Company is focused on owning and acquiring mini-
warehouses located principally in the 54 largest metropolitan areas (those with
populations in excess of 1,000,000) throughout the country. Such facilities are
generally located in or near densely populated areas within these markets in
order to maximize visibility and customer convenience and to provide economies
of scale with respect to property operation and advertising. The Company
believes that the events resulting in the rental of mini-warehouse space occur
with greater frequency in larger metropolitan areas than in less populous
areas.

.Systems and controls. PSMI has an organizational structure and a property
management system, "CHAMP" (Computerized Help and Management Program), which
links the corporate office with each mini-warehouse. This enables PSMI to
obtain daily information from each mini-warehouse and to achieve efficiencies
in operations and maintain control over its space inventory, rental rates and
promotional discounts. Expense management is achieved through centralized
payroll and accounts payable systems and a comprehensive property tax appeals
department, and PSMI has an extensive internal audit program designed to ensure
proper handling of cash collections.

. Professional property operation. In addition to approximately 120 support
personnel at the Public Storage corporate offices, there are approximately
2,700 on-site personnel who manage the day-to-day operations of the mini-
warehouses in the Public Storage system. These on-site personnel are supervised
by 107 district managers, 14 regional managers and three divisional managers
(with an average of 12 years experience in the mini-warehouse industry) who
report to the president of PSMI (who has 11 years of experience with the Public
Storage organization). PSMI carefully selects and extensively trains the
operational and support personnel and offers them a progressive career path.
See "Management."

----------------

The Company's common stock (the "Common Stock") and the Company's 10%
Cumulative Preferred Stock, Series A (the "Series A Preferred Stock"), 9.20%
Cumulative Preferred Stock, Series B (the "Series B Preferred Stock"),
Adjustable Rate Cumulative Preferred Stock, Series C (the "Series C Preferred
Stock"),

S-6
<PAGE>

9.50% Cumulative Preferred Stock, Series D (the "Series D Preferred Stock"),
10% Cumulative Preferred Stock, Series E (the "Series E Preferred Stock") and
8.25% Convertible Preferred Stock (the "Convertible Preferred Stock") are
traded on the NYSE under the symbols SEQ, SEQ PrA, SEQ PrB, SEQ PrC, SEQ PrD,
SEQ PrE and SEQ PrX, respectively.

THE OFFERING

Securities Offered.......... 1,500,000 shares of Preferred Stock. Application
has been made to list the Preferred Stock on the
NYSE. See "Underwriting."

Use of Proceeds............. The Company intends to use the net proceeds of
the offering to repay outstanding bank borrowings
($35,000,000 at April 20, 1995) under the
Company's credit facility, which were used to
make investments in real estate assets, primarily
mini-warehouses, and interests in real estate
partnerships. See "Use of Proceeds."

Ranking..................... With respect to the payment of dividends and
amounts upon liquidation, the Preferred Stock
will rank pari passu with the Series A Preferred
Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock,
the Series E Preferred Stock (collectively,
together with the Preferred Stock, the "Senior
Preferred Stock") and any other shares of
preferred stock of the Company ranking pari passu
with the Senior Preferred Stock, and will rank
senior to the Common Stock and any other capital
stock of the Company ranking junior to the
Preferred Stock, including the Convertible
Preferred Stock. See "Description of Preferred
Stock--Dividends" and "--Liquidation Rights."

Dividends................... Dividends on the shares of Preferred Stock are
cumulative from the date of issue and are payable
quarterly, commencingon June 30, 1995, at the
rate of % per annum. See "Description of
Preferred Stock--Dividends."

Subordination of Advisory The Advisory Contract provides that the Adviser
Fee......................... will not be entitled to the advisory fee with
respect to services rendered during any quarter
in which full cumulative dividends on any of the
series of Senior Preferred Stock have not been
paid or declared and funds therefor set aside for
payment. The Advisory Contract may be terminated
or amended without the approval of the holders of
the Preferred Stock. See "Prospectus Summary--
Proposed Restructuring" for the status of a
proposed major restructuring of the Company.

Liquidation Rights.......... Equivalent to $25.00 per share of Preferred
Stock, plus an amount equal to accrued and unpaid
dividends (whether or not declared). See
"Description of Preferred Stock--Liquidation
Rights."

S-7
<PAGE>

Redemption ................. Except in certain circumstances relating to the
Company's maintenance of its ability to qualify
as a REIT, the Preferred Stock is not redeemable
prior to April 30, 2005. On and after April 30,
2005, the Preferred Stock will be redeemable for
cash at the option of the Company, in whole or in
part, at $25.00 per share, plus dividends accrued
and unpaid to the redemption date. See
"Description of Preferred Stock--Redemption" and
"Certain Federal Income Tax Considerations--Tax
Treatment of the Company" in the accompanying
Prospectus.

Voting Rights............... Whenever dividends on the Preferred Stock or any
other series of preferred stock are in arrears
for six quarterly dividend periods, holders of
all outstanding series of preferred stock (voting
as a single class without regard to series) will
have the right to elect two additional directors
to serve on the Board of Directors until all
dividend arrearages are eliminated. If the "Debt
Ratio" on the last day of any two consecutive
fiscal quarters exceeds 50% (unless such
condition is approved or ratified by the holders
of a majority of the Preferred Stock), the
holders of each of the series of Senior Preferred
Stock will be entitled to elect two additional
directors (in addition to any directors elected
for defaults in dividends) until the Debt Ratio
is less than 50%. In addition, certain changes to
the terms of the Preferred Stock that would be
materially adverse to the rights of holders of
the Preferred Stock cannot be made without the
affirmative vote of holders of two-thirds of the
outstanding Preferred Stock and certain changes
to the Company's Bylaws cannot be made without
the affirmative vote of the holders of a majority
of the Preferred Stock. See "Description of
Preferred Stock--Voting Rights" and "Business--
Prohibited Investments and Activities" and "--
Limitations on Debt."

S-8
<PAGE>

SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND MINI-WAREHOUSE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
-------- ----------- -------
<S> <C> <C> <C>
OPERATING DATA:
Total revenues................................. $147,196 $114,680 $97,448
Depreciation and amortization.................. 28,274 24,998 22,405
Interest expense............................... 6,893 6,079 9,834
Minority interest in income.................... 9,481 7,291 6,895
Net income..................................... 42,118 28,036 15,123
OTHER DATA:
Funds from operations(1)....................... $ 56,143 $ 35,830 $21,133
Ratio of earnings to combined fixed charges and
preferred stock dividends(2).................. 2.22x 2.40x 2.89x
Ratio of funds from operations to combined
fixed charges and preferred stock dividends... 2.69x 2.47x 2.91x
Ratio of adjusted funds from operations to com-
bined fixed charges and adjusted preferred
stock dividends(3)............................ 3.58x 3.08x 3.15x
MINI-WAREHOUSE DATA:(4)
Mini-warehouse net square footage at end of
period (000's)................................ 22,600 18,587 16,311
Number of mini-warehouses at end of period..... 386 316 278
Weighted average occupancy of the Same Store
mini-warehouses for the period................ 90.3% 89.0% 86.1%
Weighted average mini-warehouse realized
monthly rent per occupied square foot for Same
Store mini-warehouses for the period.......... $ 0.59 $ 0.56 $ 0.55
<CAPTION>
DECEMBER 31, 1994
---------------------
AS
ACTUAL ADJUSTED(5)
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets................................... $820,309 $940,129
Total debt..................................... 77,235 51,788
Shareholders' equity........................... 587,786 733,053
</TABLE>

(Footnotes on following page)

S-9
<PAGE>

- --------
(1) Funds from operations is defined generally by the National Association of
Real Estate Investment Trusts, Inc. ("NAREIT") as income before loss on
early extinguishment of debt and gain on disposition of real estate,
adjusted as follows: (i) plus depreciation and amortization, and (ii) less
distributions to minority interests in excess of minority interest in
income. FFO is a supplemental performance measure for equity REITs used by
industry analysts. FFO does not take into consideration principal payments
on debt, capital improvements, distributions and other obligations of the
Company. Accordingly, FFO is not a substitute for the Company's net cash
provided by operating activities or net income as a measure of the
Company's liquidity or operating performance.

(2) For purposes of these computations, earnings consist of net income before
minority interest in income, loss on early extinguishment of debt and gain
on disposition of real estate plus fixed charges less the portion of
minority interest in income for those consolidated minority interests which
had no fixed charges during the period. Fixed charges consist of interest
expense. Preferred stock dividends consist of dividends on the Series A
Preferred Stock (issued in October 1992), the Series B Preferred Stock
(issued in March 1993), the Convertible Preferred Stock (issued in July
1993), the Series C Preferred Stock (issued in June 1994) and the Series D
Preferred Stock (issued in September 1994), to the extent paid in the
applicable periods, and does not reflect dividends on the Series E
Preferred Stock (issued in February 1995).

(3) Adjusted funds from operations is defined as FFO prior to reduction for the
advisory fee. The advisory fee is subordinated to the payment of dividends
on the Senior Preferred Stock. Adjusted preferred stock dividends are
defined as the total preferred stock dividends less dividends on the
Convertible Preferred Stock, which is subordinated to the payment of
dividends on the Senior Preferred Stock. See "Description of Preferred
Stock--Subordination of Advisory Fee" and "Recent Developments--Proposed
Restructure."

(4) Reflects information regarding properties in which the Company has an
interest, not the Company's proportionate interest in such properties. See
"Business--General" and "--Investment in Facilities."

(5) Adjusted to give effect to (i) the issuance of 4,011,603 shares of Common
Stock in the first quarter of 1995 and (ii) the sale of 2,195,000 shares of
Series E Preferred Stock in February 1995 and of the Preferred Stock
offered hereby and the application of the net proceeds therefrom to repay
indebtedness under the Company's credit facility. See "Recent
Developments," "Capitalization" and "Use of Proceeds."

S-10
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Preferred
Stock offered hereby (assuming no exercise of the Underwriters' over-allotment
option) are estimated at approximately $36,119,000. The net proceeds will be
used to repay outstanding bank borrowings under the Company's credit facility
(approximately $35,000,000 at April 20, 1995), which were drawn upon (i) to
acquire five mini-warehouses (aggregate purchase price of $12,679,000,
consisting of $10,407,000 of cash and $2,272,000 in cancellation of mortgage
debt), (ii) to acquire limited partnership units in PS Partners I, a PSP
Partnership ($6,310,000 in cash) and (iii) to make cash elections in the merger
with Public Storage Properties, Inc. ("Properties 6") ($21,428,000). For a
description of the interest rates and maturities of the bank borrowings, see
"Business--Borrowings". Two of the properties acquired by the Company with
borrowings under the credit facility, as well as the properties owned by
Properties 6, were owned by affiliates of PSI and the purchase price was based
on independent appraisals. See "Recent Developments--Mergers with Related
Companies."

Any balance of the net proceeds of the Offering would be used to make
investments in real estate, primarily mini-warehouses.

RECENT DEVELOPMENTS

Proposed Restructuring. See "Prospectus Summary--Proposed Restructuring" for
the status of a proposed major restructuring of the Company.

Acquisition of Properties. During the first quarter of 1995, the Company
acquired 37 mini-warehouses, including facilities acquired in the merger with
Properties 6, for an aggregate purchase price of approximately $102,292,000.
Affiliates of PSI owned 30 of these facilities.

Issuances of Capital Stock. During the first quarter of 1995, the Company
issued 4,011,603 shares of Common Stock for an aggregate gross price of
approximately $58,000,000 and 2,195,000 shares of preferred stock for an
aggregate gross price of $54,875,000. As of March 31, 1995, the Company's
officers, directors and their affiliates beneficially owned approximately
9,358,000 shares or 28% of the Common Stock. The shares of Common Stock issued
in 1995 were issued primarily in the February 1995 merger with Properties 6
described below and to PSI in connection with the acquisition of participation
interests in 19 mini-warehouses. The transactions with PSI were approved by the
Company's independent directors, and the purchase price was supported by
fairness opinions.

Tender Offers. During the first quarter of 1995, the Company acquired, in
cash tender offers, limited partnership interests in two PSP Partnerships (PS
Partners I and VIII), representing approximately 24% and 13% of these limited
partnership interests, respectively, for an aggregate purchase price of
approximately $8,079,000. During 1994, the Company acquired limited partnership
interests in five other PSP Partnerships. As a result, the Company owns
approximately 33% to 66% of the outstanding limited partnership interests of
each of these seven PSP Partnerships.

Mergers with Related Companies. In February 1995, Properties 6 merged with
and into the Company, and the outstanding Properties 6 common stock (2,716,223
shares) was converted into an aggregate of (i) approximately 3,148,000 shares
of Common Stock and (ii) approximately $21,428,000 in cash. Properties 6 owned
22 mini-warehouses and one combination mini-warehouse/business park facility in
seven states. PSI and its affiliates received approximately 1,293,000 shares of
Common Stock in the merger. One facility acquired by the Company in the merger
may be the subject of an ongoing area-wide groundwater investigation pursuant
to the federal Comprehensive Environmental Response, Cleanup, and Liability
Act. The Company believes that the terms of the merger reflect a purchase price
adjustment sufficient to cover any resulting potential liability. See "Certain
Considerations--Operating Risks--Risk of Environmental Liabilities" in the
accompanying Prospectus.

S-11
<PAGE>

On February 2, 1995, the Company and Public Storage Properties VII, Inc.
("Properties 7") agreed, subject to certain conditions, to merge. In the
merger, Properties 7 would be merged with and into the Company, and each share
of Properties 7's common stock would be converted, at the election of the
shareholders of Properties 7, into either shares of the Company's Common Stock
or, with respect to up to 20% of Properties 7's common stock, $18.95 in cash.
This dollar amount has been based on Properties 7's net asset value (the
appraised value of Properties 7's real estate assets as of December 31, 1994
(which took into account certain potential structural and environmental
remediation costs relating to one of the properties) and the estimated book
value of Properties 7's other net assets as of May 31, 1995). The number of
shares of the Company's Common Stock issued in the merger will be determined by
dividing this same dollar amount by the average of the per share closing prices
of the Company's Common Stock on the NYSE for a specified period prior to
Properties 7's shareholders' meeting. In the event of the merger, pre-merger
cash distributions would be made to shareholders of Properties 7 to cause
Properties 7's net asset value as of the effective date of the merger to be
substantially equivalent to its estimated net asset value as of May 31, 1995.
The number of shares of the Company's Common Stock issued in the merger and the
amount receivable upon a cash election would be reduced on a pro rata basis in
an aggregate amount equal to additional distributions required in order to
satisfy Properties 7's real estate investment trust distribution requirements.
The merger was approved by the independent directors of the Company and
Properties 7 and is conditioned on, among other requirements, approval by the
shareholders of both the Company and Properties 7.

Properties 7 owns 34 mini-warehouses, three business parks and one
combination mini-warehouse/business park facility in 11 states. There are
3,806,491 outstanding shares of Properties 7 common stock. PSI has informed the
Company that PSI would expect to elect to receive the Company's Common Stock in
the merger and no cash.

In 1990 and 1991, PSI organized 18 finite-life REITs that are listed on the
American Stock Exchange, including Properties 6 and 7 discussed above and
Public Storage Properties VIII, Inc. ("Properties 8") that was merged into the
Company in September 1994. PSI owned or owns approximately 28% of the common
stock of Properties 6, 7 and 8 and their properties were or are operated by
PSMI and PSCP. The Company had no ownership interest in Properties 6, 7 and 8
or any of their properties prior to the merger or proposed merger.

S-12
<PAGE>

CAPITALIZATION

The table below sets forth as of December 31, 1994 the historical
consolidated capitalization of the Company and as adjusted to give effect to
(i) the issuance of 4,011,603 shares of Common Stock in the first quarter of
1995 and (ii) the sale of 2,195,000 shares of Series E Preferred Stock in
February 1995 and of the Preferred Stock offered hereby (assuming no exercise
of the Underwriters' over-allotment option) and the application of the
estimated net proceeds therefrom to repay outstanding bank borrowings. See "Use
of Proceeds," "Recent Developments" and "Selected Financial Information."

<TABLE>
<CAPTION>
DECEMBER 31, AS
1994 ADJUSTED
------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total debt:
Line of credit with banks(1)......................... $ 25,447 $ --
Mortgage notes payable............................... 51,788 51,788
--------- ---------
Total debt......................................... 77,235 51,788
Minority interest...................................... 141,227 141,227
Shareholders' equity:
Preferred Stock, $.01 par value, 50,000,000 shares
authorized:(2)
Senior Preferred Stock, 6,611,000 shares issued and
outstanding (10,306,000 shares issued and
outstanding, as adjusted)......................... 165,275 257,650
Convertible Preferred Stock, 2,300,000 shares
issued and outstanding............................ 57,500 57,500
Common Stock, $.10 par value, 60,000,000 shares
authorized, 28,826,707 shares issued and outstanding
(32,838,310 issued and outstanding, as adjusted).... 2,883 3,284
Paid-in capital...................................... 372,361 424,852
Cumulative net income................................ 172,485 172,485
Cumulative distributions paid........................ (182,718) (182,718)
--------- ---------
Total shareholders' equity......................... 587,786 733,053
--------- ---------
Total capitalization............................. $ 806,248 $ 926,068
========= =========
</TABLE>
- --------
(1) As of April 20, 1995, the amount outstanding was approximately $35 million,
all of which will be repaid with the proceeds of the Offering.

(2) None of the outstanding series of preferred stock has a mandatory
redemption or sinking fund provision.

S-13
<PAGE>

SELECTED FINANCIAL INFORMATION

The following selected historical financial information relating to each of
the three years in the period ended December 31, 1994 has been derived from the
audited financial statements of the Company for those periods as restated.
Certain of the real estate partnerships that are now consolidated with the
Company were previously accounted for under the equity method. The financial
information presented for all periods prior to 1993 has been restated to
reflect such consolidation to enhance comparability. These restatements have no
effect on previously reported net income, earnings per share, funds from
operations or shareholders' equity. The data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus Supplement and the financial
statements included in the documents incorporated by reference in the
accompanying Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1993 1992
--------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING DATA:
Revenues:
Rental income.............. $ 141,845 $ 109,203 $ 95,886
Interest and other income.. 5,351 5,477 1,562
--------- --------- --------
147,196 114,680 97,448
--------- --------- --------
Expenses:
Cost of operations......... 52,816 42,116 38,348
Depreciation and amortiza-
tion...................... 28,274 24,998 22,405
General and administrative. 2,631 2,541 2,629
Advisory fee............... 4,983 3,619 2,612
Interest expense........... 6,893 6,079 9,834
--------- --------- --------
95,597 79,353 75,828
--------- --------- --------
Income before minority
interest and gain on
disposition of real estate.. 51,599 35,327 21,620
Minority interest in income.. (9,481) (7,291) (6,895)
--------- --------- --------
Income before gain on dispo-
sition of real estate....... 42,118 28,036 14,725
Gain on disposition of real
estate...................... -- -- 398
--------- --------- --------
Net income................... $ 42,118 $ 28,036 $ 15,123
========= ========= ========
Weighted average shares of
Common Stock outstanding.... 24,077 17,558 15,981
OTHER DATA:
Net cash provided by operat-
ing activities.............. $ 79,180 $ 59,477 $ 44,025
Net cash used in investing
activities.................. (169,590) (137,429) (21,010)
Net cash provided by (used
in) financing activities.... 100,029 80,100 (21,070)
Funds from operations(1)..... 56,143 35,830 21,133
Preferred stock dividends.... 16,846 10,888 812
Ratio of earnings to combined
fixed charges and preferred
stock dividends(2).......... 2.22x 2.40x 2.89x
Ratio of funds from
operations to combined fixed
charges and preferred stock
dividends................... 2.69x 2.47x 2.91x
Ratio of adjusted funds from
operations to combined fixed
charges and adjusted
preferred stock
dividends(3)................ 3.58x 3.08x 3.15x
BALANCE SHEET DATA:
Total assets................. $ 820,309 $ 666,133 $537,724
Total debt................... 77,235 84,076 69,478
Shareholders' equity......... 587,786 376,066 253,669
</TABLE>
(Footnotes on following page)

S-14
<PAGE>

- --------
(1) Funds from operations is defined generally by NAREIT as income before loss
on early extinguishment of debt and gain on disposition of real estate,
adjusted as follows: (i) plus depreciation and amortization, and (ii) less
distributions to minority interests in excess of minority interest in
income. FFO is a supplemental performance measure for equity REITs used by
industry analysts. FFO does not take into consideration principal payments
on debt, capital improvements, distributions and other obligations of the
Company. Accordingly, FFO is not a substitute for the Company's net cash
provided by operating activities or net income as a measure of the
Company's liquidity or operating performance.

S-15
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the
consolidated financial statements appearing in the Annual Report on Form 10-K
for the year ended December 31,1994, as amended.

Results of Operations

Year ended December 31, 1994 compared to year ended December 31, 1993: Net
income in 1994 was $42,118,000 compared to $28,036,000 in 1993, representing an
increase of $14,082,000. Net income per common share was $1.05 per share in
1994 compared to $.98 per share in 1993, representing an increase of $.07 per
share. In determining net income per common share, preferred stock dividends
($16,846,000 and $10,888,000 in 1994 and 1993, respectively) reduced income
allocable to the common stockholders. The increase was primarily the result of
improved property operations at the Company's "Same Store" facilities, the
acquisition of additional real estate facilities during 1994, 1993 and 1992,
and the acquisition of additional partnership interests.

The Company's revenues are generated principally through the operations of
its real estate facilities. The Company's core business is the operation of
mini-warehouse facilities which, in 1994, represented approximately 90% of the
Company's property operations (based on 1994 rental income). The Company's
portfolio of mini-warehouses are geographically located in 37 states and are
operated under the "Public Storage" name.

During 1994, property net operating income (rental income less cost of
operations and depreciation expense) improved compared to 1993. Rental income
increased $32,642,000 or 30% from $109,203,000 in 1993 to $141,845,000 in 1994,
cost of operations increased $10,700,000 or 25% from $42,116,000 in 1993 to
$52,816,000 in 1994, and property depreciation expense increased $3,175,000
from $24,924,000 in 1993 to $28,099,000 in 1994 or 13%, resulting in a net
increase in property operating income of $18,767,000 or 45%. Property net
operating income prior to the reduction for depreciation increased by
$21,942,000 or 33%. These increases were the result of improved property
operations for the "Same Store" facilities, the acquisition of a total of 122
additional mini-warehouse facilities and one business park facility during
1994, 1993 and 1992, and improved property operations at the Company's business
park facilities.

Property net operating income for the "Same Store" facilities increased by
$2,617,000 or 6.8% from $38,608,000 in 1993 to $41,225,000 in 1994. Property
net operating income prior to the reduction of depreciation expense for the
"Same Store" facilities increased by $3,668,000 or 6.6% from $55,574,000 in
1993 to $59,242,000 in 1994. These increases continue the upward trend of
improved operations at these facilities over the past four years as net
operating income prior to reductions of depreciation expense increased by
approximately 9.4% in 1993, 6.1% in 1992, and 2.0% in 1991 compared to the
respective prior year. These increases are principally due to increased
occupancy levels combined with an increase in average rental rates.

From January 1, 1992 through December 31, 1994, the Company acquired a total
of 122 mini-warehouse facilities, 23 of which were acquired pursuant to a
merger transaction on September 30, 1994. During 1994 and 1993 these newly
acquired mini-warehouses contributed approximately $22,490,000 and $5,504,000
of property net operating income prior to the reduction of depreciation,
respectively.

Property net operating income with respect to the Company's business park
operations improved by $2,668,000 from a net operating loss of $429,000 in 1993
to net operating income of $2,239,000 in 1994. Property net operating income
prior to the reduction of depreciation expense with respect to the Company's
business park operations improved by $1,288,000 from $6,009,000 in 1993 to
$7,297,000 in 1994. These improvements are principally due to the improved
performance of the Company's business park facility

S-16
<PAGE>

located in Culver City, California, where property net operating income
increased by approximately $511,000 combined with the 1994 acquisition of a
facility located in Monterey Park, California which provided property net
operating income of $710,000 in 1994.

Weighed average occupancy levels were 90% for the mini-warehouse facilities
and 95% for the business park facilities in 1994 compared to 89% for the mini-
warehouse facilities and 90% for the business park facilities in 1993.

Interest and other income decreased from $5,477,000 in 1993 to $5,351,000 in
1994. The decrease is primarily attributable to the cancellation of mortgage
notes receivable totaling $24,441,000 (face amount) during 1994 in connection
with the acquisition of the underlying real estate facilities securing the
mortgage notes.

Interest expense increased from $6,079,000 in 1993 to $6,893,000 in 1994,
representing an increase of $814,000. This increase is primarily attributable
to the overall increase in average debt outstanding in 1994 compared to 1993 as
a result of increased borrowings on its bank credit facilities in 1994 compared
to 1993. The Company principally uses its credit facilities to finance the
acquisition of real estate investments which are subsequently repaid with the
net proceeds from the sale of the Company's securities. The weighted average
annual interest rate on the credit facility and the mortgage notes outstanding
at December 31, 1994 were approximately 7.3% and 9.3%, respectively. During the
third and fourth quarters of 1994, the Company expensed $700,000 of debt
issuance costs and $300,000 of fees to establish the new bank credit facility.

"Minority interest in income" represents the income allocable to equity
(partnership) interests in the PSP Partnerships (whose accounts are
consolidated with the Company) which are not owned by the Company. Since 1990,
the Company has acquired portions of these equity interests through its
acquisition of limited and general partnership interests in the PSP
Partnerships. These acquisitions have resulted in reductions to the "Minority
interest in income" from what it would otherwise have been in the absence of
such acquisitions, and accordingly, have increased the Company's share of the
consolidated PSP Partnerships' income. See "Recent Developments."

The acquisition of these partnership interests has provided the Company with
increased liquidity through cash distributions from the PSP Partnerships. The
Company expects to continue to acquire additional partnership interests in the
PSP Partnerships during 1995. See "--Liquidity and Capital Resources."

Advisory fees increased by $1,364,000 from $3,619,000 in 1993 to $4,983,000
in 1994. The advisory fee, which is based on a contractual computation,
increased as a result of increased adjusted net income (as defined) per common
share combined with the issuance of additional common and preferred stock
during 1994 and 1993.

Year ended December 31, 1993 compared to year ended December 31, 1992: Net
income in 1993 was $28,036,000 compared to $15,123,000 in 1992, representing an
increase of $12,913,000. Net income per common share was $.98 per share in 1993
compared to $.90 per share in 1992, representing an increase of $.08 per share.
Net income in 1992 included a gain on the partial condemnation by a
governmental authority of a mini-warehouse facility of $398,000 or $.02 per
common share. In addition, in determining net income per common share,
preferred stock dividends ($10,888,000 and $812,100 in 1993 and 1992,
respectively) reduced income allocable to the common stockholders.

Income before gain on disposition of real estate was $28,036,000 in 1993
compared to $14,725,000 in 1992, representing an increase of $13,311,000 or
90%. The increase was primarily the result of improved property operations for
properties owned throughout 1993 and 1992, the acquisition of additional real
estate facilities during 1993 and 1992, the acquisition of additional
partnership interests, increased interest income and reduced interest expense.

S-17
<PAGE>

During 1993, property net operating income (rental income less cost of
operations and expense) improved compared to 1992. Rental income increased
$13,317,000 or 13.9% from $95,886,000 in 1992 to $109,203,000 in 1993, cost of
operations increased $3,768,000 or 9.8% from $38,348,000 in 1992 to $42,116,000
in 1993, and depreciation expense increased $2,888,000 from $22,036,000 in 1992
to $24,924,000 in 1993, resulting in a net increase in property operating
income of $6,661,000 or 18.8%. Property net operating income prior to the
reduction for depreciation increased by $9,549,000 or 16.6%. These increases
were the result of (i) improved property operations at the "Same Store"
facilities and (ii) the acquisition of 11 additional mini-warehouse facilities
during 1992 (four of which were acquired on December 30, 1992) and 41
additional mini-warehouse facilities during 1993 (13 of which were acquired on
December 30, 1993) partially offset by reduced property operations at the
Company's business park facilities.

Property net operating income for the "Same Store" facilities increased by
$4,486,000 or 13.1% from $34,122,000 in 1992 to $38,608,000 in 1993. Property
net operating income prior to the reduction of depreciation expense for the
"Same Store" facilities increased by $4,783,000 or 9.4% from $50,791,000 in
1992 to $55,574,000 in 1993. These increases continue the upward trend of
improved operations at these facilities over the past three years as net
operating income prior to reduction for depreciation expense increased by
approximately 6.1% in 1992 compared to 1991 and 2.0% in 1991 compared to 1990.
These increases are principally due to increased occupancy levels combined with
a slight increase in average rental rates.

The real estate facilities which were acquired during 1993 and 1992
contributed approximately $5,504,000 and $542,000 of property net operating
income prior to the reduction for depreciation expense in 1993 and 1992,
respectively.

Property net operating income with respect to the Company's business park
operations decreased by $1,448,000 from $1,019,000 in 1992 to a net operating
loss of $429,000 in 1993. Property net operating income prior to the reduction
of depreciation expense with respect to the Company's business park operations
decreased by $195,000 or 3% from $6,204,000 in 1992 to $6,009,000 in 1993.
These decreases are principally due to the performance of the Company's
business park facility located in Culver City, California, where property net
operating income decreased by approximately $590,000 due to a decline in
occupancy and increased expenses. The Company's business park facility manager,
PSCP, has been actively marketing the facility and has improved occupancy and
property operations at the facility in 1994.

Weighed average occupancy levels were 89% for the mini-warehouse facilities
and 90% for the business park facilities in 1993 compared to 86% for the mini-
warehouse facilities and 90% for the business park facilities in 1992.

Interest and other income increased from $1,562,000 in 1992 to $5,477,000 in
1993 for a net increase of $3,915,000. The increase is primarily attributable
to the acquisition of mortgage notes receivable totaling $61,088,000 (face
amount). The mortgage notes bear interest at stated rates ranging from 6.125%
to 11.97% and effective interest rates ranging from 10.00% to 14.74%. The
overall average outstanding mortgage notes receivable balance for the year
ended December 31, 1993 was approximately $54,453,000 generating an overall
average effective yield of 11.04%.

Interest expense decreased from $9,834,000 in 1992 to $6,079,000 in 1993 for
a net decrease of $3,755,000. The decrease in interest expense is primarily
attributable to overall decreases in average debt outstanding as mortgage notes
payable were reduced by $19,141,000 during 1993 combined with reduced average
borrowings on the Company's credit facilities during 1993 as compared to 1992.
The weighted average annual interest rate on the mortgage notes outstanding at
December 31, 1993 was approximately 10.0%.

S-18
<PAGE>

limited and general partnership interests in the PSP Partnerships. These
acquisitions have resulted in reductions to the "Minority interest in income"
from what it would otherwise have been in the absence of such acquisitions, and
accordingly, have increased the Company's share of the consolidated PSP
Partnerships' income.

Advisory fees increased by $1,007,000 from $2,612,000 in 1992 to $3,619,000
in 1993. The advisory fee, which is based on a contractual computation,
increased as a result of increased adjusted net income (as defined) per common
share combined with the issuance of additional preferred stock during 1993.

Property Operating Trends

The following table illustrates property operating trends for the last three
years:

<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Change in property net operating income ("NOI") over
prior year for the "Same Store" facilities:
After reductions for depreciation.................... 6.8% 13.1% 8.7%
Prior to reductions for depreciation................. 6.6% 9.4% 6.1%
Change in NOI over prior year for all properties:
After reductions for depreciation.................... 45.8% 18.8% 5.5%
Prior to reductions for depreciation................. 32.7% 16.6% 5.3%
Weighted average occupancy levels for the year for
"Same Store" facilities(1)............................ 90.3% 89.0% 86.1%
Realized monthly rent per square foot for "Same Store"
facilities(1)(2)...................................... $.59 $.56 $.55
Gross profit margin (loss)(3)
Mini-warehouse facilities............................ 46.5% 49.0% 42.2%
Business park facilities(4).......................... 15.1% (3.3)% 7.8%
Overall for all facilities........................... 43.0% 38.6% 37.0%
Pre-depreciation operating margin(5)
Mini-warehouse facilities............................ 64.1% 63.5% 61.9%
Business Park facilities(4).......................... 49.1% 45.9% 47.8%
Overall for all facilities........................... 62.8% 61.4% 60.0%
</TABLE>
- --------
(1) Weighted average occupancy and realized rent per foot are not presented for
all facilities because such information would not be comparative and does
not differ materially from the "Same Store" information.
(2) Realized rent per square foot represents the actual revenue earned per
occupied square foot. Management believes this is a more relevant measure
than the posted rental rates, since posted rates can be discounted through
the use of promotions.
(3) Gross profit margin is computed by dividing NOI (rental income less cost of
operations and depreciation) by gross revenues.
(4) Decrease in gross profit margin and pre-depreciation operating margin, in
1993, is principally due to the reductions in property operations at the
Culver City and Lakewood facilities.
(5) Pre-depreciation operation margin is computed by dividing NOI prior to the
reduction of depreciation expense by gross revenues.

S-19
<PAGE>

Trends in property operations are due to:

. Increasing occupancy levels due to reduced construction from mid-1980's
levels and promotion of the Company's facilities by property operators,
PSMI and PSCP.

. Increasing realized rents per square foot of mini-warehouse space due to
increased demand and reduced need for promotional discounting of mini-
warehouse space to improve occupancy.

. Increasing revenues due to increasing realized rents and occupancy
levels offset in part by modest increase in expenses (approximately 5%
in 1994, 1% in 1993, 3% and in 1992 on "Same Store" facilities) due to
expense controls including modest increases in payroll offset by
reductions in promotional expenditures.

Liquidity and Capital Resources

Capital structure. The Company's financial profile is characterized by a low
level of debt to total capitalization, increasing net income, increasing cash
flow from operations, increasing funds from operations ("FFO") and a
conservative dividend payout ratio with respect to the Common Stock. These
reflect management's desire to "match" asset and liability maturities, to
minimize refinancing risks and to retain capital to take advantage of
acquisition opportunities and to provide financial flexibility.

Over the last three years the Company has taken a variety of steps to enhance
its capital structure, including:

. The public issuance of $45.6 million of Series A Preferred Stock in
1992, $57.5 million of Series B Preferred Stock in 1993, $57.5 million
of Convertible Preferred Stock in 1993, $30 million of Series C
Preferred Stock in June 1994 and $30 million of Series D Preferred Stock
in September 1994. None of these issues requires redemption or sinking
funds by the Company.

. The public issuance of $80.8 million of common stock in February 1994
and $34.5 million in November 1994.

. The issuance of $37.4 million of common stock in the merger with
Properties 8 in September 1994.

The Company does not believe it has any significant refinancing risks with
respect to its mortgage debt and nominal interest rate risks associated with
its variable rate mortgage debt which had a principal balance of $18.4 million
at December 31, 1994. The Company uses its $115 million bank credit facility
primarily to fund acquisitions and provide financial flexibility and liquidity.
The credit facility bears interest at LIBOR plus 1.25%. At December 31, 1994,
the Company had borrowings of $25.4 million under this facility, all of which
was repaid with the net proceeds of the offering of Series E Preferred Stock in
February 1995. At April 20, 1994, the Company had borrowings of $35 million
under the facility, which will be repaid with the proceeds of the Offering.

As a result of these transactions, the Company's capitalization has
increased. Shareholders' equity increased from $188,112,500 on December 31,
1991 to $587,786,000 on December 31, 1994. The increased equity combined with
reductions in total debt has resulted in an improvement in the Company's debt
to equity ratio from 55% at December 31, 1991 to 13% at December 31, 1994. The
Company's ratio of debt to total assets also decreased from 19% at December 31,
1991 to 9% at December 31, 1994.

See "Prospectus Summary", "Use of Proceeds", "Recent Developments" for
certain recent and pending transactions, including descriptions of the merger
with Properties 8 and Properties 6 in September 1994 and February 1995,
respectively, as well as the status of a proposed major restructuring of the
Company.

Net Cash Provided by Operating Activities and Funds From Operations. The
Company believes that important measures of its performance as well as its
liquidity are net cash provided by operating activities and FFO.

Net cash provided by operating activities (net income plus depreciation,
amortization and minority interest) reflects the cash generated from the
Company's business before distributions to various equity holders, including
the preferred shareholders, capital expenditures or mandatory principal
payments on debt. Net cash provided by operating activities has increased over
the past three years from $44,025,000 in 1992 to $79,180,000 in 1994.

S-20
<PAGE>

The following table summarizes the Company's ability to pay the minority
interests' distributions, its dividends to the preferred shareholders and
capital improvements to maintain the facilities through the use of net cash
provided by operating activities. The remaining cash flow is available to the
Company to make both scheduled and optional principal payments on debt, pay
distributions to common shareholders and for reinvestment.

<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Net Income........................... $ 42,118,000 $ 28,036,000 $ 15,123,000
Depreciation and amortization........ 28,274,000 24,998,000 22,405,000
Minority interest in income.......... 9,481,000 7,291,000 6,895,000
Gain on disposition of real estate... -- -- (398,000)
Amortization of discounts on mortgage
notes receivable.................... (693,000) (848,000) --
------------ ------------ ------------
Net cash provided by operating
activities.......................... 79,180,000 59,477,000 44,025,000
Distributions from operations to
minority interests.................. (23,037,000) (23,647,000) (22,892,000)
------------ ------------ ------------
Cash from operations allocable to the
Company's shareholders.............. 56,143,000 35,830,000 21,133,000
Less: preferred stock dividends...... (16,846,000) (10,888,000) (812,000)
------------ ------------ ------------
Cash from operations available to
common shareholders................. 39,297,000 24,942,000 20,321,000
Capital improvements to maintain
facilities
Mini-warehouses.................... (6,360,000) (3,520,000) (3,541,000)
Business parks..................... (1,952,000) (2,915,000) (1,612,000)
Add back: minority interest share of
capital improvements to maintain
facilities.......................... 2,948,000 2,935,000 2,975,000
------------ ------------ ------------
Funds available for principal
payments on debt, common
dividends and reinvestment.......... 33,933,000 21,442,000 18,143,000
Cash distributions to common
shareholders........................ (21,249,000) (14,728,000) (13,424,000)
------------ ------------ ------------
Funds available for principal
payments on debt and reinvestment... $ 12,684,000 $ 6,714,000 $ 4,719,000
============ ============ ============
</TABLE>

The increases in net cash provided by operating activities and funds
available for principal payments on debt, common dividends and reinvestment
over the past three years is primarily due to (i) increasing property net
operating income at the "Same Store" facilities, (ii) the acquisition of
limited and general partnership interests in the PSP Partnerships and (iii) the
leverage created through the issuance of preferred stock and the utilization of
the net proceeds in real estate investments which have provided net cash flows
in excess of the preferred stock dividend requirements. These factors have
improved the cash flow position of the common shareholders as FFO applicable to
the common shareholders has increased over the same period at a rate greater
than the increase in number of common shares. The significant increase in
capital improvements in 1994 compared to 1993 for the mini-wareshouse
facilities is due to the acquisition of new facilities in 1994 and 1993
combined with approximately $800,000 of non-recurring expense to upgrade
certain facilities in Texas to provide for climate controlled storage units.
See the consolidated statements of cash flows for the each of the three years
in the period ended December 31, 1994 in the 1994 10-K for additional
information regarding the Company's investing and financing activities.

Funds from operations increased to $56,143,000 for the year ended December
31, 1994 compared to $35,830,000 in 1993 and $21,133,000 in 1992. Funds from
operations applicable to the common shareholders (after deducting preferred
stock dividends) increased to $39,297,000 for the year ended December 31, 1994
compared to $24,942,000 in 1993 and $20,321,000 in 1992. Funds from operations
is defined by the National Association of Real Estate Investment Trusts, Inc.
("NAREIT") as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. NAREIT has recently adopted
revisions to the definition of funds from operations which will

S-21
<PAGE>

become effective in 1996. The most material impact of the new guidelines will
be (i) amortization of deferred financing costs will be treated as an expense--
i.e. it will no longer be treated as an add-back to net income and (ii) certain
gains on sales of land will be included in funds from operations if deemed to
be recurring. These changes will have no impact on the way the Company
currently computes its funds from operations. Funds from operations is a
supplemental performance measure for equity real estate investment trusts used
by industry analysts. Funds from operations does not take into consideration
scheduled principal payments on debt, capital improvements, distributions and
other obligations of the Company. Accordingly, funds from operations is not a
substitute for the Company's cash flow or net income (as discussed above) as a
measure of the Company's liquidity or operating performance.

The Company believes that its rental revenues, distributions from real estate
partnership interests and interest income will be sufficient over at least the
next 12 months to meet the Company's operating expenses, capital improvements,
debt service requirements and distributions to shareholders. During 1995, the
Company has budgeted approximately $8 million for capital improvements ($2
million of which is directly attributable to the minority interest in respect
of its ownership interest) to maintain its facilities. During 1994, the Company
incurred capital improvements of approximately $8.3 million. The Company
believes that it is not subject to any significant refinancing risks. During
1993 and 1994, the Company either repaid or extended the maturities of its
mortgage notes such that in no year, until 1999, will there be more than $5.0
million of principal payments on mortgage notes becoming due and payable. See
Note 7 to the Company's consolidated financial statements in the 1994 10-K for
principal maturities on mortgage notes payable.

In March 1995, the Company acquired two parcels of land located in Atlanta,
Georgia on which the Company is currently developing mini-warehouse facilities.
The facilities are scheduled to open in late 1995 and have an estimated
aggregate cost of approximately $8 million.

The Company believes its geographically diverse portfolio has resulted in a
relatively stable and predictable investment portfolio with increasing overall
property performance over the past four years.

Distributions

Over the past four years, the Company has established a conservative
distribution policy that is, among other things, supported by its cash flow
from operations (after capital expenditures and debt service), availability of
cash to make such distributions and Company's ability to maintain its REIT
status. The Company's policy is also conservative with respect to FFO. The
Company's conservative distribution policy permits it, after funding its
distributions and capital improvements, to retain significant funds to make
additional investments and debt reductions. During 1992, 1993, and 1994, the
Company distributed to common shareholders 66%, 59% and 54% of its FFO
available to common shareholders, respectively, allowing it to retain
approximately $24 million after capital improvements and preferred stock
dividend requirements. Distributions to shareholders during 1994 and 1993 were
as follows:

<TABLE>
<CAPTION>
1994 1993
--------------------------- ---------------------------
DISTRIBUTIONS TOTAL DISTRIBUTIONS TOTAL
PER SHARE DISTRIBUTIONS PER SHARE DISTRIBUTIONS
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Series A Preferred
Stock.................. $2.500 $ 4,563,000 $2.500 $ 4,563,000
Series B Preferred
Stock.................. $2.300 5,340,000 $1.803 4,147,000
Series C Preferred
Stock.................. $1.042 1,250,000 -- --
Series D Preferred
Stock.................. $0.792 950,000 -- --
Convertible Preferred
Stock.................. $2.063 4,743,000 $0.947 2,178,000
----------- -----------
16,846,000 10,888,000
Common Stock............ $0.850 21,249,000 $0.840 14,728,000
----------- -----------
$38,095,000 $25,616,000
=========== ===========
</TABLE>

S-22
<PAGE>

The Series C Preferred Stock and the Series D Preferred Stock were issued on
June 30, 1994 and September 1, 1994, respectively. Dividends with respect to
the Series C and Series D Preferred Stock are pro rated from the date of
issuance through December 31, 1994. The annual distribution requirement with
respect to the Series D Preferred stock is $2.50 per share. The dividend rate
on the Series C Preferred Stock is adjustable. For the period from the date of
issue (June 30, 1994) through September 30, 1994, the rate was equal to 8.15%
per annum and was 8.426% per annum for the fourth quarter of 1994. Thereafter,
the dividend rate per annum will be adjusted quarterly and will be equal to the
highest of one of three U.S. Treasury indices (Treasury Bill Rate, Ten Year
Constant Maturity Rate, and Thirty Year Constant Maturity Rate) multiplied by
110%. However, the dividend rate for any dividend period will not be less than
6.75% per annum nor greater than 10.75% per annum. The dividend rate with
respect to the first quarter of 1995 is 8.668% per annum.

The annual distribution level with respect to the Company's outstanding
preferred stock (including the Series E Preferred Stock issued in February
1995) is approximately $25,462,000 and, as adjusted for the Offering, assuming
no exercise of the Underwriters' over-allotment option, will be approximately
$ . These amounts assume an annual dividend rate on the Series C
Preferred Stock of 8.668% (the rate in effect for the first quarter of 1995).
At the maximum rate on the Series C Preferred Stock (10.75%), these amounts
would increase by approximately $625,000. The distributions for the first
quarter of 1995 with respect to the Common Stock is $.22 per share.

REIT Distribution Requirement

As a REIT, the Company is not taxed on that portion of its taxable income
which is distributed to its shareholders provided that at least 95% of its
taxable income in any year is so distributed prior to filing of the Company's
tax return with respect to such year. The Company has satisfied the REIT
distribution requirement since 1980. The Company has satisfied the REIT
distribution requirement for 1992, 1993 and 1994 by attributing distributions
in 1993, 1994 and 1995 to the prior year's taxable income. The Company may be
required, over each of the next several years, to attribute distributions made
after the close of the taxable year to the prior year, but shareholders will be
treated for federal income tax purposes as having received such distributions
in the taxable years in which they are actually made. The extent to which the
Company will be required to attribute distributions to the prior year will
depend on the Company's operating results and the level of distributions as
determined by the Board of Directors.

Future Transactions

The Company intends to continue to expand its asset and capital base through
the acquisition of real estate assets and interests in real estate assets from
unaffiliated parties and affiliates of the Adviser through direct purchases,
mergers, tender offers or other transactions, including transactions of the
type described under "Use of Proceeds" and "Recent Developments." The Company
expects to fund these transactions with borrowings under its credit facility,
undistributed operating cash flow and the issuance of securities.

S-23
<PAGE>

BUSINESS

GENERAL

The Company, an equity real estate investment trust ("REIT"), owns more mini-
warehouse space in the United States than any competitor and is the largest
owner of mini-warehouses operated under the "Public Storage" name. At December
31, 1994, the Company had equity investments in 386 mini-warehouses with
approximately 22.6 million square feet of space. The Company's mini-warehouses,
which are located primarily in or near major metropolitan markets in 37 states,
offer relatively low-cost, easily accessible and enclosed storage space for
both personal and business use.

The Company's primary objective is to maximize shareholder value by
increasing funds from operations per share of Common Stock through internal
growth and acquisitions of additional real estate investments. The Company
believes that its access to capital, geographic diversification and operating
efficiencies resulting from its size will enhance its ability to achieve this
objective. The Company believes that its mini-warehouse investments made since
December 31, 1994 generated an unleveraged cash yield of approximately 10% for
the latest 12-month period for which information is available.

The Company believes that its mini-warehouses have attractive operating
characteristics. For 1994, the Company's mini-warehouses had a profit margin
(net cash flow divided by rental income) of 64.1% and an average occupancy of
90% compared with an average break-even occupancy level (before depreciation
expense and debt service) of only 28%. The Company's tenant base, which is
comprised of more than 170,000 individuals and businesses, has an average
occupancy term of 12 months, and no one mini-warehouse accounts for more than
1% of revenues. In addition, the Company's mini-warehouses are characterized by
a low level of capital expenditure to maintain their condition and appearance.

The Company further believes that its operating results have benefitted from
favorable industry trends and conditions. Notably, the level of new mini-
warehouse construction has decreased since 1988 while consumer demand has
increased. In addition, in recent years consolidation has occurred in the
fragmented mini-warehouse industry. The Company believes that it is well-
positioned to capitalize on this consolidation trend due to its demonstrated
access to capital and national presence. PSMI is the largest mini-warehouse
operator in the United States and Canada, operating approximately the same
square footage of mini-warehouse space as the next ten largest operators
combined and approximately four times as much space as the next largest
operator.

The Company's five senior officers have been responsible for the acquisition
of more than 350 mini-warehouses, the development of more than 650 mini-
warehouses and the management of more than 1,000 mini-warehouses during their
average 16 years of experience with the Public Storage organization. In
addition, the Company's senior management has a significant ownership position
in the Company with officers, directors and their affiliates beneficially
owning approximately 9,358,000 shares or 28% of the Common Stock as of March
31, 1995, including approximately 2,165,000 shares purchased for cash at market
prices during 1994.

The Company is currently advised by the Adviser and its facilities are
operated by PSMI and PSCP. The Adviser, PSMI and PSCP are subsidiaries of PSI,
and the Company's executive officers and certain directors are affiliated with
PSI. All are subject to various conflicts of interest arising out of their
relationships with entities that own and operate mini-warehouses. All
operations are under the general supervision of the Board of Directors,
including investments in new facilities and transactions with affiliates. Of
the Company's investments, 211 were made jointly with the PSP Partnerships. The
Company has elected to be taxed as a REIT under the Code. To the extent that
the Company continues to qualify as a REIT, it will not be taxed, with certain
limited exceptions, on the taxable income that is distributed to its
shareholders. See "Certain Considerations--Conflicts of Interest and
Transactions with Affiliates" and "Certain Federal Income Tax Considerations"
in the accompanying Prospectus.

S-24
<PAGE>

See "Prospectus Summary--Proposed Restructuring" for the status of a proposed
major restructuring of the Company.

INVESTMENTS IN FACILITIES

At December 31, 1994, the Company had equity interests (through direct
ownership, as well as general and limited partnership interests) in 402
facilities (147 of which were wholly owned) located in 37 states: Alabama (14),
Arizona (5), California (95), Colorado (14), Connecticut (3), Delaware (3),
Florida (32), Georgia (9), Hawaii (1), Illinois (5), Indiana (8), Kansas (13),
Kentucky (2), Louisiana (3), Maryland (9), Massachusetts (1), Michigan (2),
Minnesota (1), Missouri (9), Nebraska (1), Nevada (8), New Hampshire (2), New
Jersey (13), New York (4), North Carolina (6), Ohio (20), Oklahoma (5), Oregon
(11), Pennsylvania (7), Rhode Island (2), South Carolina (1), Tennessee (7),
Texas (60), Utah (5), Virginia (12), Washington (7), and Wisconsin (2). These
facilities consist of 368 mini-warehouses, 16 business parks and 18 combination
mini-warehouse/business park facilities. Some of the general partnership and
limited partnership interests represent a de minimus interest in the
facilities.

At December 31, 1994, the Company also held mortgage loans secured by 12
other mini-warehouses owned by eight private limited partnerships whose general
partners are affiliates of the Adviser.

None of the Company's current investments involves 5% or more of the
Company's total assets, gross revenues or net income. In the opinion of
management of the Company, the facilities in which the Company has invested are
adequately insured.

Mini-Warehouses. Mini-warehouses, which comprise the vast majority of the
Company's investments (approximately 93% of the Company's FFO for 1994), are
designed to offer accessible storage space for personal and business use at a
relatively low cost. A user rents a fully enclosed space which is for the
user's exclusive use and to which only the user has access on an unrestricted
basis during business hours. On-site operation is the responsibility of
resident managers who are supervised by area managers. Some mini-warehouses
also include rentable uncovered parking areas for vehicle storage. Leases for
mini-warehouse space may be on a long-term or short-term basis, although
typically spaces are rented on a month-to-month basis. Rental rates vary
according to the location of the property and the size of the storage space.

Users of space in mini-warehouses include both individuals and large and
small businesses. Individuals usually employ this space for storage of, among
other things, furniture, household appliances, personal belongings, motor
vehicles, boats, campers, motorcycles and other household goods. Businesses
normally employ this space for storage of excess inventory, business records,
seasonal goods, equipment and fixtures.

Mini-warehouses in which the Company has invested generally consist of three
to seven buildings containing an aggregate of between 350 to 750 storage
spaces, most of which have between 25 and 400 square feet and an interior
height of approximately eight to 12 feet.

The Company experiences minor seasonal fluctuations in the occupancy levels
of mini-warehouses with occupancies generally higher in the summer months than
in the winter months. The Company believes that these fluctuations result in
part from increased moving activity during the summer.

The Company's mini-warehouses are geographically diversified and are
generally located in heavily populated areas and close to concentrations of
apartment complexes, single family residences and commercial developments.
However, there may be circumstances in which it may be appropriate to own a
property in a less populated area, for example, in an area that is highly
visible from a major thoroughfare and close to, although not in, a heavily
populated area. Moreover, in certain population centers, land costs and zoning
restrictions may create a demand for space in nearby less populated areas.

As with most other types of real estate, the conversion of mini-warehouses to
alternative uses in connection with a sale or otherwise would generally require
substantial capital expenditures. However, the Company does not intend to
convert its mini-warehouses to other uses.

S-25
<PAGE>

Commercial Properties. Subject to the prohibitions on investments and
activities described below, the Company may invest in all types of real estate.
Most of the Company's non-mini-warehouse investments are interests in business
parks and low-rise office buildings. A business park may include both
industrial and office space. Industrial space may be used for, among other
things, light manufacturing and assembly, storage and warehousing, distribution
and research and development activities. The Company believes that most of the
office space is occupied by tenants who are also renting industrial space. The
remaining office space is used for general office purposes. A business park may
also include facilities for commercial uses such as banks, travel agencies,
restaurants, office supply shops, professionals or other tenants providing
services to the public. The amount of retail space in a business park is not
expected to be significant.

The Company's business parks typically consist of one to ten buildings
located on three to twelve acres and contain from approximately 55,000 to
175,000 square feet of rentable space. A business park property is typically
divided into units ranging in size from 600 to 5,000 square feet. However, the
Company may acquire business parks that do not have these characteristics. The
larger facilities have on-site management. Parking is open or covered, and the
ratio of spaces to rentable square feet ranges from one to four per thousand
square feet, depending upon the use of the property and its location. Office
space generally requires a greater parking ratio than most industrial uses.

GROWTH STRATEGIES

.Increase net cash flow of existing properties. The Company seeks to increase
the net cash flow generated by its existing properties by (i) increasing
average occupancy rates and (ii) achieving higher levels of realized monthly
rents per occupied square foot. Average occupancy at the Same-Store mini-
warehouses has increased from 86.1% in 1992 to 90.3% in 1994. Similarly,
realized monthly rents per occupied square foot have increased approximately 7%
during this same period. These factors have resulted in net cash flow growth at
Same-Store mini-warehouses of approximately 6%, 9% and 7% in 1992, 1993 and
1994, respectively, over the prior year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations."

.Acquire properties operated by PSMI. The Company believes its relationship
with "Public Storage" enhances its ability to identify attractive acquisition
opportunities. In addition to the facilities in which the Company has an equity
interest, PSMI operates more than 700 mini-warehouses under the "Public
Storage" name on behalf of approximately 100 ownership entities. From time to
time, some of these owners desire to sell their mini-warehouses providing the
Company with a source of additional acquisition opportunities. These properties
exhibit net cash flow growth comparable to the Company's mini-warehouses and
the Company believes they include some of the better located, better
constructed mini-warehouses in the industry. Because of common property
operation, the Company is provided with reliable operating information prior to
acquisition and these properties are easily integrated into the Company's
portfolio. From January 1, 1992 through December 31, 1993, the Company acquired
a total of 36 mini-warehouses which were operated under the "Public Storage"
name (2.1 million square feet of space at an aggregate purchase price of $83.2
million). For 1994, the net cash flow generated by these properties provided an
annualized unleveraged cash yield of approximately 11.6%. During 1994, the
Company acquired an additional 44 such properties.

The Company believes that adequate procedures are in place to protect the
Company's interest in affiliated transactions. All affiliated transactions must
be approved by the Company's independent directors and supported by independent
appraisals and fairness opinions.

S-26
<PAGE>

in the mini-warehouse industry. Of the more than 20,000 mini-warehouses in the
United States, the Company believes that the ten largest operators manage less
than 11% of the total space. PSMI's presence in and knowledge of substantially
all of the major markets in the United States provides the Company with local
market information on rates, occupancy and competition. From January 1, 1992
through December 31, 1993, the Company acquired a total of 16 mini-warehouses
(967,000 square feet of space at an aggregate purchase price of $34.5 million)
operated by other operators. For 1994, the net cash flow generated by these
assets provided an annualized unleveraged cash yield of approximately 12.2%.
During 1994, the Company acquired an additional 27 such properties.

.Conservative distribution policy. The Company seeks to retain significant
funds (after funding its distributions and capital improvements) for additional
property acquisitions and debt reduction. From January 1, 1992 through December
31, 1994, the Company retained approximately $24.1 million for such purposes.
During 1994, the Company distributed only 54.1% of its FFO allocable to Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

OPERATING STRATEGIES

The Company's mini-warehouses are operated by PSMI under the "Public Storage"
name, which the Company believes is the most recognized name in the mini-
warehouse industry. PSMI, with 20 years in the mini-warehouse business, is the
largest operator of mini-warehouses in the country. Including the Company's
mini-warehouses, as of December 31, 1994, PSMI and an affiliate operated 1,099
mini-warehouses aggregating approximately 64.8 million square feet located in
38 states and four provinces in Canada. The major elements of PSMI's operating
strategies are as follows:

. Achieve and maintain high occupancy levels. Subject to market conditions,
PSMI generally seeks to achieve average occupancy levels in excess of 90% and
to eliminate promotions prior to increasing scheduled rates. Average occupancy
for the Company's Same-Store mini-warehouses has increased from 86.1% in 1992
to 90.3% in 1994, and promotions have been reduced from approximately $2.4
million in 1992 to approximately $380,000 in 1994. The Company believes that in
many markets where it has achieved high occupancy levels and eliminated or
minimized promotions, it may have opportunities to increase rental rates.

S-27
<PAGE>

.Participate in PSMI's marketing and advertising programs. The Company
believes that its participation in the Public Storage marketing and
advertising programs improves its competitive position in the market. PSMI is
the only mini-warehouse operator regularly using television advertising in
several markets around the country, and PSMI's in-house Yellow Pages staff
designs and places advertisements in approximately 700 directories in 80
markets. In addition, PSMI offers a toll-free referral system, 800-44-STORE,
which serviced approximately 100,000 calls from potential customers inquiring
as to the nearest Public Storage mini-warehouse. By combining the advertising
and marketing programs of more than 1,000 mini-warehouses, PSMI achieves
significant per facility savings which are passed on to the Company.

.Focus on major markets. The Company is focused on owning and acquiring mini-
warehouses located principally in the 54 largest metropolitan areas (those
with populations in excess of 1,000,000) throughout the country. Such
facilities are generally located in or near densely populated areas within
these markets in order to maximize visibility and customer convenience and to
provide economies of scale with respect to property operation and advertising.
The Company believes that the events resulting in the rental of mini-warehouse
space occur with greater frequency in larger metropolitan areas than in less
populous areas.

.Professional property operation. In addition to the approximately 120 support
personnel at the Public Storage corporate offices, there are approximately
2,700 on-site personnel who manage the day-to-day operations of the mini-
warehouses in the Public Storage system. These on-site personnel are
supervised by 107 district managers, 14 regional managers and three divisional
managers (with an average of 12 years' experience in the mini-warehouse
industry) reporting to the president of PSMI (who has 11 years of experience
with the Public Storage organization). PSMI carefully selects and extensively
trains the operational and support personnel and offers them a progressive
career path. See "Management."

COMPETITION

Competition in the market areas in which many of the Company's facilities
are located is significant and affects the occupancy levels, rental rates and
operating expenses of certain of the Company's facilities. In addition to
competition from mini-warehouses operated by PSMI, there are three other
national firms and numerous regional and local operators. The Company believes
that the significant operating and financial experience of its executive
officers and directors, the Adviser, PSMI and PSCP, combined with the
Company's capital structure, national investment scope, geographic diversity,
economies of scale and the "Public Storage" name, should enable the Company to
continue to compete effectively with other entities.

In seeking investments, the Company competes with a wide variety of
institutions and other investors, some of whom may have greater financial
resources than the Company. An increase in the amount of funds available for
real estate investments may increase competition for ownership of interests in
facilities and may reduce yields.

S-28
<PAGE>

The following table sets forth information on the largest mini-warehouse
operators in the United States and Canada in 1994. Of the 1,099 mini-warehouses
operated under the "Public Storage" name at December 31, 1994, the Company had
equity interests (through direct ownership, as well as general and limited
partnership interests) in 386 mini-warehouses.

Largest Mini-Warehouse Facility Operators-1994

[BAR CHART APPEARS HERE ILLUSTRATING THE LARGEST MINI-WAREHOUSE FACILITY
OPERATORS--1994: PSMI, SHURGARD, U-HAUL AND STORAGE USA.]

PSMI 1,099 facilities 65,000,000 total rentable square feet
Shurgard 245 facilities 15,600,000 total rentable square feet
U-Haul 650 facilities 13,000,000 total rentable square feet
Storage USA 123 facilities 8,000,000 total rentable square feet

Sources: PSI; Shurgard Storage Centers, Inc. Prospectus dated February 15, 1995;
Amerco Prospectus dated March 16, 1995; Storage USA, Inc. Annual Report on Form
10-K for the year ended December 31, 1994. Includes United States and Canada. In
Canada, PSI's mini-warehouses are operated by an affiliate of PSMI.

PROHIBITED INVESTMENTS AND ACTIVITIES

The Company's Bylaws prohibit the Company from purchasing properties in which
the Company's officers or directors have an interest, or from selling
properties to such persons, unless the transactions are approved by a majority
of the independent directors and are fair to the Company based on an
independent appraisal. This Bylaw provision may be changed only upon a vote of
the holders of a majority of the shares of (i) Common Stock and Convertible
Preferred Stock, voting together and (ii) each of the series of Senior
Preferred Stock. See "--Limitations on Debt" for other restrictions in the
Bylaws.

INVESTMENT ADVISER

Since the Company's organization, the Adviser has administered the day-to-day
investment operations of the Company and has advised and consulted with the
Board of Directors in connection with the acquisition and disposition of
investments. The Board of Directors has the duty of overall supervision of the
Company's operations.

The Adviser is wholly owned by PSI which in turn is wholly owned by PSI
Holdings, Inc. ("PSIH"). PSIH is beneficially owned 14% by Kenneth Q. Volk, Jr.
and 86% by B. Wayne Hughes and his daughter, Tamara L. Hughes, who has an
option to acquire, exercisable under certain circumstances, and an irrevocable
proxy to vote, Mr. Volk's remaining interest in PSIH. Certain of the directors
and officers of the Company

S-29
<PAGE>

are also directors and officers of the Adviser. The Advisory Contract between
the Company and the Adviser was approved by the unanimous vote of the directors
who are not affiliated with the Adviser.

Effective September 30, 1991, the Company entered into an Amended and
Restated Advisory Contract (the "Advisory Contract") with the Adviser. This
contract, which amends the original advisory contract, provides for the monthly
payment of advisory fees equal to the sum of (i) 12.75% of the Company's
adjusted income (as defined, and after a reduction for the Company's share of
capital improvements) per share of Common Stock based on Common Stock
outstanding at September 30, 1991 (14,989,454 shares) and (ii) 6% of adjusted
income per share on shares in excess of 14,989,454 shares of Common Stock.
Under the original advisory contract, advisory fees were equal to 15% of the
Company's adjusted income (as defined, and without a reduction for the
Company's share of capital improvements). Effective May 14, 1992, the Advisory
Contract was amended to provide that, in computing the advisory fee, adjusted
income will be reduced by dividends paid on all preferred stock and that the
Adviser will also receive an amount equal to 6% of any such dividends. See
"Description of Preferred Stock--Subordination of Advisory Fee."

In addition to the advisory fee, the Adviser is paid a disposition fee of 20%
of the total realized gain (as defined) from the sale of the Company's assets,
subject to certain limitations.

The Advisory Contract may be terminated (i) at any time by either party upon
60 days' written notice, with or without cause, or (ii) by the Company upon
written notice upon the occurrence of certain events. The Advisory Contract is
subject to annual renewals with the approval of the independent directors and,
in certain circumstances, can be assigned by either the Company or the Adviser.
Upon (i) termination of the Advisory Contract, other than under certain
circumstances, or (ii) expiration of the Advisory Contract due to the Company's
refusal to agree to an extension of the Advisory Contract on the same terms,
the Adviser will be entitled to receive payments as follows: (a) an amount
equal to the accrued and unpaid portion of the disposition fee, less 20% of any
total unrealized loss (as defined) as of the date of termination; (b) an amount
equal to 20% of the total unrealized gain (as defined); and (c) an amount equal
to 15% of adjusted income from October 1, 1991 to the date of termination minus
the advisory fee paid from October 1, 1991 to the date of termination.

See "Prospectus Summary--Proposed Restructuring" for the status of a proposed
major restructuring of the Company.

PROPERTY OPERATORS

Since the Company's organization, PSMI, which was organized in 1973, has
provided property operation services to the Company under a Management
Agreement between the Company and PSMI (as amended, the "Management Agreement,"
which term shall include the assignment relating to such agreement referenced
in the following sentence). In 1987, PSMI assigned its rights to operate
commercial properties to PSCP, which was organized in 1987. PSMI continues to
operate mini-warehouse facilities under the Management Agreement. Under the
Management Agreement, PSMI and PSCP operate substantially all of the assets in
which the Company has invested. PSMI has informed the Company that it believes
it operates more rentable square feet of mini-warehouse storage space than any
other property operator. At December 31, 1994, PSMI, PSCP and affiliates
operated a total of approximately 1,184 facilities in the United States and
Canada, containing an aggregate of approximately 70.0 million net rentable
square feet of space, 1,099 of which were mini-warehouse facilities containing
approximately 64.8 million net rentable square feet of mini-warehouse space.

Under the supervision of the Company, PSMI and PSCP coordinate rental
policies, rent collection, marketing activity, purchase of equipment and
supplies, maintenance activity, and the selection and engagement of vendors,
suppliers and independent contractors.

PSMI and PSCP assist and advise the Company in establishing policies for the
hire, discharge and supervision of employees for the operation of the Company's
facilities, including resident managers, assistant

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managers, relief managers, and billing and maintenance personnel. Some or all
of these employees may be employed on a part-time basis and may also be
employed by PSI, partnerships organized by PSI or other persons or entities
owning facilities operated by PSMI or PSCP.

In the purchasing of services by the Company such as advertising (including
broadcast media advertising) and insurance, PSMI and PSCP attempt to achieve
economies by combining the resources of the various facilities that they
operate. Facilities operated by PSMI and PSCP carry comprehensive insurance,
including fire, earthquake, liability and extended coverage.

PSMI has developed systems for space inventory, accounting and handling
delinquent accounts, including a computerized network linking PSMI operated
facilities. Each project manager is furnished with detailed operating
procedures and typically receives facilities training from PSMI. Form letters
covering a variety of circumstances are also supplied to resident managers. A
record of actions taken by the resident managers when delinquencies occur is
maintained.

The Company's facilities are typically advertised via signage, yellow pages,
flyers and broadcast media advertising (television and radio) in geographic
areas in which many of the Company's facilities are located. PSMI has informed
the Company that it believes that it is the only mini-warehouse operator that
uses television advertising to any significant extent. Broadcast media and
other advertising costs are charged to the Company's facilities located in
geographic areas affected by the advertising. From time to time, PSMI or PSCP
adopt promotional programs, such as temporary rent reductions, in selected
areas or for individual facilities.

For as long as the Management Agreement is in effect, PSMI has granted the
Company a non-exclusive license to use two PSI service marks and related
designs, including the "Public Storage" name, in conjunction with rental and
operation of facilities managed pursuant to the Management Agreement. Upon
termination of the Management Agreement, the Company would no longer have the
right to use the service marks and related designs except as described below.
Management believes that the loss of the right to use the service marks and
related designs could have a material adverse effect on the Company's
business.

The Management Agreement as amended in February 1995 (approved by the Board
of Directors in August 1994) provides that (i) as to facilities directly owned
by the Company, the Management Agreement will expire in February 2002,
provided that in February of each year it shall be automatically extended for
one year unless either party notifies the other that the Management Agreement
is not being extended, in which case it expires, as to such facilities, on the
first anniversary of its then scheduled expiration date; and (ii) as to
facilities in which the Company has an interest, but not directly owned by the
Company, the Management Agreement may be terminated as to such facilities,
upon 60 days' written notice by the Company and upon seven years' notice by
PSMI or PSCP, as the case may be. The Management Agreement may also be
terminated at any time by either party for cause, but if terminated for cause
by the Company, the Company retains the right to use the service marks and
related designs until the then scheduled expiration date, if applicable, or
otherwise a date seven years after such termination.

PSMI and PSCP are wholly owned subsidiares of PSI, which in turn is a wholly
owned subsidiary of PSIH. Certain of the directors and officers of the Company
are also directors and officers of PSMI and PSCP.

For a description of the compensation payable to PSMI and PSCP under the
Property Management Agreement, see item 13 of the 1994 10-K.

See "Prospectus Summary--Proposed Restructuring" for the status of a
proposed major restructuring of the Company.

AGREEMENT ON INVESTMENT OPPORTUNITIES

At any time and from time to time the Company can invoke its rights under
the Agreement on Investment Opportunities, which (when invoked) provides that
PSI and its affiliates may not invest, or offer

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to others the opportunity to invest, in any existing mini-warehouse owned by
an unaffiliated party unless the opportunity has been presented to and
rejected by the Company. These parties may invest in other types of improved
property, and in unimproved property acquired for mini-warehouse construction,
without obligation to make such investments available to the Company. Upon
completion of this offering, the Company intends to invoke its rights under
the Agreement on Investment Opportunities until the net proceeds from the sale
of the shares of Preferred Stock offered hereby have been committed.

BORROWINGS

As of December 31, 1994, the Company had an aggregate of approximately $52
million of mortgage financing due at various dates between 1995 and 2028
(average maturity of approximately 8 years) and bearing interest at rates
ranging from 7.1% to 10.55% (weighted average of 9.30%) per year.

The Company has a $115 million credit facility with a group of commercial
banks. The facility bears interest at LIBOR plus 1.25% and is secured by the
Company's general partner interests in joint ventures with seven of the PSP
Partnerships. The revolving portion of the facility ($45 million) expires in
September 1997 and is extendable until 1999. The declining revolver portion of
the facility provides for maximum borrowings of $70 million through
September 1997, $20 million through September 1998 and $10 million through
September 1999. As of April 20, 1995, the Company had $35 million outstanding
under the credit facility, which will be repaid with the proceeds of the
Offering.

The Company has received a commitment from its group of commercial banks
that, among other things, would expand the credit facility to $125 million,
reduce the interest rate and release the security for the credit facility. The
terms of the modified credit facility have not been finalized, and there is no
assurance that the modification will be implemented.

Subject to the limitations described under "--Limitations on Debt", the
Company has broad powers to borrow in furtherance of its investment
objectives. The Company has incurred in the past, and may incur in the future,
both short-term and long-term indebtedness to increase its funds available for
investment in additional facilities, capital expenditures and distributions.

LIMITATIONS ON DEBT

The Bylaws provide that the Board of Directors shall not authorize or permit
the incurrence of any obligation by the Company which would cause the
Company's "Asset Coverage" of its unsecured indebtedness to become less than
300%. Asset Coverage is defined in the Bylaws as the ratio (expressed as a
percentage) by which the value of the total assets (as defined in the Bylaws)
of the Company less the Company's liabilities (except liabilities for
unsecured borrowings) bears to the aggregate amount of all unsecured
borrowings of the Company. This Bylaw provision may be changed only upon a
vote of the holders of a majority of the shares of (i) Common Stock and
Convertible Preferred Stock voting together and (ii) each of the series of
Senior Preferred Stock.

The Company's Bylaws prohibit the Company from issuing debt securities in a
public offering unless the Company's "cash flow" (which for this purpose means
net income, exclusive of extraordinary items, plus depreciation) for the most
recent 12 months for which financial statements are available, adjusted to
give effect to the anticipated use of the proceeds from the proposed sale of
debt securities, would be sufficient to pay the interest on such securities.
This Bylaw provision may be changed only upon a vote of the holders of a
majority of the shares of (i) Common Stock and Convertible Preferred Stock
voting together and (ii) each of the series of Senior Preferred Stock.

Without the consent of the holders of a majority of each of the series of
Senior Preferred Stock, the Company will not take any action that would result
in a ratio of "Debt" to "Assets" (the "Debt Ratio") in

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excess of 50%. As of December 31, 1994, the Debt Ratio was approximately
9.4%. "Debt" means the liabilities (other than "accrued and other liabilities"
and "minority interest") that should, in accordance with generally accepted
accounting principles, be reflected on the Company's consolidated balance
sheet at the time of determination. "Assets" means the Company's total assets
that should, in accordance with generally accepted accounting principles, be
reflected on the Company's consolidated balance sheet at the time of
determination.

AGREEMENTS WITH PUBLIC PARTNERSHIPS

Between 1982 and 1987, affiliates of PSI sponsored the eight PSP
Partnerships. Through public offerings, these limited partnerships raised an
aggregate of $454,791,000 for investment in existing facilities. The Company
and seven of the PSP Partnerships jointly own 211 facilities. As of December
31, 1994, the Company had invested approximately $174,000,000 in these joint
ventures with seven of the PSP Partnerships. The total of the original
purchase prices of the facilities jointly acquired by the Company and these
PSP Partnerships is approximately $470,000,000, consisting of cash paid by the
Company and the PSP Partnerships, Common Stock and convertible securities
issued by the Company, notes issued by the Company, existing property debt
assumed by the Company alone and existing property debt assumed jointly by the
Company and the PSP Partnerships. The interest of the Company in these joint
ventures ranges from approximately 10% to 70%, but is generally 50% or less.
In addition, the Company is a co-general partner, and owns limited partnership
interests (ranging from 27% to 66% at December 31, 1994), in all of the PSP
Partnerships. See "Recent Developments."

Pursuant to participation agreements entered into between the Company and
seven of the eight PSP Partnerships, the facilities in which the Company
invested with such PSP Partnerships were held in a number of separate joint
ventures comprised of a PSP Partnership and the Company. The participation
agreements were approved by the unanimous vote of the directors of the Company
who are not affiliated with the PSP Partnerships. The Company believes that
the terms of the participation agreements are as favorable to the Company as
the terms that could have been obtained from unaffiliated sources providing
comparable benefits to the Company. For tax administrative efficiency the
original joint ventures with the seven PSP Partnerships were consolidated into
a single joint venture for each of the seven respective PSP Partnerships
effective December 31, 1990. The consolidated agreements, like the prior
individual agreements, include the following provisions: (i) although the PSP
Partnership is the managing general partner of the respective joint venture,
the Company, at any time after seven years from the date a property was
acquired, may compel a sale of a property at not less than the property's
independently determined fair market value, (ii) both the Company and the PSP
Partnership have a right of first refusal to acquire the other's interest in
the event of a proposed sale, and (iii) allocations will be made to take into
account, for tax purposes, any tax items (such as gain, loss, depreciation,
etc.) arising from the difference (if any) (a) between the tax basis of
property contributed to the general partnership and the fair market value of
the property and (b) between the discounted value for purposes of determining
profits and losses and the fair market value. In addition, depreciation
deductions are allocated to, and borne by, the PSP Partnership to the extent
such depreciation deductions are not in excess of the PSP Partnership's
original capital account. See "Certain Federal Income Tax Considerations--Tax
Consequences to Company of Joint Investments with PSP Partnerships" in the
accompanying Prospectus for a discussion of certain tax issues that may be
raised by joint investments by the Company and the PSP Partnerships.

EMPLOYEES

The Company has approximately 1,200 full and part-time employees, primarily
personnel engaged in rendering property operation services. The Company is
required to bear the compensation of personnel involved in the business of the
Company (other than executives and their secretarial support personnel), in
addition to payment of advisory fees and property operation fees.

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MANAGEMENT

The following table sets forth the directors and officers of the Company.

<TABLE>
<CAPTION>
NAME POSITIONS
---- ---------
<S> <C>
B. Wayne Hughes Chairman of the Board and Chief Executive Officer
Harvey Lenkin President and Director
Hugh W. Horne Vice President
Ronald L. Havner, Jr. Vice President and Chief Financial Officer
Obren B. Gerich Vice President
John Reyes Controller
Sarah Hass Secretary
Robert J. Abernethy Director
Dann V. Angeloff Director
William C. Baker Director
Uri P. Harkham Director
Berry Holmes Director
Michael M. Sachs Director
</TABLE>

B. Wayne Hughes, age 61, has been a director of the Company since its
organization in 1980 and was President and Co-Chief Executive Officer from 1980
until November 1991 when he became Chairman of the Board and sole Chief
Executive Officer. Mr. Hughes is the President and Chief Executive Officer of
PSI and various affiliates and the Chairman of the Board of 17 other REITs
organized by PSI beginning in 1989 (the "Public Storage REITs"). Mr. Hughes has
been active in the real estate investment field for 25 years.

Harvey Lenkin, age 59, became President and a director of the Company in
November 1991. He was President of PSMI from 1978 until 1988, when he became
Chairman of the Board of PSMI and an officer of PSI with overall responsibility
for investment banking and investor relations. He has been President of the
Public Storage REITs since their inception.

Hugh W. Horne, age 50, has been a Vice President of the Company since 1980
and was Secretary of the Company from 1980 until February 1992. He has been an
officer of PSI and PSMI since 1973. He is responsible for managing all aspects
of property acquisition.

Ronald L. Havner, Jr., age 37, a certified public accountant, became an
officer of the Company in 1990 and Chief Financial Officer in November 1991. He
has been an officer of PSI since 1986 and became Chief Financial Officer of PSI
and its affiliates in 1991. Mr. Havner has been an officer of the Public
Storage REITs since their inception.

Obren B. Gerich, age 56, a certified public accountant and certified
financial planner, has been a Vice President of the Company since 1980 and was
Chief Financial Officer of the Company until November 1991. Mr. Gerich has been
an officer of PSI since 1975. Mr. Gerich has been an officer of the Public
Storage REITs since their inception.

John Reyes, age 34, a certified public accountant, joined PSI in 1990 and has
been the Controller of the Company since 1992. From 1983 to 1990, Mr. Reyes was
employed by Ernst & Young.

Sarah Hass, age 39, became Secretary of the Company in February 1992. She
joined PSI's legal department in June 1991, rendering services on behalf of the
Company, PSI and its affiliates. From 1987 until May 1991, her professional
corporation was a partner in the law firm of Sachs & Phelps, then counsel to
the Company, the Adviser and PSI, and from April 1986 until June 1987, she was
associated with that firm, practicing in the area of securities law. From
September 1979 until September 1985, Ms. Hass was associated with the law firm
of Rifkind & Sterling, Incorporated.

Robert J. Abernethy, age 54, Chairman of the Audit Committee, is President of
American Standard Development Company and of Self-Storage Management Company,
which develop and operate mini-warehouses. Mr. Abernethy has been a director of
the Company since its organization. Mr. Abernethy is a member of the board of
directors of Johns Hopkins University and of the Metropolitan Transportation
Authority and a former member of the board of directors of the Metropolitan
Water District of Southern California.

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<PAGE>

Dann V. Angeloff, age 59, is president of The Angeloff Company, a corporate
financial advisory firm. The Angeloff Company has rendered, and is expected to
continue to render, financial advisory and securities brokerage services for
PSI. Mr. Angeloff is the general partner of a limited partnership that owns a
mini-warehouse developed by PSI and managed by PSMI. Mr. Angeloff has been a
director of the Company since its organization. Mr. Angeloff is a director of
Compensation Resource Group, Datametrics Corporation, Nicholas/Applegate Growth
Equity Fund, Nicholas/Applegate Investment Trust, Royce Medical Company, Seda
Specialty Packaging Corp. and one of the Public Storage REITs.

William C. Baker, age 61, became a director of the Company in November 1991.
Since April 1993, Mr. Baker has been President of Red Robin International Inc.,
an operator and franchisor of casual dining restaurants in the United States
and Canada. From 1976 to 1988, he was a principal shareholder and Chairman and
Chief Executive Officer of Del Taco, Inc., an operator and franchisor of fast
food restaurants in California. Mr. Baker is a director of Bank of Newport,
Santa Anita Realty Enterprises, Inc., Santa Anita Operating Company and
Callaway Golf Company.

Uri P. Harkham, age 46, became a director of the Company in March 1993. Mr.
Harkham has been the President and Chief Executive Officer of the Jonathan
Martin Fashion Group, which specializes in designing, manufacturing and
marketing women's clothing, since its organization in 1976. Since 1978, Mr.
Harkham has been the Chairman of the Board of Harkham Properties, a real estate
firm specializing in buying and managing fashion warehouses in Los Angeles and
Australia.

Berry Holmes, age 64, a member of the Audit Committee, is a private investor.
Mr. Holmes has been a director of the Company since its organization. Mr.
Holmes was president and a director of Financial Corporation of Santa Barbara
and Santa Barbara Savings and Loan Association through June 1984 and was a
consultant with Santa Barbara Savings and Loan Association during the second
half of 1984. Mr. Holmes is a director of one of the Public Storage REITs.

Michael M. Sachs, age 54, has been President since June 1990 of Westrec
Financial, Inc., a holding company formed to acquire, develop and manage,
through a subsidiary, recreational properties. Mr. Sachs was vice president of
the predecessor to Westrec Financial, Inc. for the prior two years. Mr. Sachs
has been a director of the Company since its organization. He was President of
a professional corporation that from 1982 to July 1985 was general counsel to
PSI and its affiliates and until June 1991 was of counsel to the law firm of
Sachs & Phelps, then counsel to the Company, the Adviser and PSI. From 1985
until June 1990, Mr. Sachs was an officer of PSI and its affiliates. Mr. Sachs
is a director of MMI Medical, Inc. and one of the Public Storage REITs.

The Company's mini-warehouses are operated by PSMI. The four senior
executives of PSMI are the following.

Marvin M. Lotz, age 52, has been president of PSMI since 1988. Mr. Lotz was
an officer of PSI with responsibility for property acquisitions from 1983 until
1988.

Anthony Grillo, age 39, joined PSMI in 1981 and has been a divisional manager
since 1988 in charge of overall mini-warehouse management activities in the
southwestern United States (approximately 380 properties).

Ron Harden, age 46, joined PSMI in 1987 and became a divisional manager in
1988. He is responsible for overall mini-warehouse management activities in the
northeastern United States and in eastern Canada (approximately 329
properties).

Gary Hattenburg, age 44, joined PSMI as a divisional manager in 1989 to
oversee the overall mini-warehouse management activities in the northwestern
and southeastern United States and in western Canada (approximately 385
properties). He has been in the mini-warehouse industry since 1976 including
serving for four years as the Director of Operations for Shurgard Inc., a
national operator of mini-warehouses.

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DESCRIPTION OF PREFERRED STOCK

GENERAL

Under the Company's Articles of Incorporation, as amended, the Board of
Directors is authorized without further shareholder action to provide for the
issuance of up to 50,000,000 shares of preferred stock, in one or more series,
with such voting powers, full or limited, and with such designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be set forth in
resolutions providing for the issue thereof adopted by the Board of Directors.
The Company has outstanding 1,825,000 shares of Series A Preferred Stock,
2,386,000 shares of Series B Preferred Stock, 1,200,000 shares of Series C
Preferred Stock, 1,200,000 shares of Series D Preferred Stock, 2,195,000 shares
of Series E Preferred Stock and 2,300,000 shares of Convertible Preferred
Stock.

Prior to issuance, the Board of Directors will have adopted resolutions
creating the % Cumulative Preferred Stock, Series F (the "Preferred Stock").
When issued, the Preferred Stock will have a stated value of $25 per share,
will be fully paid and nonassessable, will not be subject to any sinking fund
or other obligation of the Company to repurchase or retire the Preferred Stock,
and will have no preemptive rights.

The First National Bank of Boston is the transfer agent and dividend
disbursing agent for the other series of preferred stock and will also act in
such capacity for the Preferred Stock.

The following is a brief description of the terms of the Preferred Stock
which does not purport to be complete and is subject to and qualified in its
entirety by reference to the Certificate of Determination of the Preferred
Stock, the form of which is filed as an exhibit to, or incorporated by
reference in, the Registration Statement of which this Prospectus Supplement
constitutes a part. The terms of the Preferred Stock are substantially
identical to those of the other series of Senior Preferred Stock (other than
the adjustable rate preferred stock) in all respects other than the dividend
rate.

See "Certain Federal Income Tax Considerations--Tax Treatment of the Company"
for a discussion of certain powers given to the Board of Directors to prohibit
the transfer, or effect redemptions, of the Preferred Stock and any other
capital stock of the Company designed to aid the Company to maintain
qualification as a REIT.

DIVIDENDS

Holders of shares of Preferred Stock, in preference to the holders of shares
of the Common Stock, and of any other capital stock of the Company ranking
junior to the Preferred Stock as to payment of dividends, will be entitled to
receive, when and as declared by the Board of Directors out of assets of the
Company legally available for payment, cash dividends payable quarterly at the
rate of $ per share per year. Dividends on the shares of Preferred Stock
offered hereby will be cumulative from the date of issue and will be payable
quarterly on March 31, June 30, September 30 and December 31, commencing June
30, 1995, to holders of record as they appear on the stock register of the
Company on such record dates, not less than 15 or more than 45 days preceding
the payment dates thereof, as shall be fixed by the Board of Directors. After
full dividends on the Preferred Stock have been paid or declared and funds set
aside for payment for all past dividend periods and for the then current
quarter, the holders of shares of Preferred Stock will not be entitled to any
further dividends with respect to that quarter.

When dividends are not paid in full upon the Preferred Stock and any other
shares of preferred stock of the Company ranking on a parity as to dividends
with the Preferred Stock (including the other series of Senior Preferred
Stock), all dividends declared upon the Preferred Stock and any other preferred
shares of the Company ranking on a parity as to dividends with the Preferred
Stock shall be declared pro rata so that the amount of dividends declared per
share on such Preferred Stock and such other shares shall in all cases bear to
each other the same ratio that the accrued dividends per share on the Preferred
Stock and such other

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preferred shares bear to each other. Except as set forth in the preceding
sentence, unless full dividends on the Preferred Stock have been paid for all
past dividend periods, no dividends (other than in Common Stock or other shares
of capital stock of the Company ranking junior to the Preferred Stock as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment, nor shall any other distribution be made on the Common Stock or on any
other shares of capital stock of the Company ranking junior to or on a parity
with the Preferred Stock as to dividends or upon liquidation. Unless full
dividends on the Preferred Stock have been paid for all past dividend periods,
no Common Stock or any other shares of capital stock of the Company ranking
junior to or on a parity with the Preferred Stock as to dividends or upon
liquidation shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid or made available for a sinking fund for
the redemption of any such shares) by the Company or any subsidiary of the
Company except by conversion into or exchange for shares of capital stock of
the Company ranking junior to the Preferred Stock as to dividends and upon
liquidation.

The Company's revolving credit facility with a commercial bank restricts the
Company's ability to pay distributions in excess of "Funds from Operations" for
the prior four fiscal quarters less scheduled principal payments and less
capital expenditures. Funds from operations is defined in the loan agreement
generally as net income before gain on sale of real estate, extraordinary loss
on early retirement of debt and deductions for depreciation, amortization and
non-cash charges. Management believes that this restriction will not impede the
Company's ability to pay the dividends on the Preferred Stock in full. See
"Business--Borrowings."

SUBORDINATION OF ADVISORY FEE

The Advisory Contract, as amended, provides that the Adviser will not be
entitled to the advisory fee with respect to services rendered during any
quarter in which full cumulative dividends on any of the series of Senior
Preferred Stock, including the Preferred Stock, have not been paid or declared
and funds therefor set aside for payment. The Advisory Contract may be
terminated or amended without the approval of the holders of the Preferred
Stock.

See "Prospectus Summary--Proposed Restructuring" for the status of a proposed
major restructuring of the Company.

CONVERSION RIGHTS

The Preferred Stock will not be convertible into shares of any other class or
series of capital stock of the Company.

LIQUIDATION RIGHTS

In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Preferred Stock will be entitled
to receive out of the Company's assets available for distribution to
stockholders, before any distribution of assets is made to holders of Common
Stock or of any other shares of capital stock of the Company ranking as to such
distribution junior to the Preferred Stock, liquidating distributions in the
amount of $25 per share, plus all accrued and unpaid dividends (whether or not
earned or declared) for the then current, and all prior, dividend periods. If
upon any voluntary or involuntary liquidation, dissolution or winding up of the
Company, the amounts payable with respect to the Preferred Stock and any other
shares of stock of the Company ranking as to any such distribution on a parity
with the Preferred Stock (including the other series of Senior Preferred Stock)
are not paid in full, the holders of the Preferred Stock and of such other
shares will share ratably in any such distribution of assets of the Company in
proportion to the full respective preferential amounts to which they are
entitled. After payment of the full amount of the liquidating distribution to
which they are entitled, the holders of the Preferred Stock will not be
entitled to any further participation in any distribution of assets by the
Company.

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For purposes of liquidation rights, a consolidation or merger of the Company
with or into any other corporation or corporations or a sale of all or
substantially all of the assets of the Company is not a liquidation,
dissolution or winding up of the Company.

REDEMPTION

Except in certain circumstances relating to the Company's maintenance of its
ability to qualify as a REIT as described under "Certain Federal Income Tax
Considerations--Tax Treatment of the Company" in the accompanying Prospectus,
the shares of Preferred Stock are not redeemable prior to April 30, 2005. On
and after April 30, 2005, at any time or from time to time, the shares of
Preferred Stock will be redeemable in whole or in part at the option of the
Company at a cash redemption price of $25 per share, plus all accrued and
unpaid dividends to the date of redemption. If fewer than all the outstanding
shares of Preferred Stock are to be redeemed, the number of shares to be
redeemed will be determined by the Board of Directors of the Company, and such
shares shall be redeemed pro rata from the holders of record of such shares in
proportion to the number of such shares held by such holders (with adjustments
to avoid redemption of fractional shares) or by lot in a manner determined by
the Board of Directors of the Company.

Notwithstanding the foregoing, if any dividends, including any accumulation,
on the Preferred Stock are in arrears, no Preferred Stock shall be redeemed
unless all outstanding Preferred Stock is simultaneously redeemed, and the
Company shall not purchase or otherwise acquire, directly or indirectly, any
Preferred Stock; provided, however, that this shall not prevent the purchase or
acquisition of the Preferred Stock pursuant to a purchase or exchange offer if
such offer is made on the same terms to all holders of the Preferred Stock.

Notice of redemption will be given by publication in a newspaper of general
circulation in the County of Los Angeles and the City of New York, such
publication to be made once a week for two successive weeks commencing not less
than 30 nor more than 60 days prior to the redemption date. A similar notice
will be mailed by the Company, postage prepaid, not less than 30 or more than
60 days prior to the redemption date, addressed to the respective holders of
record of shares of Preferred Stock to be redeemed at their respective
addresses as they appear on the stock transfer records of the Company. Each
notice shall state: (i) the redemption date; (ii) the number of shares of
Preferred Stock to be redeemed; (iii) the redemption price; (iv) the place or
places where certificates for the Preferred Stock are to be surrendered for
payment of the redemption price; and (v) that dividends on the shares to be
redeemed will cease to accrue on such redemption date. If fewer than all the
shares of Preferred Stock held by any holder are to be redeemed, the notice
mailed to such holder shall also specify the number of shares of Preferred
Stock to be redeemed from such holder. In order to facilitate the redemption of
shares of Preferred Stock, the Board of Directors may fix a record date for the
determination of shares of Preferred Stock to be redeemed, such record date to
be not less than 30 or more than 60 days prior to the date fixed for such
redemption.

Notice having been given as provided above, from and after the date specified
therein as the date of redemption, unless the Company defaults in providing
funds for the payment of the redemption price on such date, all dividends on
the Preferred Stock called for redemption will cease. From and after the
redemption date, unless the Company so defaults, all rights of the holders of
the Preferred Stock as stockholders of the Company, except the right to receive
the redemption price (but without interest), will cease. Upon surrender in
accordance with such notice of the certificates representing any such shares
(properly endorsed or assigned for transfer, if the Board of Directors of the
Company shall so require and the notice shall so state), the redemption price
set forth above shall be paid out of the funds provided by the Company. If
fewer than all the shares represented by any such certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares without cost
to the holder thereof.

Subject to applicable law and the limitation on purchases when dividends on
the Preferred Stock are in arrears, the Company may, at any time and from time
to time, purchase any shares of the Preferred Stock in the open market, by
tender or by private agreement.

S-38
<PAGE>

VOTING RIGHTS

Except as indicated below, or except as expressly required by applicable law,
the holders of the Preferred Stock will not be entitled to vote.

If the equivalent of six quarterly dividends payable on the Preferred Stock
or any other series of preferred stock are in default (whether or not declared
or consecutive), the holders of all outstanding series of preferred stock,
voting as a single class without regard to series, will be entitled to elect
two additional directors (in addition to any directors elected with respect to
the required Debt Ratio) until all dividends in default have been paid or
declared and set apart for payment.

If the Debt Ratio on the last day of any two consecutive fiscal quarters
exceeds 50% (unless such condition is approved or ratified by the holders of a
majority of each of the series of Senior Preferred Stock), the holders of each
of the series of Senior Preferred Stock will be entitled to elect two
additional directors (in addition to any directors elected for defaults in
dividends) until the Debt Ratio as of the last day of a fiscal quarter is less
than 50%. See "Business--Limitations on Debt."

Such right to vote separately to elect directors shall, when vested, be
subject, always, to the same provisions for vesting of such right to elect
directors separately in the case of future dividend defaults or with respect to
the required Debt Ratio. At any time when such right to elect directors
separately shall have so vested, the Company may, and upon the written request
of the holders of record of not less than 20% of the total number of preferred
shares of the Company then outstanding (with respect to dividend defaults) or
20% of the holders of the Preferred Stock (with respect to the required Debt
Ratio) shall, call a special meeting of shareholders for the election of
directors. In the case of such a written request, such special meeting shall be
held within 90 days after the delivery of such request and, in either case, at
the place and upon the notice provided by law and in the Bylaws of the Company,
provided that the Company shall not be required to call such a special meeting
if such request is received less than 120 days before the date fixed for the
next ensuing annual meeting of shareholders, and the holders of all classes of
outstanding preferred stock (in the case of dividend defaults) or the holders
of the Preferred Stock (with respect to the required Debt Ratio) are offered
the opportunity to elect such directors (or fill any vacancy) at such annual
meeting of shareholders. Directors so elected shall serve until the next annual
meeting of shareholders of the Company or until their respective successors are
elected and qualify. If, prior to the end of the term of any director so
elected, a vacancy in the office of such director shall occur, during the
continuance of a default (a) in dividends on preferred shares of the Company or
(b) with respect to the required Debt Ratio, by reason of death, resignation,
or disability, such vacancy shall be filled for the unexpired term of such
former director by the appointment of a new director by the remaining director
or directors so elected.

The affirmative vote or consent of the holders of at least 66 2/3% of the
outstanding shares of the Preferred Stock and any other series of preferred
stock ranking on a parity with the Preferred Stock as to dividends or upon
liquidation (which includes the other series of Senior Preferred Stock), voting
as a single class, will be required to authorize another class of shares senior
to the Preferred Stock with respect to the payment of dividends or the
distribution of assets on liquidation. The affirmative vote or consent of the
holders of at least 66 2/3% of the outstanding shares of the Preferred Stock
will be required to amend or repeal any provision of or add any provision to,
the Articles of Incorporation, including the Certificate of Determination, if
such action would materially and adversely alter or change the rights,
preferences or privileges of the Preferred Stock.

The affirmative vote or consent of the holders of a majority of the
outstanding shares of Preferred Stock will be required to change the Bylaw
provisions described under "Business--Prohibited Investments and Activities"
and "--Limitations on Debt."

No consent or approval of the holders of shares of the Preferred Stock will
be required for the issuance from the Company's authorized but unissued
preferred stock of other shares of any series of preferred stock ranking on a
parity with or junior to the Preferred Stock as to payment of dividends and
distribution of assets, including other shares of Preferred Stock.

S-39
<PAGE>

UNDERWRITING

Under the terms and subject to the conditions of the Underwriting Agreement
dated the date hereof, each of the Underwriters named below (the
"Underwriters"), for whom Smith Barney Inc., PaineWebber Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation and The Robinson-Humphrey
Company, Inc. are acting as the Representatives (the "Representatives"), have
severally agreed to purchase, and the Company has agreed to sell to each
Underwriter, the number of shares of Preferred Stock which equal the number of
shares set forth opposite the name of such Underwriter below:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Smith Barney Inc....................................................
PaineWebber Incorporated............................................
Donaldson, Lufkin & Jenrette Securities Corporation.................
The Robinson-Humphrey Company, Inc. ................................
---------

Total............................................................. 1,500,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Preferred
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.

The Underwriters initially propose to offer part of the shares of Preferred
Stock directly to the public at the public offering price set forth on the
cover page of this Prospectus Supplement and part to certain dealers at a price
which represents a concession not in excess of $. per share under the public
offering price; provided, however, that such concession shall not exceed $.
per share of Preferred Stock for sales to certain institutions. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $. per share to the other Underwriters or to certain other dealers.
After the initial public offering, the public offering price and such
concessions may be changed by the Underwriters.

The Company has granted to the Underwriters an option, exercisable for thirty
days from the date of this Prospectus Supplement, to purchase up to an
aggregate of 225,000 additional shares of Preferred Stock at the public
offering price set forth on the cover page of this Prospectus Supplement, minus
the underwriting discounts and commissions. The Underwriters may exercise such
option to purchase additional shares solely for the purpose of covering over-
allotments, if any, incurred in connection with the sale of the shares offered
hereby. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
such Underwriter's name in the preceding table bears to the total number of
shares in such table.

The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.

Application has been made to list the Preferred Stock on the NYSE, subject to
official notice of issuance. Prior to this offering, there has been no public
market for the Preferred Stock. Trading of the Preferred Stock on the NYSE is
expected to commence within a seven-day period after the initial delivery of
the Preferred Stock. The Underwriters have advised the Company that they intend
to make a market in the Preferred Stock prior to the commencement of trading on
the NYSE, but are not obligated to do so and may discontinue market making at
any time without notice.

S-40
<PAGE>

LEGAL OPINIONS

Certain legal matters relating to the Preferred Stock will be passed upon
for the Company by David Goldberg, Glendale, California, counsel to the
Company and counsel to PSI and its affiliates, and for the Underwriters by
Skadden, Arps, Slate, Meagher & Flom, Los Angeles, California. Hogan & Hartson
L.L.P., Washington, D.C., has delivered an opinion dated July 26, 1994 as to
the status of the Company as a REIT. Mr. Goldberg owns 20,877 shares of Common
Stock, 1,000 Shares of Convertible Preferred Stock and 500 shares of Series C
Preferred Stock, and has options to acquire an additional 47,500 shares of
Common Stock and has invested in entities affiliated with PSI. See "Certain
Federal Income Tax Considerations" in the accompanying Prospectus.

EXPERTS

The consolidated financial statements and related schedules of the Company
appearing in the Company's Annual Report on Form 10-K, as amended by a Form
10-K/A (Amendment No. 2) dated April 21, 1995, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports included in the
Company's Annual Report on Form 10-K, and incorporated herein by reference.
Such consolidated financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.

S-41
<PAGE>

PROSPECTUS
- ----------
STORAGE EQUITIES, INC.

PREFERRED STOCK
COMMON STOCK
WARRANTS

Storage Equities, Inc. (the "Company") may from time to time offer in one or
more series (i) shares of preferred stock, par value $.01 per share (the
"Preferred Stock"), (ii) shares of Common Stock, par value $.10 per share (the
"Common Stock") or (iii) warrants to purchase Preferred Stock or Common Stock
(the "Warrants"), with an aggregate public offering price of up to $300,000,000
on terms to be determined at the time of offering. The Preferred Stock, Common
Stock and Warrants (collectively, the "Securities") may be offered, separately
or together, in amounts, at prices and on terms to be set forth in a supplement
to this Prospectus (a "Prospectus Supplement").

The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Preferred Stock, the
specific title and stated value, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price;
(ii) in the case of Common Stock, any initial public offering price; and (iii)
in the case of Warrants, the duration, offering price, exercise price and
detachability.

The applicable Prospectus Supplement will also contain information, where
applicable, about any listing on a securities exchange of the Securities
covered by such Prospectus Supplement.

The Securities may be offered directly, through agents designated from time
to time by the Company, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their names,
and any applicable purchase price, fee, commission or discount arrangement
between or among them, will be set forth, or will be calculable from the
information set forth, in the applicable Prospectus Supplement. See "Plan of
Distribution." No Securities may be sold without delivery of the applicable
Prospectus Supplement describing the method and terms of the offering of such
series of Securities.

This Prospectus may also be used in a registered resale by persons who hold
(i) Securities issued pursuant to this Prospectus or (ii) securities issued in
private or other transactions in connection with acquisitions by the Company of
direct or indirect interests in real properties or otherwise, in each case in
transactions in which such persons may be deemed to be underwriters within the
meaning of the Securities Act of 1933.

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"CERTAIN CONSIDERATIONS" IN THE PROSPECTUS.

------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

------------

THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

------------

August 12, 1994
<PAGE>

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission in Washington, D.C.
and at the Regional Offices of the Commission at 75 Park Place, 14th Floor, New
York, New York 10007; and Northwestern Atrium Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material can be
obtained at prescribed rates from the Public Reference Room of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. Such material can also be
inspected at the New York Stock Exchange ("NYSE"), 20 Broad Street, New York,
New York 10005.

The Company has filed with the Commission a registration statement on Form S-
3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, filed by the Company with the Commission pursuant to
Section 13 of the Exchange Act (File No. 1-8389), are incorporated herein by
reference: (i) the Annual Report on Form 10-K for the year ended December 31,
1993, as amended by Form 10-K/A's dated April 26, 1994 and May 26, 1994, (ii)
the Quarterly Reports on Form 10-Q for the quarters ended March 31, 1994 and
June 30, 1994 and (iii) the Current Reports on Form 8-K dated January 12, 1994
(as amended by Form 8-K/A dated May 26, 1994), February 2, 1994, June 7, 1994
and June 23, 1994.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Securities shall be deemed to be
incorporated by reference in this Prospectus.

Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

Copies of all documents which are incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such information), will be provided without charge
to any person, including any beneficial owner, to whom this Prospectus is
delivered, upon written request. Requests for such copies should be directed to
Investor Services Department, Storage Equities, Inc., 600 North Brand
Boulevard, Suite 300, Glendale, California 91203-1241.

2
<PAGE>

THE COMPANY

The Company is a real estate investment trust ("REIT"), organized as a
corporation under the laws of California, that has invested primarily in
existing self-service facilities offering storage space for personal and
business use ("mini-warehouses"). The Company believes that it is one of the
largest owners of mini-warehouses in the United States. The Company has also
invested to a much smaller extent in existing business parks containing
commercial and industrial rental space. At June 30, 1994, the Company had
equity interests (through direct ownership, as well as general and limited
partnership interests) in 356 properties located in 36 states, including 325
mini-warehouse facilities, 16 business parks and 15 combination mini-
warehouse/business park facilities. These facilities are operated under the
"Public Storage" name. The Common Stock, and the Company's 10% Cumulative
Preferred Stock, Series A (the "Series A Preferred Stock"), 9.20% Cumulative
Preferred Stock, Series B (the "Series B Preferred Stock"), 8.25% Convertible
Preferred Stock (the "Convertible Preferred Stock") and Adjustable Rate
Cumulative Preferred Stock, Series C (the "Adjustable Rate Preferred Stock")
are traded on the NYSE under the symbols SEQ, SEQ PrA, SEQ PrB, SEQ PrX and SEQ
PrC, respectively.

The Company's operations are managed by Public Storage Advisers, Inc. (the
"Adviser"), the Company's investment adviser, by Public Storage Management,
Inc. ("PSMI"), its mini-warehouse property manager, and by Public Storage
Commercial Properties Group, Inc. ("PSCP"), its commercial property manager.
All operations are under the general supervision of the Company's Board of
Directors (the "Board of Directors"), including investments in new facilities,
which are reviewed and approved by the Board of Directors and are subject to
restrictions in the Company's Bylaws. Of the Company's investments, 212 were
made jointly with seven of a group of eight public limited partnerships
affiliated with the Adviser (these eight partnerships are referred to herein
collectively as the "PSP Partnerships"). The Adviser, PSMI, PSCP and the
Company's executive officers and certain directors are affiliated with Public
Storage, Inc. ("PSI"). PSI believes that, together with its affiliates, it is
the largest operator of mini-warehouse facilities in the United States and
Canada. At June 30, 1994, PSMI, PSCP and their affiliates managed a total of
approximately 1,176 facilities in the United States and Canada containing an
aggregate of approximately 69,190,400 net rentable square feet of space, 1,091
of which were mini-warehouse facilities containing approximately 63,979,100 net
rentable square feet of space. Since 1976, PSI and its affiliated entities and
unaffiliated investor groups have raised approximately $2.7 billion in equity
capital for the development and acquisition of facilities, primarily mini-
warehouses managed by PSMI.

The executive officers and certain directors of the Company, the Adviser,
PSI, PSMI and PSCP are subject to various conflicts of interest arising out of
their relationships with entities that own and operate mini-warehouses and
business parks. For example, the Company pays substantial fees to the Adviser,
PSMI and PSCP for investment advisory and property management services. The
issuance of securities pursuant to this Prospectus is expected to increase the
compensation payable to the Adviser, and, to the extent the proceeds of such
issuance are used to acquire properties, increase compensation to PSMI and
PSCP.

The Company has elected to be taxed as a REIT under the Internal Revenue Code
of 1986, as amended (the "Code"). To the extent that the Company continues to
qualify as a REIT, it will not be taxed, with certain limited exceptions, on
the net income that is currently distributed to its shareholders (the
"Shareholders"). See "Certain Federal Income Tax Considerations." The Company
was incorporated in California in 1980; its principal executive offices are
located at 600 North Brand Boulevard, Suite 300, Glendale, California 91203-
1241. Its telephone number is (818) 244-8080.

3
<PAGE>

CERTAIN CONSIDERATIONS

In evaluating the Securities, investors should consider the following
factors, in addition to other matters set forth or incorporated in this
Prospectus (and in the applicable Prospectus Supplement) and the Registration
Statement.

OPERATING RISKS

General Risks of Real Estate Ownership. The Company is subject to the risks
generally incident to the ownership of real estate-related assets, including
lack of demand for rental spaces in a locale, changes in general economic or
local conditions, changes in supply of or demand for similar or competing
facilities in an area, the impact of environmental protection laws, changes in
interest rates and availability of permanent mortgage funds which may render
the sale or financing of a property difficult or unattractive and changes in
tax, real estate and zoning laws.

Competition Among Mini-Warehouses. Most of the Company's properties are mini-
warehouses. Competition in the market areas in which many of the Company's
investments are located is significant and has affected the occupancy levels,
rental rates and operating expenses of certain of the Company's investments.

Risk of Environmental Liabilities. Under various federal, state and local
laws, regulations and ordinances (collectively, "Environmental Laws"), an owner
or operator of real estate interests may be liable for the costs of cleaning
up, as well as certain damages resulting from, past or present spills,
disposals or other releases of hazardous or toxic substances or wastes on, in
or from a property. Certain Environmental Laws impose such liability without
regard to whether the owner knew of, or was responsible for, the presence of
hazardous or toxic substances or wastes at or from a property. An owner or
operator of real estate or real estate interests also may be liable under
certain Environmental Laws that govern activities or operations at a property
having adverse environmental effects, such as discharges to air and water as
well as handling and disposal practices for solid and hazardous or toxic
wastes. In some cases, liability may not be limited to the value of the
property. The presence of such substances or wastes, or the failure to properly
remediate any resulting contamination, also may adversely affect the owner's or
operator's ability to sell, lease or operate its property or to borrow using
its property as collateral.

Substantially all of the Company's facilities were acquired prior to the time
that it was customary to conduct extensive environmental investigations in
connection with property acquisitions. The Company's current practice is to
conduct preliminary environmental assessments in connection with property
acquisitions (other than acquisitions of additional interests in properties in
which the Company has an existing interest) to evaluate the environmental
condition of, and potential environmental liabilities associated with, such
properties. Such assessments generally consist of an investigation of
environmental conditions at the subject property (not including soil or
groundwater sampling or analysis), as well as a review of available information
regarding the site and publicly available data regarding conditions at other
sites in the vicinity. In connection with its operations and during the course
of environmental investigations in connection with property acquisitions, the
Company has become aware that prior operations or activities at certain
facilities or from nearby locations have or may have resulted in contamination
to the soil and/or groundwater at such facilities. Although there can be no
assurance, the Company believes it has funds available to cover any liability
from such environmental contamination or potential contamination and the
Company is not aware of any environmental contamination of its facilities
material to its overall business or financial condition.

FINANCING RISKS

Dilution and Subordination. The interest of Shareholders, including persons
who acquire Securities in this offering, can be diluted through the issuance of
additional securities.

4
<PAGE>

Since October 1992 the Company has issued shares of preferred stock in public
offerings and intends to issue additional such shares. These issuances could
involve certain risks to holders of shares of Common Stock. In the event of a
liquidation of the Company, the holders of the preferred stock will be entitled
to receive, before any distribution of assets to holders of Common Stock,
liquidating distributions (an aggregate of $190,625,000 in respect of the
preferred stock issued to date), plus any accrued and unpaid dividends. Holders
of preferred stock are entitled to receive, when declared by the Board of
Directors, cash dividends (an aggregate of $17,041,300 per year in respect of
the preferred stock issued to date (up to $17,821,300 at the maximum dividend
rate on shares of adjustable rate preferred stock)), in preference to holders
of Common Stock. As a REIT, the Company must distribute to its Shareholders
(which include not only holders of Common Stock but also holders of preferred
stock) at least 95% of its taxable income. Failure to pay full dividends on the
preferred stock could jeopardize the Company's qualification as a REIT. See
"Description of Preferred Stock" and "Certain Federal Income Tax
Considerations--Tax Treatment of the Company."

Risk of Leverage. In making real estate investments, the Company has incurred
and may continue to incur indebtedness to the extent believed appropriate. The
incurrence of indebtedness increases the risk of loss of the investment.

CONFLICTS OF INTEREST AND TRANSACTIONS WITH AFFILIATES

Conflicts of Interest. The Adviser, PSMI, PSCP and certain of the Company's
executive officers and directors have possible conflicts of interest arising
out of their relationship with entities that own and operate mini-warehouses
and other facilities. These conflicts of interests may include the method by
which the executive officers and directors allocate their time between the
Company and other activities, including activities involving mini-warehouses
and other facilities owned by affiliates of PSMI or PSCP. In addition, the
directors and executive officers of the Company and their affiliates may,
subject to certain limitations, invest in other businesses, including business
activities of the type conducted by or in competition with the Company. Also,
conflicts of interest will exist to the extent the Company's mini-warehouses
compete with other PSMI-managed mini-warehouses.

Transactions with Affiliates. The Company has purchased, and intends to
continue to purchase, real estate assets from affiliates of the Adviser, and,
to a much lesser extent, the Company has sold real estate assets to such
affiliates. These transactions present the risk that their terms may not be as
favorable to the Company as could be obtained in transactions with unaffiliated
parties, although it is the Company's policy that these affiliated transactions
receive approval by a majority of the Company's disinterested directors after
review of independent valuations.

A subsidiary of PSI has reinsured, and intends to continue to reinsure,
policies insuring against losses to goods stored by tenants in the Company's
mini-warehouses. PSI believes that the availability of insurance reduces the
potential liability of the Company to tenants for losses to their goods from
theft or destruction. The PSI subsidiary receives the premiums and bears the
risks associated with the insurance. PSI sells locks and boxes to tenants to be
used in securing their spaces and moving their goods. PSI believes that the
availability of locks and boxes for sale promotes the rental of spaces. PSI
receives the benefit and bears the expense of these sales.

EFFECTS OF LOSS OF QUALIFICATION AS A REIT

The Company has elected to be taxed as a REIT under the Code. In order for
the Company to continue to qualify as a REIT under the Code, certain detailed
technical requirements must be met (including certain income tests, certain
limitations on types of assets the Company can own, certain operational
limitations, and certain stock ownership tests). Although the Company intends
to operate so that it will continue to qualify as a REIT, the highly complex
nature of the rules governing REITs, the ongoing importance of factual
determinations, and the possibility of future changes in the circumstances of
the Company preclude any assurance that the Company will so qualify in any
year. If the Company fails to qualify as a REIT in any tax

5
<PAGE>

year, it will be taxed as a regular domestic corporation, and distributions to
Shareholders would not be deductible for tax purposes. This would result in a
significant corporate tax liability for the Company and a material reduction in
the after-tax cash that would be available for distribution to Shareholders.
Furthermore, unless certain relief provisions apply, the Company would not be
eligible to elect REIT status again until the fifth taxable year that begins
after the first year for which the Company fails to qualify.

As a REIT, the Company is not taxed on that portion of its taxable income
which is distributed to Shareholders provided that at least 95% of its taxable
income is so distributed. Under certain circumstances the Company can rectify a
failure to meet the 95% distribution test by making distributions after the
close of a particular taxable year and attributing those distributions to the
prior year's taxable income. The Company has satisfied the REIT distribution
requirement for 1990, 1991, 1992 and 1993 by attributing distributions in 1991,
1992, 1993 and 1994 to the prior year's taxable income. The Company may be
required, over each of the next several years, to make distributions after the
close of a taxable year and to attribute those distributions to the prior year.
The extent to which the Company will be required to attribute distributions to
the prior year will depend on the Company's operating results and the level of
distributions as determined by the Board of Directors. Reliance on subsequent
year distributions could cause the Company to be subject to certain penalty
taxes. In that regard, if the Company were to distribute during any year less
than 85% of the Company's REIT Taxable Income (not taking into account
distributions made in subsequent years but attributed to such year), which is
generally equivalent to net taxable ordinary income, a 4% non-deductible excise
tax would apply to the excess of the required 85% distribution (plus any
distribution shortfall from the preceding year) over the amount actually
distributed during the year. The Company intends to monitor its compliance with
this 85% distribution requirement in an effort to minimize any excise tax. See
"Certain Federal Income Tax Considerations--Tax Treatment of the Company."

USE OF PROCEEDS

Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Securities for
general corporate purposes, primarily investments in mini-warehouses, including
mortgage loans and interests in real estate partnerships, and the repayment of
outstanding bank borrowings under the Company's credit facility.

RATIO OF EARNINGS TO FIXED CHARGES

The ratio of earnings to combined fixed charges and preferred stock dividends
is computed by dividing earnings by the sum of fixed charges and preferred
stock dividends. Earnings consists of net income before minority interest in
income, loss on early extinguishment of debt and gain on disposition of real
estate plus fixed charges (other than preferred stock dividends) less the
portion of minority interest in income which does not contribute to fixed
charges. Fixed charges consist of interest expense. Preferred stock dividends
consist of dividends on the Series A Preferred Stock (issued in October 1992),
the Series B Preferred Stock (issued in March 1993) and the Convertible
Preferred Stock (issued in July 1993), to the extent paid in the applicable
periods. The ratios do not reflect dividends on the Adjustable Rate Preferred
Stock, which was issued on June 30, 1994.

<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED
JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
----------- ----------------------------------
1994 1993 1993 1992 1991 1990 1989
----- ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to combined
fixed charges and preferred
stock dividends.............. 2.34 2.57 2.40 2.89 2.71 2.79 2.18
</TABLE>

6
<PAGE>

DESCRIPTION OF COMMON STOCK

The Company is authorized to issue 60,000,000 shares of Common Stock, $.10
par value per share. At June 30, 1994, the Company had outstanding 23,714,460
shares of Common Stock and had 415,667 and 3,872,054 shares of Common Stock
reserved for issuance under the Company's 1990 Stock Option Plan and in
connection with the conversion or redemption of the Convertible Preferred
Stock, respectively. In addition, at June 30, 1994, the Company had 1,150,000
shares of Common Stock reserved for issuance under the Company's 1994 Stock
Option Plan (the "1994 Plan"), subject to shareholder approval of the 1994
Plan.

The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Stock will be
issuable upon conversion of the Preferred Stock or upon the exercise of the
Warrants. The statements below describing the Common Stock are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of the Company's Restated Articles of Incorporation and Bylaws.

Holders of Common Stock will be entitled to receive dividends when, as and if
declared by the Board of Directors, out of funds legally available therefor.
Payment and declaration of dividends on the Common Stock and purchases of
shares thereof by the Company will be subject to certain restrictions if the
Company fails to pay dividends on outstanding preferred stock. See "Description
of Preferred Stock." Upon any liquidation, dissolution or winding up of the
Company, holders of Common Stock will be entitled to share equally and ratably
in any assets available for distribution to them, after payment or provision
for payment of the debts and other liabilities of the Company and the
preferential amounts owing with respect to any outstanding preferred stock.
Holders of Common Stock have no preemptive rights, which means they have no
right to acquire any additional shares of Common Stock that may be issued by
the Company at a subsequent date.

Each outstanding share of Common Stock entitles the holder to one vote on all
matters presented to such holders for a vote, with the exception that they have
cumulative voting rights with respect to the election of the Board of
Directors, in accordance with California law. Cumulative voting means that each
holder of Common Stock is entitled to cast as many votes as there are directors
to be elected multiplied by the number of shares registered in his or her name.
A holder of Common Stock may cumulate the votes for directors by casting all of
the votes for one candidate or by distributing the votes among as many
candidates as he or she chooses. The outstanding shares of Common Stock are,
and additional shares of Common Stock will be, when issued, fully paid and
nonassessable.

See "Certain Federal Income Tax Considerations--Tax Treatment of the Company"
for a discussion of certain powers given to the Board of Directors to prohibit
the transfer, or effect redemptions, of the Common Stock and any other capital
stock of the Company designed to aid the Company to maintain qualification as a
REIT.

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DESCRIPTION OF PREFERRED STOCK

The Company is authorized to issue 50,000,000 shares of preferred stock,
$.01 par value per share. At June 30, 1994, the Company had outstanding
7,625,000 shares of preferred stock. The Company's Restated Articles of
Incorporation provide that the preferred stock may be issued from time to time
in one or more series and give the Board of Directors broad authority to fix
the dividend and distribution rights, conversion and voting rights, if any,
redemption provisions and liquidation preferences of each series of preferred
stock. Holders of preferred stock have no preemptive rights. The outstanding
shares of preferred stock are, and additional shares of preferred stock will
be, when issued, fully paid and nonassessable.

See "Certain Federal Income Tax Considerations--Tax Treatment of the
Company" for a discussion of certain powers given to the Board of Directors to
prohibit the transfer, or effect redemptions, of the preferred stock or any
other capital stock of the Company designed to aid the Company to maintain its
qualification as a REIT.

The issuance of preferred stock with special voting rights (or Common Stock)
could be used to deter attempts by a single Shareholder or group of
Shareholders to obtain control of the Company in transactions not approved by
the Board of Directors. The Company has no intention to issue the preferred
stock (or Common Stock) for such purposes.

OUTSTANDING PREFERRED STOCK

At June 30, 1994, the Company had four series of preferred stock
outstanding: 1,825,000 shares of Series A Preferred Stock, 2,300,000 shares of
Series B Preferred Stock, 2,300,000 shares of Convertible Preferred Stock and
1,200,000 shares of Adjustable Rate Preferred Stock. In all respects, the
Series A Preferred Stock, the Series B Preferred Stock and the Adjustable Rate
Preferred Stock rank on a parity with each other and are senior to the
Convertible Preferred Stock. Each of the Series A Preferred Stock, the Series
B Preferred Stock and the Adjustable Rate Preferred Stock (i) has a stated
value of $25.00 per share, (ii) in preference to the holders of shares of the
Common Stock and any other capital stock ranking junior to the Series A
Preferred Stock, the Series B Preferred Stock and the Adjustable Rate
Preferred Stock as to payment of dividends (including the Convertible
Preferred Stock), provides for cumulative quarterly dividends calculated as a
percentage of the stated value (10% in the case of the Series A Preferred
Stock, 9.20% in the case of the Series B Preferred Stock and a rate adjustable
quarterly ranging from 6.75% to 10.75% (8.15% through September 30, 1994) in
the case of the Adjustable Rate Preferred Stock) and (iii) is subject to
redemption, in whole or in part, at the option of the Company at a cash
redemption price of $25.00 per share, plus accrued and unpaid dividends (on
and after September 30, 2002 in the case of the Series A Preferred Stock, on
and after June 30, 2003 in the case of the Series B Preferred Stock, and on
and after June 30, 1999 in the case of the Adjustable Rate Preferred Stock).

In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Series A Preferred Stock, the
Series B Preferred Stock and the Adjustable Rate Preferred Stock will be
entitled to receive out of the Company's assets available for distribution to
stockholders, before any distribution of assets is made to holders of Common
Stock or any other shares of capital stock ranking as to such distributions
junior to the Series A Preferred Stock, the Series B Preferred Stock and the
Adjustable Rate Preferred Stock (including the Convertible Preferred Stock),
liquidating distributions in the amount of $25.00 per share, plus all accrued
and unpaid dividends.

Except as expressly required by law and in certain other limited
circumstances, the holders of the Series A Preferred Stock, the Series B
Preferred Stock and the Adjustable Rate Preferred Stock are not entitled to
vote. The consent of holders of at least 66 2/3% of the outstanding shares of
the Series A, the Series B Preferred Stock and the Adjustable Rate Preferred
Stock (and any other series of preferred stock ranking on a parity therewith),
voting as a single class, is required to authorize another class of shares
senior to such preferred stock.

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The Convertible Preferred Stock (i) has a stated value of $25.00 per share,
(ii) in preference to the holders of shares of the Common Stock and any other
capital stock ranking junior to the Convertible Preferred Stock as to payment
of dividends, provides for cumulative quarterly dividends at an annual rate of
8.25% of the stated value thereof, (iii) is convertible at the option of the
holder at any time into Common Stock at a conversion price of 1.6835 shares of
Common Stock for each share of Convertible Preferred Stock (subject to
adjustment in certain circumstances) and (iv) after July 1, 1998, under certain
circumstances, is redeemable for Common Stock at the option of the Company, in
whole or in part, at a redemption price of 1.6835 shares of Common Stock for
each share of Convertible Preferred Stock (subject to adjustment in certain
circumstances).

In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Convertible Preferred Stock will
be entitled to receive out of the Company's assets available for distribution
to stockholders, before any distribution of assets is made to holders of Common
Stock or any other shares of capital stock ranking as to such distributions
junior to the Convertible Preferred Stock, liquidating distributions in the
amount of $25.00 per share, plus all accrued and unpaid dividends.

Except as expressly required by law and in certain other limited
circumstances, the holders of the Convertible Preferred Stock are not entitled
to vote. The consent of holders of at least 66 2/3% of the outstanding shares
of the Convertible Preferred Stock is required to authorize another class of
shares senior to the Convertible Preferred Stock and junior to the Series A
Preferred Stock, the Series B Preferred Stock and the Adjustable Rate Preferred
Stock (and any other series of preferred stock ranking on a parity therewith).

FUTURE SERIES OF PREFERRED STOCK

The following description of preferred stock sets forth certain general terms
and provisions of the Preferred Stock to which any Prospectus Supplement may
relate. The statements below describing the Preferred Stock are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of the Company's Restated Articles of Incorporation (including the
applicable form of Certificate of Determination) and Bylaws.

Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including, where applicable, the
following: (1) the title and stated value of such Preferred Stock; (2) the
number of shares of such Preferred Stock offered, the liquidation preference
per share and the offering price of such Preferred Stock; (3) the dividend
rate(s), period(s) and/or payment date(s) or method(s) of calculation thereof
applicable to such Preferred Stock; (4) the date from which dividends on such
Preferred Stock shall accumulate, if applicable; (5) the provision for a
sinking fund, if any, for such Preferred Stock; (6) the provision for
redemption, if applicable, of such Preferred Stock; (7) any listing of such
Preferred Stock on any securities exchange; (8) the terms and conditions, if
applicable, upon which such Preferred Stock will be convertible into Common
Stock, including the conversion price (or manner of calculation thereof); (9)
the voting rights, if any, of such Preferred Stock; (10) any other specific
terms, preferences, rights, limitations or restrictions of such Preferred
Stock; (11) the relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company; and (12) any limitations on issuance of any series of
preferred stock ranking senior to or on a parity with such series of Preferred
Stock as to dividend rights and rights upon liquidation, dissolution or winding
up of the affairs of the Company.

Ranking. The ranking of the Preferred Stock is set forth in the applicable
Prospectus Supplement. Unless otherwise specified in the Prospectus Supplement,
the Preferred Stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the affairs of the Company, rank (i)
senior to the Common Stock, any additional class of common stock and any series
of preferred stock expressly made junior to such Preferred Stock with respect
to dividend rights or rights upon liquidation, dissolution or winding up of the
affairs of the Company; (ii) on a parity with all preferred stock issued by the
Company the

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terms of which specifically provide that such preferred stock rank on a parity
with the Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company; and(iii) junior to all
preferred stock issued by the Company the terms of which specifically provide
that such preferred stock rank senior to the Preferred Stock with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
Company.

Dividends. Holders of shares of the Preferred Stock of each series shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
assets of the Company legally available for payment, cash dividends at such
rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Each such dividend shall be payable to holders of record as they
appear on the stock transfer books of the Company on such record dates as shall
be fixed by the Board of Directors.

Dividends on any series of the Preferred Stock may be cumulative or non-
cumulative, as provided in the applicable Prospectus Supplement. Dividends, if
cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors fails to declare a
dividend payable on a dividend payment date on any series of the Preferred
Stock for which dividends are noncumulative, then the holders of such series of
the Preferred Stock will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and the Company will have
no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.

No dividends (other than in Common Stock or other capital stock ranking
junior to the Preferred Stock of any series as to dividends and upon
liquidation) shall be declared or paid or set aside for payment, nor shall any
other distribution be declared or made upon the Common Stock, or any other
capital stock of the Company ranking junior to or on a parity with the
Preferred Stock of such series as to dividends or upon liquidation, nor shall
any Common Stock or any other capital stock of the Company ranking junior to or
on a parity with the Preferred Stock of such series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any shares of any such stock) by the Company (except by
conversion into or exchange for other capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation) unless (i) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period and (ii) if such series of
Preferred Stock does not have a cumulative dividend, full dividends on the
Preferred Stock of such series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period.

Any dividend payment made on shares of a series of Cumulative Preferred Stock
shall first be credited against the earliest accrued but unpaid dividend due
with respect to shares of such series which remains payable.

Redemption. If so provided in the applicable Prospectus Supplement, the
shares of Preferred Stock will be subject to mandatory redemption or redemption
at the option of the Company, in whole or in part, in each case upon the terms,
at the times and at the redemption prices set forth in such Prospectus
Supplement.

The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if such Preferred Stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in
cash, securities or other property, as specified in the applicable Prospectus
Supplement.

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Notwithstanding the foregoing, no shares of any series of Preferred Stock
shall be redeemed and the Company shall not purchase or otherwise acquire
directly or indirectly any shares of Preferred Stock of such series (except by
conversion into or exchange for capital stock of the Company ranking junior to
the Preferred Stock of such series as to dividends and upon liquidation) unless
all outstanding shares of Preferred Stock of such series are simultaneously
redeemed unless, in each case, (i) if such series of Preferred Stock has a
cumulative dividend, full cumulative dividends on the Preferred Stock of such
series shall have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period and (ii) if such series
of Preferred Stock does not have a cumulative dividend, full dividends on the
Preferred Stock of such series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period; provided, however, that the
foregoing shall not prevent the purchase or acquisition of shares of Preferred
Stock of such series pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding shares of Preferred Stock of such series.

If fewer than all of the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed pro rata from the holders of record
of such shares in proportion to the number of such shares held by such holders
(with adjustments to avoid redemption of fractional shares) or any other
equitable method determined by the Company.

Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such
Preferred Stock are to be surrendered for payment of the redemption price;(v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights,
if any, as to such shares shall terminate. If fewer than all the shares of
Preferred Stock of any series are to be redeemed, the notice mailed to each
such holder thereof shall also specify the number of shares of Preferred Stock
to be redeemed from each such holder and, upon redemption, a new certificate
shall be issued representing the unredeemed shares without cost to the holder
thereof. In order to facilitate the redemption of shares of Preferred Stock,
the Board of Directors may fix a record date for the determination of shares of
Preferred Stock to be redeemed, such record date to be not less than 30 or more
than 60 days prior to the date fixed for such redemption.

Subject to applicable law and the limitation on purchases when dividends on
Preferred Stock are in arrears, the Company may, at any time and from time to
time, purchase any shares of Preferred Stock in the open market, by tender or
by private agreement.

Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, then, before any
distribution or payment shall be made to the holders of any Common Stock or any
other class or series of capital stock of the Company ranking junior to any
series of the Preferred Stock in the distribution of assets upon any
liquidation, dissolution or winding up of the Company, the holders of such
series of Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to stockholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which shall not include any accumulation in respect
of unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend). After payment of the full

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<PAGE>

amount of the liquidating distributions to which they are entitled, the holders
of Preferred Stock will have no right or claim to any of the remaining assets
of the Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the legally available assets of the
Company are insufficient to pay the amount of the liquidating distributions on
all outstanding shares of any series of Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of capital stock of
the Company ranking on a parity with the Preferred Stock in the distribution of
assets upon liquidation, dissolution or winding up, then the holders of such
series of Preferred Stock and all other such classes or series of capital stock
shall share ratably in any such distribution of assets in proportion to the
full liquidating distributions to which they would otherwise be respectively
entitled.

If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of capital stock ranking junior to
such series of Preferred Stock upon liquidation, dissolution or winding up,
according to their respective rights and preferences and in each case according
to their respective number of shares. For such purposes, the consolidation or
merger of the Company with or into any other corporation, or the sale, lease,
transfer or conveyance of all or substantially all of the property or business
of the Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.

Voting Rights. Holders of the Preferred Stock will not have any voting
rights, except as set forth below or as otherwise expressly required by law or
as indicated in the applicable Prospectus Supplement.

If the equivalent of six quarterly dividends payable on any series of
Preferred Stock are in default (whether or not declared or consecutive), the
holders of all such series of preferred stock, voting as a single class with
all other series of preferred stock upon which similar voting rights have been
conferred and are exercisable, will be entitled to elect two additional
directors until all dividends in default have been paid or declared and set
apart for payment.

Such right to vote separately to elect directors shall, when vested, be
subject, always, to the same provisions for vesting of such right to elect
directors separately in the case of future dividend defaults. At any time when
such right to elect directors separately shall have so vested, the Company may,
and upon the written request of the holders of record of not less than 20% of
the total number of preferred shares of the Company then outstanding shall,
call a special meeting of Shareholders for the election of directors. In the
case of such a written request, such special meeting shall be held within 90
days after the delivery of such request and, in either case, at the place and
upon the notice provided by law and in the Bylaws of the Company, provided that
the Company shall not be required to call such a special meeting if such
request is received less than 120 days before the date fixed for the next
ensuing annual meeting of Shareholders, and the holders of all classes of
outstanding preferred stock are offered the opportunity to elect such directors
(or fill any vacancy) at such annual meeting of shareholders. Directors so
elected shall serve until the next annual meeting of shareholders of the
Company or until their respective successors are elected and qualify. If, prior
to the end of the term of any director so elected, a vacancy in the office of
such director shall occur, during the continuance of a default by reason of
death, resignation, or disability, such vacancy shall be filled for the
unexpired term of such former director by the appointment of a new director by
the remaining director or directors so elected.

The affirmative vote or consent of the holders of at least a majority of the
outstanding shares of each series of Preferred Stock will be required to amend
or repeal any provision of or add any provision to, the Restated Articles of
Incorporation, including the Certificate of Determination, if such action would
materially and adversely alter or change the rights, preferences or privileges
of such series of Preferred Stock.

No consent or approval of the holders of any series of Preferred Stock will
be required for the issuance from the Company's authorized but unissued
preferred stock of other shares of any series of preferred stock ranking on a
parity with or junior to such series of Preferred Stock, or senior to a series
of Preferred Stock expressly made junior to other series of preferred stock as
to payment of dividends and distribution of assets, including other shares of
such series of Preferred Stock.

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The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall
have been redeemed or called for redemption upon proper notice and sufficient
funds shall have been deposited in trust to effect such redemption.

Conversion Rights. The terms and conditions, if any, upon which shares of any
series of Preferred Stock are convertible into Common Stock will be set forth
in the applicable Prospectus Supplement relating thereto. Such terms will
include the number of shares of Common Stock into which the Preferred Stock is
convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders of the Preferred Stock or automatically upon the occurrence of
certain events, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such
Preferred Stock.

DESCRIPTION OF WARRANTS

The Company has no Warrants outstanding (other than options issued under the
Company's employee stock option plan). The Company may issue Warrants for the
purchase of Preferred Stock or Common Stock. Warrants may be issued
independently or together with any other Securities offered by any Prospectus
Supplement and may be attached to or separate from such Securities. Each series
of Warrants will be issued under a separate warrant agreement (each, a "Warrant
Agreement") to be entered into between the Company and a warrant agent
specified in the applicable Prospectus Supplement (the "Warrant Agent"). The
Warrant Agent will act solely as an agent of the Company in connection with the
Warrants of such series and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of Warrants. The
following sets forth certain general terms and provisions of the Warrants
offered hereby. Further terms of the Warrants and the applicable Warrant
Agreement will be set forth in the applicable Prospectus Supplement.

The applicable Prospectus Supplement will describe the terms of the Warrants
in respect of which this Prospectus is being delivered, including, where
applicable, the following: (1) the title of such Warrants; (2) the aggregate
number of such Warrants; (3) the price or prices at which such Warrants will be
issued; (4) the designation, number and terms of the shares of Preferred Stock
or Common Stock purchasable upon exercise of such Warrants; (5) the designation
and terms of the other Securities, if any, with which such Warrants are issued
and the number of such Warrants issued with each such Security; (6) the date,
if any, on and after which such Warrants and the related Preferred Stock or
Common Stock, if any, will be separately transferable; (7) the price at which
each share of Preferred Stock or Common Stock purchasable upon exercise of such
Warrants may be purchased; (8) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire; (9) the
minimum or maximum amount of such Warrants which may be exercised at any one
time; and (10) any other terms of such Warrants, including terms, procedures
and limitations relating to the exchange and exercise of such Warrants.

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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following summary of certain federal income tax considerations to the
Company is based on current law, is for general information only, and is not
tax advice. The tax treatment of a holder of any of the Securities will vary
depending upon the terms of the specific securities acquired by such holder, as
well as his or her particular situation, and this discussion does not attempt
to address any aspects of federal income taxation relating to holders of
Securities, except as discussed under "Taxation of Shareholders." Certain
federal income tax considerations relevant to holders of the Securities may be
provided in the applicable Prospectus Supplement relating thereto.

EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT, AS
WELL AS HIS OR HER OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO HIM OR
HER OF THE ACQUISITION, OWNERSHIP AND SALE OF THE SECURITIES, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.

TAX TREATMENT OF THE COMPANY

If certain detailed conditions imposed by the Code and the related
regulations are met, an entity, such as the Company, that invests principally
in real estate and that otherwise would be taxed as a corporation may elect to
be treated as a REIT. The most important consequence to the Company of being
treated as a REIT for federal income tax purposes is that this enables the
Company to deduct dividend distributions to Shareholders, thus effectively
eliminating the "double taxation" (at the corporate and shareholder levels)
that typically results when a corporation earns income and distributes that
income to shareholders in the form of dividends.

The Company elected to be taxed as a REIT beginning with its fiscal year
ending December 31, 1981. That election will continue in effect until it is
revoked or terminated. Based upon the description in this Prospectus of the
Company's current and contemplated method of operation and upon certain
representations made by officers of the Company concerning the Company's
satisfaction of the factual elements of the REIT tests, Hogan & Hartson L.L.P.,
special counsel to the Company, is of the opinion that the Company has
qualified as a REIT during each of the five years in the period ended December
31, 1993, and as of July 26, 1994, the date of the opinion. This opinion is
based on various assumptions relating to the organization and operation of the
Company and is conditioned upon certain representations made by the Company as
to certain relevant factual matters. Moreover, qualification and taxation as a
REIT will depend upon the Company's ability to meet on a continuing basis,
distribution levels and diversity of stock ownership, and the various
qualification tests imposed by the Code as discussed below. While the Company
intends to operate so that it will continue to qualify as a REIT, given the
highly complex nature of the rules governing REITs, the ongoing importance of
factual determinations, and the possibility of future changes in the
circumstances of the Company, no assurance can be given by special counsel or
the Company that the Company will so qualify for any particular year. Hogan &
Hartson L.L.P. will not review compliance with these tests on a continuing
basis, and has not undertaken to update its opinion subsequent to the date
thereof.

The following is a very brief overview of certain of the technical
requirements that the Company must meet on an ongoing basis in order to
continue to qualify as a REIT:

1. The capital stock must be widely-held and not more than 50% of the
value of the capital stock may be held by five or fewer individuals
(determined after giving effect to various ownership attribution rules). To
aid in meeting these requirements, the Bylaws give the Board of Directors
the power to prohibit the transfer, or effect the redemption, of shares of
capital stock if the transfer would result in the Company not meeting these
requirements or if the ownership of capital stock would otherwise prevent
the Company from so complying.

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2. The Company's gross income must meet three income tests:

(a) at least 75% of the gross income must be derived from specified
real estate sources;
(b) at least 95% of the gross income must be from the real estate
sources includable in the 75% income test, and/or from dividends,
interest, or gains from the sale or disposition of stock or
securities not held for sale in the ordinary course of business;
and
(c) less than 30% of the gross income may be derived from the sale of
real estate assets held for less than four years, from the sale
of certain "dealer" property, or from the sale of stock or
securities held for less than one year.

3. Generally, 75% by value of the Company's investments must be in real
estate, mortgages secured by real estate, cash, or government securities.

4. The Company must distribute to Shareholders in each taxable year an
amount at least equal to 95% of the Company's "REIT Taxable Income" (which
is generally equivalent to net taxable ordinary income). Under certain
circumstances, the Company can rectify a failure to meet the 95%
distribution test by paying dividends after the close of a particular
taxable year.

The Company in years prior to 1990 made distributions in excess of its REIT
Taxable Income. During 1990, the Company reduced its distributions to
Shareholders to permit the Company to make an optional reduction in short-term
borrowings (which previously had been used to fund distributions to
Shareholders). As a result, distributions paid by the Company in 1990 were less
than 95% of the Company's REIT Taxable Income for 1990. The Company has
satisfied the REIT distribution requirements for 1990, 1991, 1992 and 1993 by
attributing distributions in 1991, 1992, 1993 and 1994 to the prior year's
taxable income. The Company may be required, over each of the next several
years, to make distributions after the close of a taxable year and to attribute
those distributions to the prior year. The extent to which the Company will be
required to attribute distributions to the prior year will depend on the
Company's operating results and the level of distributions as determined by the
Board of Directors. Reliance on subsequent year distributions could cause the
Company to be subject to certain penalty taxes. In that regard, if the Company
were to distribute during any year less than 85% of the Company's REIT Taxable
Income (not taking into account distributions made in subsequent years but
attributed to such year), then a 4% non-deductible excise tax would apply to
the excess of the required 85% distribution (plus any distribution shortfall
from the preceding year) over the amount actually distributed during the year.
The Company intends to monitor its compliance with this 85% distribution
requirement in an effort to minimize any excise tax.

For purposes of applying the income and asset tests mentioned above, a REIT
is considered to own a proportionate share of the assets of any partnership in
which it holds a partnership interest.

For years in which the Company qualifies as a REIT, the Company generally
will be taxable only on its undistributed income. Certain penalty taxes can
apply if the Company delays distributions until after the close of a taxable
year. Moreover, a confiscatory tax of 100% can apply to income derived by the
Company from sales of "dealer" property. If the Company fails to meet either
the 75% or 95% source of income tests described above, but still qualifies for
REIT status under the reasonable cause exception to those tests, a 100% tax is
imposed equal to the amount obtained by multiplying (i) the greater of the
amount, if any, by which it failed either the 75% or the 95% income tests,
times (ii) the fraction that its REIT Taxable Income represents of the
Company's gross income (excluding capital gain and certain other items). It
should be noted that the Company is not required to distribute its net capital
gain. However, to the extent that the Company does not declare a capital gain
dividend, that gain will be taxable to the Company at normal corporate rates,
and the Company will be subject to a 4% non-deductible excise tax to the extent
that it does not distribute 95% of its capital gain. The Company also will be
subject to the minimum tax on tax preference items (excluding items
specifically allocable to its shareholders).

For any taxable year that the Company fails to qualify as a REIT, it would be
taxed at the usual corporate rates on all of its taxable income, whether or not
it makes any distributions to Shareholders. Those taxes would reduce the amount
of cash available to the Company for distribution to Shareholders. As a result,

15
<PAGE>

failure of the Company to qualify during any taxable year as a REIT could have
a material adverse effect upon the Company and the Shareholders, unless certain
relief provisions are available.

The Company's election to be treated as a REIT will terminate automatically
if the Company fails to meet the qualification requirements described above. If
a termination (or a voluntary revocation) occurs, unless certain relief
provisions apply, the Company will not be eligible to elect REIT status again
until the fifth taxable year that begins after the first year for which the
Company's election was terminated (or revoked). If the Company loses its REIT
status, but later qualifies and elects to be taxed as a REIT again, the Company
may face significant adverse tax consequences. Immediately prior to the
effectiveness of the election to return to REIT status, the Company would be
treated as if it disposed of all of its assets in a taxable transaction,
triggering taxable gain with respect to the Company's appreciated assets. (The
Company would, however, be permitted to elect an alternative treatment under
which the gains would be taken into account only as and when they actually are
recognized upon sales of the appreciated property occurring within the 10-year
period after return to REIT status.) The Company would not receive the benefit
of a dividends paid deduction to reduce any such taxable gains. Thus, any such
gains on appreciated assets would be subject to double taxation, at the
corporate as well as the shareholder level.

TAXATION OF SHAREHOLDERS

Distributions generally will be taxable to Shareholders as ordinary income to
the extent of the Company's earnings and profits. For this purpose, earnings
and profits of the Company first will be allocated to distributions paid on
preferred stock until an amount equal to such distributions has been allocated
thereto. As a result, it is likely that any distributions paid on preferred
stock will be taxable in full as dividends to the holders of preferred stock.
Dividends declared during the last quarter of a calendar year and actually paid
during January of the immediately following calendar year generally are treated
as if received by the shareholders on December 31 of the calendar year during
which they were declared. Distributions paid to Shareholders will not
constitute passive activity income and as a result, generally cannot be offset
by losses from passive activities of Shareholders subject to the passive
activity rules. Distributions designated by the Company as capital gain
dividends generally will be taxed as long-term capital gain to Shareholders, to
the extent that the distributions do not exceed the Company's actual net
capital gain for the taxable year. Corporate Shareholders may be required to
treat up to 20% of any such capital gain dividends as ordinary income.
Distributions by the Company, whether characterized as ordinary income or as
capital gain, are not eligible for the 70% dividends received deduction for
corporations. If the Company should realize a loss, Shareholders will not be
permitted to deduct any share of that loss. Future regulations may require that
Shareholders take into account, for purposes of computing their individual
alternative minimum tax liability, certain tax preference items of the Company.

The Company may distribute cash in excess of its net taxable income. Upon
distribution of such cash by the Company to Shareholders (other than as a
capital gain dividend), if all of the Company's current and accumulated
earnings and profits have been distributed, the excess cash will be deemed to
be a non-taxable return of capital to each Shareholder to the extent of the
adjusted tax basis of the Shareholder's capital stock. Distributions in excess
of the adjusted tax basis will be treated as gain from the sale or exchange of
the capital stock. A Shareholder who has received a distribution in excess of
current and accumulated earnings and profits of the Company may, upon the sale
of the capital stock, realize a higher taxable gain or a smaller loss because
the basis of the Common Stock as reduced will be used for purposes of computing
the amount of the gain or loss. Generally, gain or loss realized by a
Shareholder upon the sale of capital stock will be reportable as capital gain
or loss. If a Shareholder receives a long-term capital gain dividend from the
Company and has held the capital stock for six months or less, any loss
incurred on the sale or exchange of the capital stock is treated as a long-term
capital loss, to the extent of the corresponding long-term capital gain
dividend received.

If a Shareholder is subject to "backup withholding," the Company will be
required to deduct and withhold from any dividends payable to such Shareholder
a tax of 31%. These rules may apply when a

16
<PAGE>

Shareholder fails to supply a correct taxpayer identification number, or when
the IRS notifies the Company that a Shareholder is subject to the rules or has
furnished an incorrect taxpayer identification number.

The Company is required to demand annual written statements from the record
holders of designated percentages of its capital stock disclosing the actual
owners of the capital stock and to maintain permanent records showing the
information it has received as to the actual ownership of such capital stock
and a list of those persons failing or refusing to comply with such demand.

In any year in which the Company does not qualify as a REIT, distributions by
the Company to Shareholders will be taxable in the same manner discussed above,
except that no distributions can be designated as capital gain dividends,
distributions will be eligible for the corporate dividends received deduction,
and Shareholders will not receive any share of the Company's tax preference
items.

Tax Exempt Investors. In general, a tax exempt entity that is a Shareholder
is not subject to tax on distributions from the Company or gain realized on the
sale of capital stock, provided that the tax exempt entity has not financed the
acquisition of its capital stock with "acquisition indebtedness" within the
meaning of the Code. Special rules apply to organizations exempt under Code
Sections 501(c)(7), (c)(9), (c)(17) and (c)(20), and such prospective investors
should consult their own tax advisors concerning the applicable "set aside" and
reserve requirements. In addition, for taxable years beginning after December
31, 1993, certain distributions by a REIT to a tax-exempt employee's pension
trust that owns more than 10% of the REIT will, in certain circumstances, be
treated as "unrelated business taxable income."

Foreign Investors. The rules governing United States income, gift and estate
taxation of foreign entities and individuals who are neither citizens nor
residents of the United States are complex. They depend not only upon United
States federal and state income, gift and estate tax principles, but also upon
the treaties, if any, between the United States and the country of the
nonresident investor. Therefore, any prospective foreign investor is urged to
consult its own tax advisor with respect to both the United States and foreign
tax consequences of owning stock of the Company. The following discussion sets
forth several points that may be relevant to particular foreign investors. It
assumes that any such investor holds the stock of the Company as an investment
and not in connection with the conduct of a U.S. trade or business. Ordinary
dividends generally will be subject to withholding at the source, at a 30% rate
(which may be reduced under applicable treaties if the shareholder satisfies
all pertinent requirements). Capital gain dividends may be subject to such
withholding at a 35% rate if they relate to dispositions of U.S. real property
interests (including the sale or disposition prior to maturity of loans where
interest is based upon a "participation" in the income or appreciation from
real property). Such dispositions would generally include the sale (but not the
retirement) of profit-sharing loans relating to U.S. real property. In
addition, such capital gain dividends (net of the amount of regular income tax)
may be subject to a 30% branch tax in the hands of any foreign corporate
recipients. Such tax may be reduced or eliminated in the case of a corporation
that is a resident of a country with which the U.S. has a tax treaty, provided
that a majority of such corporation's ultimate shareholders are residents of
the country in question and that various filing requirements are satisfied.
Investors may be able to obtain a partial refund of taxes withheld in respect
of capital gain distributions by filing a nonresident U.S. tax return. Because
only a minority of the Company's shareholders are expected to be foreign
taxpayers, the Company should qualify as a "domestically-controlled REIT."
Accordingly, a foreign taxpayer will not be subject to U.S. tax from gains
recognized upon disposition of capital stock (unless the shareholder was
present in the U.S. for more than 183 days in the year of sale and certain
other requirements are met). Upon the death of a foreign individual
shareholder, the investor's stock in the Company will be treated as part of the
investor's U.S. estate for purposes of the U.S. estate tax, except as may be
otherwise provided in an applicable estate tax treaty.

17
<PAGE>

TAX CONSEQUENCES TO COMPANY OF JOINT INVESTMENTS WITH PSP PARTNERSHIPS

The Company entered into arrangements with seven of the PSP Partnerships
under which the Company participated in the acquisition of existing mini-
warehouses and business park properties. See "The Company."

Under the arrangements with the seven PSP Partnerships, the Company would
acquire an undivided interest in property that was to be owned jointly with a
PSP Partnership and then would transfer its interest in the property to a joint
venture that was formed with the PSP Partnership in exchange for a partnership
interest in that joint venture. These transactions have been treated as
nontaxable events under Section 721 of the Code, and the Company generally has
received a carryover basis in that joint venture interest equal to the
Company's basis in the property conveyed to the joint venture. The Company
obtained opinions of counsel that the actual tax consequences arising from the
formation of the Company's joint investments with PSP Partnerships were
consistent with the foregoing. It is possible, however, that the IRS might
attempt to restructure the transactions by taking the position that the Company
and the PSP Partnership should be treated for tax purposes as having
transferred their respective consideration to the joint venture, with the joint
venture (rather than the Company and the PSP Partnership) acquiring the real
property from the seller. In the event that a court would agree with the IRS,
the joint venture would recognize a short-term capital gain in an amount equal
to the fair market value of the consideration supplied by the Company that
consisted of the Company's securities or notes. Under the joint venture
agreements, any such gain would be allocated to the Company.

All of the joint ventures with the PSP Partnerships provide for a special
allocation of initial cost recovery deductions to the PSP Partnerships. After
that initial allocation, subsequent cost recovery deductions are then allocated
to the Company, to the extent required to balance out the initial allocation to
the PSP Partnerships. Assuming that these allocations are respected for tax
purposes, these provisions initially have the effect of delaying the cost
recovery deductions otherwise allocable to the Company, reducing the amount of
the Company's distributions during that period that would be considered a
return of capital, if distributions to Shareholders otherwise exceeded the
Company's current or accumulated earnings and profits. These effects reverse at
such time as the depreciation of the joint ventures begins to be allocated to
the Company.

STATE AND LOCAL TAXES

The tax treatment of the Company and the Shareholders in states having taxing
jurisdiction over them may differ from the federal income tax treatment.
Accordingly, no discussion of state taxation of the Company and the
Shareholders is provided nor is any representation made as to the tax status of
the Company in such states. All investors should consult their own tax advisors
as to the treatment of the Company under the respective state tax laws
applicable to them.

18
<PAGE>

PLAN OF DISTRIBUTION

The Company may sell the Securities to one or more underwriters for public
offering and sale by them or may sell the Securities to investors directly or
through agents. Any such underwriter or agent involved in the offer and sale of
the Securities will be named in the applicable Prospectus Supplement.

Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company also may, from time to time,
authorize underwriters acting as the Company's agents to offer and sell the
Securities upon the terms and conditions as are set forth in the applicable
Prospectus Supplement. In connection with the sale of Securities, underwriters
may be deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of Securities for whom they may act as agent. Underwriters may sell
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent.

Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Securities, and any discounts, concessions
or commissions allowed by underwriters to participating dealers, will be set
forth in the applicable Prospectus Supplement. Underwriters, dealers and agents
participating in the distribution of the Securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the Securities may be deemed to be underwriting
discounts and commissions, under the Securities Act. Underwriters, dealers and
agents may be entitled, under agreements entered into with the Company, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.

If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Securities from the Company at the public offering
price set forth in such Prospectus Supplement pursuant to Delayed Delivery
Contracts ("Contracts") providing for payment and delivery on the date or dates
stated in such Prospectus Supplement. Each Contract will be for an amount not
less than, and the aggregate principal amount of Securities sold pursuant to
Contracts shall be not less nor more than, the respective amounts stated in the
applicable Prospectus Supplement. Institutions with whom Contracts, when
authorized, may be made include commercial and savings banks, insurance
companies, pension funds, investment companies, educational and charitable
institutions, and other institutions but will in all cases be subject to the
approval of the Company. Contracts will not be subject to any conditions except
(i) the purchase by an institution of the Securities covered by its Contracts
shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and
(ii) if the Securities are being sold to underwriters, the Company shall have
sold to such underwriters the total principal amount of the Securities less the
principal amount thereof covered by Contracts. Agents and underwriters will
have no responsibility in respect of the delivery or performance of Contracts.

This Prospectus may also be used in a registered resale by persons who hold
(i) Securities issued pursuant to this Prospectus or (ii) securities issued in
private or other transactions by the Company in connection with acquisitions of
interests in, or notes secured by, mini-warehouses and other real properties or
interests in entities that own mini-warehouses and other real properties, or
otherwise, in each case in transactions in which they may be deemed
underwriters within the meaning of the Securities Act. Any profits realized on
sales pursuant to this Prospectus by holders of such shares may be regarded as
underwriting compensation. Such sales may be made on the NYSE, in the over-the-
counter market or in privately negotiated transactions. Unless any such sale
involves less than 1% of the Company's outstanding securities of the same
class, this Prospectus will be supplemented to set forth the name of such
securityholder, the nature of any position, office or other material
relationship of the securityholder with the Company and its affiliates during
the preceding three years and the amount of securities of the class owned by
such securityholder prior to the sale, the amount of such securities to be sold
and the percentage of such class after the sale.

Certain of the underwriters, if any, and their affiliates may be customers
of, engage in transactions with and perform services for the Company in the
ordinary course of business.

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<PAGE>

LEGAL OPINIONS

David Goldberg, Glendale, California, counsel to the Company and counsel to
PSI and its affiliates, has delivered an opinion dated July 26, 1994 to the
effect that the securities offered by this Prospectus will be validly issued,
fully paid and nonassessable. Hogan & Hartson L.L.P., Washington, D.C., has
delivered an opinion dated July 26, 1994 as to the status of the Company as a
REIT. Mr. Goldberg owns 2,900 shares of Common Stock and has options to
acquire an additional 40,000 shares of Common Stock and has invested in
entities affiliated with PSI.

EXPERTS

The consolidated financial statements and related schedules of the Company
for the year ended December 31, 1993 appearing in the Company's Annual Report
on Form 10-K, as amended by a Form 10-K/A (Amendment No. 2) dated May 26,
1994, and the combined summaries of historical information relating to
operating revenues and specified expenses--certain properties (the "Combined
Summaries") for the properties and periods indicated in Note 1 to such
Combined Summaries, appearing in the Company's Current Report on Form 8-K
dated June 7, 1994 have been audited by Ernst & Young, independent auditors,
as set forth in their reports included in the Company's Annual Report on Form
10-K and the Company's Current Report on Form 8-K dated June 7, 1994 and
incorporated herein by reference. Such consolidated financial statements and
Combined Summaries are incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.

20
<PAGE>

- --------- "Same Store" Growth (1)-------------------[LOGO OF PUBLIC STORAGE]

Monthly Realized Rents per Occupied Square Foot

[BAR CHART APPEARS HERE ILLUSTRATING THE
MONTHLY REALIZED RENTS PER OCCUPIED
SQUARE FOOT FOR "SAME STORE" MINI-
WAREHOUSES FOR THE YEARS 1991, 1992,
1993 AND 1994.]

1991 $.53
1992 $.55
1993 $.56
1994 $.59

Average Occupancy Levels

[BAR CHART APPEARS HERE ILLUSTRATING
THE AVERAGE OCCUPANCY LEVELS FOR
"SAME STORE" MINI-WAREHOUSES FOR THE
YEARS 1991, 1992, 1993 AND 1994.]

1991 84.3%
1992 86.1%
1993 89.0%
1994 90.3%

Net Cash Flow (2)

[BAR CHART APPEARS HERE ILLUSTRATING
THE NET CASH FLOW FOR "SAME STORE"
MINI-WAREHOUSES FOR THE YEARS 1991,
1992, 1993 AND 1994.]

1991 $47,875,000
1992 $50,791,000
1993 $55,574,000
1994 $59,242,000

(1) "Same store" refers to mini-warehouses in which the Company has
invested since January 1989.
(2) Net operating income before depreciation expense.

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<PAGE>

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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS SUPPLE-
MENT AND THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, ANY SUCH INFORMA-
TION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLIC-
ITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.

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TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary.............................................. S-3
Use of Proceeds ........................................................... S-11
Recent Developments........................................................ S-11
Capitalization............................................................. S-13
Selected Financial Information............................................. S-14
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................... S-16
Business................................................................... S-24
Management................................................................. S-34
Description of Preferred Stock............................................. S-36
Underwriting............................................................... S-40
Legal Opinions ............................................................ S-41
Experts.................................................................... S-41

PROSPECTUS

Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
The Company................................................................ 3
Certain Considerations..................................................... 4
Use of Proceeds............................................................ 6
Ratio of Earnings to Fixed Charges......................................... 6
Description of Common Stock................................................ 7
Description of Preferred Stock............................................. 8
Description of Warrants.................................................... 13
Certain Federal Income Tax Considerations.................................. 14
Plan of Distribution....................................................... 19
Legal Opinions............................................................. 20
Experts.................................................................... 20
</TABLE>

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1,500,000 SHARES
STORAGE EQUITIES, INC.

% Cumulative Preferred Stock, Series F
(Stated Value $25.00 Per Share)

[LOGO OF PUBLIC STORAGE]

---------------
PROSPECTUS SUPPLEMENT
, 1995
---------------

SMITH BARNEY INC.

PAINEWEBBER INCORPORATED

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

THE ROBINSON-HUMPHREY COMPANY, INC.

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