Filed pursuant to Rule 424(b)5
File No. 333-10903
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED AUGUST 27, 1996
3,162,939 Shares
STORAGE USA, INC.
Common Stock
(par value $.01 per share)
All of the shares of Common Stock offered hereby are being
sold directly by Storage USA, Inc. (the "Company") pursuant to
the terms of a Stock Purchase Agreement, dated as of March 1,
1996, by and among Storage USA, Inc., Security Capital Holdings
S.A. and Security Capital U.S. Realty. The shares are being sold
at a price of $31.30 per share. The aggregate proceeds of
approximately $99 million will be used by the Company to repay
borrowings outstanding under the Company's revolving credit
agreement and bearing interest at a weighted average annual rate
of 6.70%. Such borrowings were incurred in the past year to
finance the acquisition of self-storage facilities.
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 SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. 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.
The date of this Prospectus Supplement is September 30, 1996.
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax
considerations that may be relevant to a prospective holder of
the Common Stock is based on current law, is for general
information only, and is not tax advice. The discussion
contained herein does not purport to deal with all aspects of
taxation that may be relevant to particular shareholders in light
of their personal investment or tax circumstances, or to certain
types of shareholders (including insurance companies, tax exempt
organizations, financial institutions or broker-dealers, foreign
corporations, and persons who are not citizens or residents of
the United States) subject to special treatment under the federal
income tax laws.
The statements in this discussion are based on current
provisions of the Code, existing, temporary, and currently
proposed Treasury regulations promulgated under the Code (the
"Treasury Regulations"), the legislative history of the Code,
existing administrative rulings and practices of the Service, and
judicial decisions. No assurance can be given that future
legislative, judicial, or administrative actions or decisions,
which may be retroactive in effect, will not affect the accuracy
of any statements in this Prospectus with respect to the
transactions entered into or contemplated prior to the effective
date of such changes. Unless otherwise provided in this
discussion, the term "Partnership" includes all Subsidiary
Partnerships.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE
PURCHASE, OWNERSHIP, AND SALE OF THE COMMON STOCK AND OF THE
COMPANY'S ELECTION TO BE TAXED AS A REIT, INCLUDING THE FEDERAL,
STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH
PURCHASE, OWNERSHIP, SALE, AND ELECTION, AND OF POTENTIAL CHANGES
IN APPLICABLE TAX LAWS.
Taxation of the Company
The Company made an election to be taxed as a REIT under
sections 856 through 860 of the Code, effective for its taxable
year ended December 31, 1994. The Company believes that,
commencing with such taxable year, it has been organized and has
operated in such a manner as to qualify for taxation as a REIT
under the Code, and the Company intends to continue to operate in
such a manner, but no assurance can be given that the Company
will operate in a manner so as to qualify or remain qualified as
a REIT.
The sections of the Code relating to qualification and
operation as a REIT are highly technical and complex. The
following discussion sets forth the material aspects of the Code
sections that govern the federal income tax treatment of a REIT
and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations,
and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retrospectively.
If the Company qualifies for taxation as a REIT, it
generally will not be subject to federal corporate income tax on
its net income that is distributed currently to its shareholders.
That treatment substantially eliminates the "double taxation"
(i.e., taxation at both the corporate and shareholder levels)
that generally results from investment in a corporation.
However, the Company will be subject to federal income tax in the
following circumstances. First, the Company will be taxed at
regular corporate rates on any undistributed REIT taxable income,
including undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the "alternative
minimum tax" on its items of tax preference. Third, if the
Company has (i) net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to
customers in the ordinary course of business or (ii) other
nonqualifying income from foreclosure property, it will be
subject to tax at the highest corporate rate on such income.
Fourth, if the Company has net income from prohibited
transactions (which are, in general, certain sales or other
dispositions of property (other than foreclosure property) held
primarily for sale to customers in the ordinary course of
business), such income will be subject to a 100% tax. Fifth, if
the Company should fail to satisfy the 75% gross income test or
the 95% gross income test (as discussed below), and has
nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a
100% tax on the net income attributable to the greater of the
amounts by which the Company fails the 75% and 95% gross income
tests. Sixth, if the Company should fail to distribute during
each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain
net income for such year, and (iii) any undistributed taxable
income from prior periods, the Company would be subject to a 4%
excise tax on the excess of such required distribution over the
amounts actually distributed. Seventh, if the Company acquires
any asset from a C corporation (i.e., a corporation generally
subject to full corporate-level tax) in a transaction in which
the basis of the asset in the Company's hands is determined by
reference to the basis of the asset (or any other asset) in the
hands of the C corporation and the Company recognizes gain on the
disposition of such asset during the 10-year period beginning on
the date on which such asset was acquired by the Company, then to
the extent of such asset's "built-in gain" (i.e., the excess of
the fair market value of such asset at the time of acquisition by
the Company over the adjusted basis in such asset at such time),
the Company will be subject to tax at the highest regular
corporate rate applicable (as provided in Treasury Regulations
that have not yet been promulgated). The results described above
with respect to the recognition of "built-in gain" assume that
the Company would make an election pursuant to IRS Notice 88-19
if it were to make any such acquisition.
<PAGE>
Requirements for Qualification
The Code defines a REIT as a corporation, trust or
association (i) that is managed by one or more trustees or
directors; (ii) the beneficial ownership of which is evidenced by
transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic
corporation, but for sections 856 through 860 of the Code; (iv)
that is neither a financial institution nor an insurance company
subject to certain provisions of the Code; (v) the beneficial
ownership of which is held by 100 or more persons; (vi) not more
than 50% in value of the outstanding stock of which is owned,
directly or indirectly, by five or fewer individuals (as defined
in the Code to include certain entities) during the last half of
each taxable year (the "5/50 Rule"); (vii) that makes an election
to be a REIT (or has made such election for a previous taxable
year) and satisfies all relevant filing and other administrative
requirements established by the Service that must be met in order
to elect and to maintain REIT status; (viii) that uses a calendar
year for federal income tax purposes and complies with the
recordkeeping requirements of the Code and Treasury Regulations;
and (ix) that meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides
that conditions (i) to (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months.
Conditions (v) and (vi) will not apply until after the first
taxable year for which an election is made by the Company to be
taxed as a REIT. The Company believes that it has issued
sufficient shares of Common Stock with sufficient diversity of
ownership to allow it to satisfy requirements (v) and (vi). In
addition, the Company's Charter provides for restrictions
regarding transfer of the Common Stock that are intended to
assist the Company in continuing to satisfy the stock ownership
requirements described in (v) and (vi) above. Such transfer
restrictions are described above under "Restrictions on Transfer
of Capital Stock."
For purposes of determining stock ownership under the 5/50
Rule, a supplemental unemployment compensation benefits plan, a
private foundation, or a portion of a trust permanently set aside
or used exclusively for charitable purposes generally is
considered an individual. A trust that is a qualified trust
under Code section 401(a), however, generally is not considered
an individual and the beneficiaries of such trust are treated as
holding shares of a REIT in proportion to their actuarial
interests in the trust for purposes of the 5/50 Rule.
The Company currently has one direct corporate subsidiary,
Storage USA Trust, a Maryland real estate investment trust (the
"Trust"), and may have additional subsidiaries in the future.
Code section 856(i) provides that a corporation that is a
"qualified REIT subsidiary" will not be treated as a separate
corporation, and all assets, liabilities, and items of income,
deduction, and credit of a qualified REIT subsidiary will be
treated as assets, liabilities, and items of income, deduction,
and credit of the REIT. A "qualified REIT subsidiary" is a
corporation, all of the capital stock of which has been held by
the REIT at all times during the period such corporation has been
in existence. Thus, in applying the requirements described
herein, any qualified REIT subsidiaries of the Company are
ignored, and all assets, liabilities, and items of income,
deduction, and credit of such subsidiaries are treated as assets,
liabilities, and items of income, deduction, and credit of the
Company. The Trust is a qualified REIT subsidiary. The Trust,
therefore, is not subject to federal corporate income taxation,
although it may be subject to state and local taxation.
In the case of a REIT that is a partner in a partnership,
Treasury Regulations provide that the REIT will be deemed to own
its proportionate share of the assets of the partnership and will
be deemed to be entitled to the gross income of the partnership
attributable to such share. In addition, the assets and gross
income of the partnership will retain the same character in the
hands of the REIT for purposes of section 856 of the Code,
including satisfying the gross income and asset tests described
below. Thus, the Company's proportionate share of the assets,
liabilities, and items of income of the Partnership and of any
other partnership in which the Company has acquired or will
acquire an interest, directly or indirectly (a "Subsidiary
Partnership"), are treated as assets and gross income of the
Company for purposes of applying the requirements described
herein.
Income Tests
In order for the Company to maintain its qualification as a
REIT, there are three requirements relating to the Company's
gross income that must be satisfied annually. First, at least
75% of the Company's gross income (excluding gross income from
prohibited transactions) for each taxable year must consist of
defined types of income derived directly or indirectly from
investments relating to real property or mortgages on real
property (including "rents from real property" and, in certain
circumstances, interest) or temporary investment income. Second,
at least 95% of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must
be derived from such real property or temporary investments, and
from dividends, other types of interest, and gain from the sale
or disposition of stock or securities, or from any combination of
the foregoing. Third, not more that 30% of the Company's gross
income (including gross income from prohibited transactions) for
each taxable year may be gain from the sale or other disposition
of (i) stock or securities held for less than one year, (ii)
dealer property that is not foreclosure property, and (iii)
certain real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property).
Rents received by the Company will qualify as "rents from
real property" in satisfying the gross income requirements for a
REIT described above only if several conditions are met. First,
the amount of rent must not be based in whole or in part on the
income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from
real property" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. Second, the Code
provides that rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests
<PAGE>
if the Company, or an owner of 10% or more of the Company,
directly or constructively owns 10% or more of such tenant (a
"Related Party Tenant"). Third, if rent attributable to personal
property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will
not qualify as "rents from real property." Finally, for rents
received to qualify as "rents from real property," the Company
generally must not operate or manage the property or furnish or
render services to the tenants of such property, other than
through an "independent contractor" who is adequately compensated
and from whom the Company derives no revenue. The "independent
contractor" requirement, however, does not apply to the extent
the services provided by the Company are customarily furnished or
rendered in connection with the rental of real property for
occupancy only and are not otherwise considered "rendered to the
occupant."
The Company, through the Partnership, derives the bulk of
its revenues from rent from storage unit leases, additional first
month rent, and late charges attributable to such rents
(collectively, the "Primary Revenues"). Additional revenues are
derived from ancillary services such as moving truck rental
commissions, packing and shipping commissions, rent from leasing
space utilized for sales of locks and packing supplies to SUSA
Management, Inc., a Tennessee corporation ("Subsidiary Corp.") 5%
of whose voting stock and 94% of whose nonvoting stock (which
together constitute 99% of the beneficial economic interest
therein) are owned by the Partnership, rent from vehicle and boat
storage leases (including additional first month rent and late
charges attributable thereto), and similar items (collectively,
the "Ancillary Revenues"). The Company also receives dividends
from Subsidiary Corp. and Storage USA Franchise Corp., a
Tennessee corporation ("Franchise"), 100% of whose nonvoting
stock, which represents 97.5% of the beneficial economic interest
therein, is owned by the Partnership. The Company believes that,
other than the late charges attributable to rent, which are
treated as interest that qualifies for the 95% gross income test,
but not the 75% gross income test, the Primary Revenues qualify
as rents from real property for purposes of both the 75% test and
the 95% test and that dividends from Subsidiary Corp. and
Franchise (the "Nonqualified Subsidiaries") qualify as dividends
for purposes of the 95% test. Furthermore, the Company believes
that the Ancillary Revenues and other types of potentially
nonqualifying gross income earned by the Company in each taxable
year are equal to, and will continue to be equal to, less than 5%
of the Company's total gross income and, thus, that such items of
income do not adversely affect the Company's qualification as a
REIT.
Other than with respect to its leasing arrangement with
Subsidiary Corp. with respect to the sale of lock and packing
supplies (the revenue from which the Company will treat as
nonqualifying income for purposes of the 75% and 95% tests), the
Company does not own, directly or indirectly, 10% or more of any
tenant or receive any rent based on the income or profits of any
tenant. Furthermore, the Company believes that any personal
property rented in connection with its storage facilities is well
within the 15% restriction. However, in order for the Primary
Revenues to constitute "rents from real property," the Company
must not provide services to its tenants that are not customarily
furnished or rendered in connection with the rental of the
self-storage units, other than through an independent contractor.
The Company, through the Partnership (which is not an
independent contractor), provides certain services with respect
to the facilities and will provide certain services with respect
to any newly acquired self-storage facilities. Such services
include (i) common area services, such as cleaning and
maintaining public entrances, exits, stairways, walkways, lobbies
and restrooms, removing snow and debris, collecting trash, and
painting the exteriors of the facilities and common areas, (ii)
providing general security for the facilities, (iii) cleaning and
repairing of units at the facilities as tenants move in and out,
(iv) at the request of the tenant, and without additional charge,
accepting delivery of goods from carriers or unlocking a
particular unit when goods are delivered to a facility (however,
the Partnership does not otherwise assist tenants in the storage
or removal of goods or belongings from the units), (v) permitting
tenants to use the fax machine at a facility for occasional local
faxes without additional charge and for occasional long-distance
faxes for a nominal charge, (vi) maintaining underground
utilities and structural elements of the facilities, (vii) paying
real and personal property taxes or the cost of replacing or
refurbishing personal property with respect to real and personal
property owned by the Partnership at a facility, (viii) for a
fee, acting as an agent for moving truck rental companies for
tenants of certain facilities and walk-in customers, (ix) for a
fee, providing packing and shipping services to tenants of
certain facilities and walk-in customers, and (x) at a few
facilities, allowing tenants to use trucks owned by the Company
or the Partnership to move their goods and belongings into and
out of the units without additional charge. The Company believes
that the services provided by the Partnership are customarily
furnished or rendered in connection with the rental of space for
occupancy only by self-storage facilities in the geographic areas
in which its facilities are located.
The Company's investment, through the Partnership, in the
facilities in major part gives rise to rental income that is
qualifying income for purposes of the 75% and 95% gross income
tests. Gains on sales of the facilities (other than from
prohibited transactions, as described below) or of the Company's
interest in the Partnership generally will be qualifying income
for purposes of the 75% and 95% gross income tests. The Company
anticipates that income on its other investments, including its
indirect investments in the Nonqualified Subsidiaries, will not
result in the Company failing the 75% or 95% gross income test
for any year.
The term "interest" generally does not include any amount
received or accrued (directly or indirectly) if the determination
of such amount depends in whole or in part on the income or
profits of any person. However, an amount received or accrued
generally will not be excluded from the term "interest" solely by
reason of being based on a fixed percentage or percentages of
receipts or sales.
<PAGE>
Any gross income derived from a prohibited transaction is
taken into account in applying the 30% income test necessary to
qualify as a REIT (and the net income from that transaction is
subject to a 100% tax). The term "prohibited transaction"
generally includes a sale or other disposition of property (other
than foreclosure property) that is held primarily for sale to
customers in the ordinary course of a trade or business. The
Company and the Partnership believe that no asset owned by the
Company or the Partnership is held for sale to customers and that
a sale of any such asset will not be in the ordinary course of
business of the Company or the Partnership. Whether property is
held "primarily for sale to customers in the ordinary course of a
trade or business" depends, however, on the facts and
circumstances in effect from time to time, including those
related to a particular property. Nevertheless, the Company and
the Partnership have complied, and will continue to comply, with
the terms of safe-harbor provisions in the Code prescribing when
asset sales will not be characterized as prohibited transactions.
Complete assurance cannot be given, however, that the Company or
the Partnership can comply with the safe-harbor provisions of the
Code or avoid owning property that may be characterized as
property held "primarily for sale to customers in the ordinary
course of a trade or business."
It is possible that, from time to time, the Company or the
Partnership will enter into hedging transactions with respect to
one or more of its assets or liabilities. Any such hedging
transactions could take a variety of forms, including interest
rate swap contracts, interest rate cap or floor contracts,
futures or forward contracts, and options. To the extent that
the Company or the Partnership enters into an interest rate swap
or cap contract to hedge any variable rate indebtedness incurred
to acquire or carry real estate assets, any periodic income or
gain from the disposition of such contract should be qualifying
income for purposes of the 95% gross income test, but not the 75%
gross income test. Furthermore, any such contract would be
considered a "security" for purposes of applying the 30% gross
income test. To the extent that the Company or the Partnership
hedges with other types of financial instruments or in other
situations, it may not be entirely clear how the income from
those transactions will be treated for purposes of the various
income tests that apply to REITs under the Code. The Company
intends to structure any hedging transactions in a manner that
does not jeopardize its status as a REIT.
If the Company fails to satisfy one or both of the 75% or
95% gross income tests for any taxable year, it may nevertheless
qualify as a REIT for such year if it is entitled to relief under
certain provisions of the Code. Those relief provisions
generally will be available if (i) the Company's failure to meet
such tests is due to reasonable cause and not due to willful
neglect, (ii) the Company attaches a schedule of the sources of
its income to its return, and (iii) any incorrect information on
the schedule was not due to fraud with intent to evade tax. It
is not possible, however, to state whether in all circumstances
the Company would be entitled to the benefit of those relief
provisions. As discussed above in "Federal Income Tax
Considerations-Taxation of the Company," even if those relief
provisions apply, a 100% tax would be imposed with respect to the
net income attributable to the greater of the amounts by which
the Company fails the 75% and 95% income tests. No such relief
is available for violations of the 30% income test.
Asset Tests
The Company, at the close of each quarter of each taxable
year, also must satisfy two tests relating to the nature of its
assets. First, at least 75% of the value of the Company's total
assets must be represented by cash or cash items (including
certain receivables), government securities, or "real estate
assets," including, in cases where the Company raises new capital
through stock or long-term (at least five-year) debt offerings,
stock or debt instruments attributable to the temporary
investment of such new capital during the one-year period
following the Company's receipt of such capital. The term "real
estate assets" also includes real property (including interests
in real property and interests in mortgages on real property) and
shares of other REITs. For purposes of the 75% asset test, the
term "interest in real property" includes an interest in land or
improvements thereon, such as buildings or other inherently
permanent structures (including items that are structural
components of such buildings or structures), a leasehold in land
or improvements thereon, and an option to acquire land or
improvements thereon (or a leasehold in land or improvements
thereon). Second, of the investments not included in the 75%
asset class, the value of any one issuer's securities owned by
the Company (other than its ownership interest in the
Partnership, the Trust, or any other qualified REIT subsidiary)
may not exceed 5% of the value of the Company's total assets, and
the Company may not own more than 10% of any one issuer's
outstanding voting securities (except for its ownership interest
in the Partnership, the Trust, or any other qualified REIT
subsidiary).
The Partnership owns 5% of the voting stock and 94% of the
nonvoting stock of Subsidiary Corp. (which together constitute
99% of the beneficial economic interest therein). In addition,
the Partnership owns 100% of the nonvoting stock of Franchise,
which represents 97.5% of the beneficial economic interest
therein. By virtue of its partnership interest in the
Partnership, the Company is deemed to own its pro rata share of
the assets of the Partnership, including the stock of Subsidiary
Corp. and Franchise held by the Partnership.
The Partnership does not own more than 10% of the voting
securities of either Nonqualified Subsidiary. In addition, based
upon its analysis of the estimated value of the stock of each
Nonqualified Subsidiary owned by the Partnership relative to the
estimated value of the other assets owned by the Company, the
Company believes that neither its pro rata share of the stock of
Subsidiary Corp., nor its pro rata share of the stock of
Franchise, exceeds 5% of the total value of the Company's assets.
No independent appraisals have been obtained to support this
conclusion. This 5% limitation must be satisfied at the end of
each quarter in which the Company or the Partnership increases
its interest in a Nonqualified Subsidiary (including as a result
of the Company increasing its interest in the Partnership in
connection with a stock offering or as Limited Partners of the
Partnership
<PAGE>
exercise their Redemption Rights). Although the Company plans to
take steps to ensure that it satisfies the 5% asset test for any
quarter with respect to which retesting is to occur, there can be
no assurance that such steps will always be successful or will
not require a reduction in the Partnership's overall interest in
a Nonqualified Subsidiary. The Company does not expect to own
securities of any other issuer in excess of the restrictions set
forth above. Nevertheless, if the Service were to challenge
successfully the tax status of the Partnership as a partnership
for federal income tax purposes, since the Company owns more than
10% of the voting interests in such entity, the Company likely
would cease to qualify as a REIT. See "Federal Income Tax
Considerations - Tax Aspects of the Company's Investments in the
Partnership and Subsidiary Partnerships."
If the Company should fail to satisfy the asset tests at the
end of a calendar quarter, such a failure would not cause it to
lose its REIT status if (i) it satisfied all of the asset tests
at the close of the preceding calendar quarter and (ii) the
discrepancy between the value of the Company's assets and the
asset tests either did not exist immediately after the
acquisition of any particular asset or was not wholly or partly
caused by such an acquisition (i.e., the discrepancy arose from
changes in the market values of its assets). If the condition
described in clause (ii) of the preceding sentence were not
satisfied, the Company still could avoid disqualification by
eliminating any discrepancy within 30 days after the close of the
quarter in which it arose.
Distribution Requirements
The Company, in order to qualify as a REIT, is required to
distribute dividends (other than capital gain dividends) to its
shareholders in an amount at least equal to (i) the sum of (A)
95% of its "REIT taxable income" (computed without regard to the
dividends paid deduction and its net capital gain) and (B) 95% of
the net income (after tax), if any, from foreclosure property,
minus (ii) the sum of certain items of noncash income. Such
distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the
Company timely files its tax return for such year and if paid on
or before the first regular dividend payment date after such
declaration. To the extent that the Company does not distribute
all of its net capital gain or distributes at least 95%, but less
than 100%, of its REIT taxable income, as adjusted, it will be
subject to tax thereon at regular ordinary and capital gains
corporate tax rates. Furthermore, if the Company should fail to
distribute during each calendar year at least the sum of (i) 85%
of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, the Company would be subject
to a 4% nondeductible excise tax on the excess of such required
distribution over the amounts actually distributed. The Company
has made, and will continue to make, timely distributions
sufficient to satisfy all annual distribution requirements.
It is possible that, from time to time, the Company may
experience timing differences between (i) the actual receipt of
income and actual payment of deductible expenses and (ii) the
inclusion of that income and deduction of such expenses in
arriving at its REIT taxable income. Further, it is possible
that, from time to time, the Company may be allocated a share of
net capital gain attributable to the sale of depreciated property
that exceeds its allocable share of cash attributable to that
sale. Therefore, the Company may have less cash available for
distribution than is necessary to meet its annual 95%
distribution requirement or to avoid corporate income tax or the
excise tax imposed on certain undistributed income. In such a
situation, the Company may find it necessary to arrange for
short-term (or possibly long-term) borrowings or to raise funds
through the issuance of additional shares of Common Stock or
shares of preferred stock.
Under certain circumstances, the Company may be able to
rectify a failure to meet the distribution requirement for a year
by paying "deficiency dividends" to its shareholders in a later
year, which may be included in the Company's deduction for
dividends paid for the earlier year. Although the Company may be
able to avoid being taxed on amounts distributed as deficiency
dividends, it will be required to pay to the Service interest
based upon the amount of any deduction taken for deficiency
dividends.
Special Distribution Requirement
Prior to becoming a REIT, the Company and all corporations
previously merged into the Company were taxable as S corporations
pursuant to elections made at the inception of each such
corporation. The Code provides that, in the case of a
corporation that succeeded to the "earnings and profits" of a
corporation that was not taxed as a REIT for all of its taxable
years beginning after February 28, 1986, such corporation is
eligible to make a REIT election for a taxable year only if, as
of the close of such year, it has no earnings and profits
accumulated in any year in which it was not a REIT. If the
Company had any such non-REIT earnings and profits, it would have
to make a distribution equal to the non-REIT earnings and profits
to preserve its REIT status. Since the Company was taxable as an
S corporation from its inception and has not succeeded to the
non-REIT earnings and profits of any other corporation, this
special distribution requirement will not apply.
Recordkeeping Requirement
Pursuant to applicable Treasury Regulations, in order to be
able to elect to be taxed as a REIT, the Company must maintain
certain records and request on an annual basis certain
information from its shareholders designed to disclose the actual
ownership of its outstanding stock. The Company has complied,
and will continue to comply, with such requirements.
<PAGE>
Partnership Anti-Abuse Rule
A final regulation (the "Anti-Abuse Rule") under the
partnership provisions of the Code (the "Partnership Provisions")
authorizes the Service, in certain abusive transactions involving
partnerships, to disregard the form of the transaction and recast
it for federal tax purposes as the Service deems appropriate.
The Anti-Abuse Rule applies where a partnership is formed or
utilized in connection with a transaction (or series of related
transactions) with a principal purpose of substantially reducing
the present value of the partners' aggregate federal tax
liability in a manner inconsistent with the intent of the
Partnership Provisions. The Anti-Abuse Rule states that the
Partnership Provisions are intended to permit taxpayers to
conduct joint business (including investment) activities through
a flexible arrangement that accurately reflects the partners'
economic agreement and clearly reflects the partners' income
without incurring any entity-level tax. The purposes for
structuring a transaction involving a partnership are determined
based on all of the facts and circumstances, including a
comparison of the purported business purpose for a transaction
and the claimed tax benefits resulting from the transaction. A
reduction in the present value of the partners' aggregate federal
tax liability through the use of a partnership does not, by
itself, establish inconsistency with the intent of the
Partnership Provisions.
The Anti-Abuse Rule contains an example in which a
corporation that elects to be taxed as a REIT contributes
substantially all of the proceeds from a public offering to a
partnership in exchange for a general partnership interest. The
limited partners of the partnership contribute real property
assets to the partnership, subject to liabilities that exceed
their respective aggregate bases in such property. In addition,
some of the limited partners have the right, beginning two years
after the formation of the partnership, to require the redemption
of their limited partnership interests in exchange for cash or
REIT stock (at the REIT's option) equal to the fair market value
of their respective interests in the partnership at the time of
the redemption. The example concludes that the use of the
partnership is not inconsistent with the intent of the
Partnership Provisions and, thus, cannot be recast by the
Service. However, because the Anti-Abuse Rule is extraordinarily
broad in scope and is applied based on an analysis of all of the
facts and circumstances, there can be no assurance that the
Service will not attempt to apply the Anti-Abuse Rule to the
Company. If the conditions of the Anti-Abuse Rule are met, the
Service is authorized to take appropriate enforcement action,
including disregarding the Partnership for federal tax purposes
or treating one or more of the partners as nonpartners. Any such
action potentially could jeopardize the Company's status as a
REIT.
Failure to Qualify
If the Company fails to qualify for taxation as a REIT in
any taxable year and the relief provisions do not apply, the
Company will be subject to tax (including any applicable
alternative minimum tax) on its taxable income at regular
corporate rates. Distributions to the shareholders in any year
in which the Company fails to qualify will not be deductible by
the Company nor will they be required to be made. In such event,
to the extent of current and accumulated earnings and profits,
all distributions to shareholders will be taxable as ordinary
income and, subject to certain limitations of the Code, corporate
distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory
provisions, the Company also will be disqualified from taxation
as a REIT for the four taxable years following the year during
which the Company ceased to qualify as a REIT. It is not
possible to state whether in all circumstances the Company would
be entitled to such statutory relief.
Taxation of Taxable U.S. Shareholders
As long as the Company qualifies as a REIT, distributions
made to the Company's taxable U.S. shareholders out of current or
accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by such U.S.
shareholders as ordinary income and will not be eligible for the
dividends received deduction generally available to corporations.
As used herein, the term "U.S. shareholder" means a holder of
Common Stock that for U.S. federal income tax purposes is (i) a
citizen or resident of the United States, (ii) a corporation,
partnership, or other entity created or organized in or under the
laws of the United States or of any political subdivision
thereof, or (iii) an estate or trust the income of which is
subject to U.S. federal income taxation regardless of its source.
Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not
exceed the Company's actual net capital gain for the taxable
year) without regard to the period for which the shareholder has
held his Common Stock. However, corporate shareholders may be
required to treat up to 20% of certain capital gain dividends as
ordinary income. Distributions in excess of current and
accumulated earnings and profits will not be taxable to a
shareholder to the extent that they do not exceed the adjusted
basis of the shareholder's Common Stock, but rather will reduce
the adjusted basis of such stock. To the extent that
distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of a shareholder's Common
Stock, such distributions will be included in income as long-term
capital gain (or short-term capital gain if the Common Stock has
been held for one year or less) assuming the Common Stock is a
capital asset in the hands of the shareholder. In addition, any
distribution declared by the Company in October, November, or
December of any year and payable to a shareholder of record on a
specified date in any such month shall be treated as both paid by
the Company and received by the shareholder on December 31 of
such year, provided that the distribution is actually paid by the
Company during January of the following calendar year.
Shareholders may not include in their individual income tax
returns any net operating losses or capital losses of the
Company. Instead, such losses would be carried over by the
Company for potential offset against its future income (subject
to certain limitations). Taxable distributions from the Company
and gain from the disposition of the Common Stock will not be
<PAGE>
treated as passive activity income and, therefore, shareholders
generally will not be able to apply any "passive activity losses"
(such as losses from certain types of limited partnerships in
which the shareholder is a limited partner) against such income.
In addition, taxable distributions from the Company and gain from
the disposition of Common Stock generally will be treated as
investment income for purposes of the investment interest
limitations. The Company will notify shareholders after the
close of the Company's taxable year as to the portions of the
distributions attributable to that year that constitute ordinary
income, return of capital, and capital gain.
Taxation of Shareholders on the Disposition of the Common Stock
In general, any gain or loss realized upon a taxable
disposition of the Common Stock by a shareholder who is not a
dealer in securities will be treated as long-term capital gain or
loss if the Common Stock has been held for more than one year and
otherwise as short-term capital gain or loss. However, any loss
upon a sale or exchange of Common Stock by a shareholder who has
held such stock for six months or less (after applying certain
holding period rules), will be treated as a long-term capital
loss to the extent of distributions from the Company required to
be treated by such shareholder as long-term capital gain. All or
a portion of any loss realized upon a taxable disposition of the
Common Stock may be disallowed if other Common Stock is purchased
within 30 days before or after the disposition.
Capital Gains and Losses
A capital asset generally must be held for more than one
year in order for gain or loss derived from its sale or exchange
to be treated as long-term capital gain or loss. The highest
marginal individual income tax rate is 39.6%, and the tax rate on
net capital gains applicable to individuals is 28%. Thus, the
tax rate differential between capital gain and ordinary income
for individuals may be significant. In addition, the
characterization of income as capital or ordinary may affect the
deductibility of capital losses. Capital losses not offset by
capital gains may be deducted against an individual's ordinary
income only up to a maximum annual amount of $3,000. Unused
capital losses may be carried forward. All net capital gain of a
corporate taxpayer is subject to tax at ordinary corporate rates.
A corporate taxpayer can deduct capital losses only to the extent
of capital gains, with unused losses being carried back three
years and forward five years.
Information Reporting Requirements and Backup Withholding
The Company will report to its U.S. shareholders and to the
Service the amount of distributions paid during each calendar
year, and the amount of tax withheld, if any. Under the backup
withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid
unless such holder (i) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this
fact or (ii) provides a taxpayer identification number, certifies
as to no loss of exemption from backup withholding, and otherwise
complies with the applicable requirements of the backup
withholding rules. A shareholder who does not provide the
Company with his correct taxpayer identification number also may
be subject to penalties imposed by the Service. Any amount paid
as backup withholding will be creditable against the
shareholder's income tax liability. In addition, the Company may
be required to withhold a portion of capital gain distributions
to any shareholders who fail to certify their nonforeign status
to the Company. The Service issued proposed regulations in April
1996 regarding the backup withholding rules as applied to Non-
U.S. Shareholders (as defined herein). Those proposed
regulations would alter the current system of backup withholding
compliance. See "Federal Income Tax Considerations - Taxation of
Non-U.S. Shareholders."
Taxation of Tax-Exempt Shareholders
Tax-exempt entities, including qualified employee pension
and profit sharing trusts and individual retirement accounts
("Exempt Organizations"), generally are exempt from federal
income taxation. However, they are subject to taxation on their
unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, the Service has issued
a published ruling that dividend distributions by a REIT to an
exempt employee pension trust do not constitute UBTI, provided
that the shares of the REIT are not otherwise used in an
unrelated trade or business of the exempt employee pension trust.
Based on that ruling, amounts distributed by the Company to
Exempt Organizations generally should not constitute UBTI.
However, if an Exempt Organization finances its acquisition of
the Common Stock with debt, a portion of its income from the
Company will constitute UBTI pursuant to the "debt-financed
property" rules. Furthermore, social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts,
and qualified group legal services plans that are exempt from
taxation under paragraphs (7), (9), (17), and (20), respectively,
of Code section 501(c) are subject to different UBTI rules, which
generally will require them to characterize distributions from
the Company as UBTI. In addition, in certain circumstances a
pension trust that owns more than 10% of the Company's stock is
required to treat a percentage of the dividends from the Company
as UBTI (the "UBTI Percentage"). The UBTI Percentage is the
gross income derived from an unrelated trade or business
(determined as if the Company were a pension trust) divided by
the gross income of the Company for the year in which the
dividends are paid. The UBTI rule applies to a pension trust
holding more than 10% of the Company's stock only if (i) the UBTI
Percentage is at least 5%, (ii) the Company qualifies as a REIT
by reason of the modification of the 5/50 Rule that allows the
beneficiaries of the pension trust to be treated as holding
shares of the Company in proportion to their actuarial interests
in the pension trust, and (iii) either (A) one pension trust owns
more than 25% of the value of the Company's shares or (B) a group
<PAGE>
of pension trusts individually holding more than 10% of the value
of the Company's shares collectively own more than 50% of the
value of the Company's shares.
Taxation of Non-U.S. Shareholders
The rules governing U.S. federal income taxation of
nonresident alien individuals, foreign corporations, foreign
partnerships, and other foreign shareholders (collectively,
"Non-U.S. Shareholders") are complex and no attempt will be made
herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS
TO DETERMINE THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX
LAWS WITH REGARD TO AN INVESTMENT IN THE COMMON STOCK, INCLUDING
ANY REPORTING REQUIREMENTS.
Distributions to Non-U.S. Shareholders that are not
attributable to gain from sales or exchanges by the Company of
U.S. real property interests and are not designated by the
Company as capital gains dividends will be treated as dividends
of ordinary income to the extent that they are made out of
current or accumulated earnings and profits of the Company. Such
distributions ordinarily will be subject to a withholding tax
equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces or eliminates that tax. However,
if income from the investment in the Common Stock is treated as
effectively connected with the Non-U.S. Shareholder's conduct of
a U.S. trade or business, the Non-U.S. Shareholder generally will
be subject to federal income tax at graduated rates, in the same
manner as U.S. shareholders are taxed with respect to such
distributions (and also may be subject to the 30% branch profits
tax in the case of a Non-U.S. Shareholder that is a foreign
corporation). The Company expects to withhold U.S. income tax at
the rate of 30% on the gross amount of any such distributions
made to a Non-U.S. Shareholder unless (i) a lower treaty rate
applies and any required form evidencing eligibility for that
reduced rate is filed with the Company or (ii) the Non-U.S.
Shareholder files an IRS Form 4224 with the Company claiming that
the distribution is effectively connected income. The Service
issued proposed regulations in April 1996 that would modify the
manner in which the Company complies with the withholding
requirements. Distributions in excess of current and accumulated
earnings and profits of the Company will not be taxable to a
shareholder to the extent that such distributions do not exceed
the adjusted basis of the shareholder's Common Stock, but rather
will reduce the adjusted basis of such stock. To the extent that
distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of a Non-U.S. Shareholder's
Common Stock, such distributions will give rise to tax liability
if the Non-U.S. Shareholder would otherwise be subject to tax on
any gain from the sale or disposition of his Common Stock, as
described below. Because it generally cannot be determined at
the time a distribution is made whether or not such distribution
will be in excess of current and accumulated earnings and
profits, the entire amount of any distribution normally will be
subject to withholding. However, amounts so withheld are
refundable to the extent it is determined subsequently that such
distribution was, in fact, in excess of the current and
accumulated earnings and profits of the Company.
In August 1996, the U.S. Congress passed the Small Business
Job Protection Act of 1996, which requires the Company to
withhold 10% of any distribution in excess of the Company's
current and accumulated earnings and profits. That statute is
effective for distributions made after August 20, 1996.
Consequently, although the Company intends to withhold at a rate
of 30% on the entire amount of any distribution, to the extent
that the Company does not do so, any portion of a distribution
not subject to withholding at a rate of 30% will be subject to
withholding at a rate of 10%.
For any year in which the Company qualifies as a REIT,
distributions that are attributable to gain from sales or
exchanges by the Company of U.S. real property interests will be
taxed to a Non-U.S. Shareholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA").
Under FIRPTA, distributions attributable to gain from sales of
U.S. real property interests are taxed to a Non-U.S. Shareholder
as if such gain were effectively connected with a U.S. business.
Non-U.S. Shareholders thus would be taxed at the normal capital
gain rates applicable to U.S. shareholders (subject to applicable
alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals). Distributions
subject to FIRPTA also may be subject to a 30% branch profits tax
in the hands of a foreign corporate shareholder not entitled to
treaty relief or exemption. The Company is required by currently
applicable Treasury Regulations to withhold 35% of any
distribution that is designated by the Company as a capital gains
dividend. The amount withheld is creditable against the Non-U.S.
Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of his
Common Stock generally will not be taxed under FIRPTA if the
Company is a "domestically controlled REIT," defined generally as
a REIT in which at all times during a specified testing period
less than 50% in value of the stock was held directly or
indirectly by foreign persons. It is currently anticipated that
the Company will be a "domestically controlled REIT" and,
therefore, the sale of the Common Stock will not be subject to
taxation under FIRPTA. However, because the Common Stock will be
publicly traded, no assurance can be given that the Company will
continue to be a "domestically controlled REIT." The Company's
Charter provides for restrictions regarding transfer of the
Common Stock that are intended to assist the Company in
continuing to be a "domestically controlled REIT." Furthermore,
gain not subject to FIRPTA will be taxable to a Non-U.S.
Shareholder if (i) investment in the Common Stock is effectively
connected with the Non-U.S. Shareholder's U.S. trade or business,
in which case the Non-U.S. Shareholder will be subject to the
same treatment as U.S. shareholders with respect to such gain, or
(ii) the Non-U.S. Shareholder is a nonresident alien individual
who was present in the United States for 183 days or more during
the taxable year and certain other conditions apply, in which
case the nonresident alien individual will be subject to a 30%
tax on the individual's capital gains. If the gain on
<PAGE>
the sale of the Common Stock were to be subject to taxation under
FIRPTA, the Non-U.S. Shareholder will be subject to the
same treatment as U.S. shareholders with respect to such gain
(subject to applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien
individuals, and the possible application of the 30% branch
profits tax in the case of foreign corporations). IN ADDITION,
NON-U.S. SHAREHOLDERS SHOULD BE AWARE THAT, IN THE PAST,
LEGISLATIVE PROPOSALS HAVE BEEN MADE THAT WOULD HAVE SUBJECTED
NON-U.S. PERSONS TO U.S. TAX IN CERTAIN CIRCUMSTANCES ON THEIR
GAINS FROM THE SALE OF STOCK IN U.S. CORPORATIONS. THERE CAN BE
NO ASSURANCE THAT A SIMILAR PROPOSAL WILL NOT BE ENACTED INTO LAW
IN A FORM DETRIMENTAL TO FOREIGN HOLDERS OF THE COMMON STOCK.
Other Tax Consequences
State and Local Taxes
The Company, the Trust, the Partnership, a Subsidiary
Partnership, or the Company's shareholders may be subject to
state or local taxation in various state or local jurisdictions,
including those in which it or they own property, transact
business, or reside. The state and local tax treatment of the
Company and its shareholders may not conform to the federal
income tax consequences discussed above. In addition, the
Company, the Trust, the Partnership, or a Subsidiary Partnership
may be subject to certain state and local taxes imposed on owners
of property, such as ad valorem property taxes, transfer taxes,
and rent taxes. CONSEQUENTLY, PROSPECTIVE SHAREHOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS REGARDING THE EFFECT OF STATE AND
LOCAL TAX LAWS ON AN INVESTMENT IN THE COMPANY.
Tax Aspects of the Company's Investments in the Partnership and
Subsidiary Partnerships
The following discussion summarizes certain federal income
tax considerations applicable to the Company's direct or indirect
investments in the Partnership and the Subsidiary Partnerships
(each individually a "Partnership" and, collectively, the
"Partnerships"). The discussion does not cover state or local
tax laws or any federal tax laws other than income tax laws.
Classification as Partnerships
The Company is entitled to include in its income its
distributive share of each Partnership's income and to deduct its
distributive share of each Partnership's losses only if the
Partnerships are classified for federal income tax purposes as
partnerships rather than as Corporations or associations taxable
as corporations. An organization formed as a partnership will be
treated as a partnership, rather than as a corporation, for
federal income tax purposes if it (i) has no more than two of the
four corporate characteristics that the Treasury Regulations use
to distinguish a partnership from a corporation for tax purposes
and (ii) is not a "publicly traded" partnership. Those four
corporate characteristics are continuity of life, centralization
of management, limited liability, and free transferability of
interests. A publicly traded partnership is a partnership whose
interests are traded on an established securities market or are
readily tradable on a secondary market (or the substantial
equivalent thereof). A publicly traded partnership will not,
however, be treated as a corporation for any taxable year if 90%
or more of the partnership's gross income for such year consists
of certain passive-type income, including (as may be relevant
here) real property rents, gains from the sale or other
disposition of real property, interest, and dividends (the "90%
Passive Income Exception").
The U.S. Department of the Treasury recently issued
regulations effective for taxable years beginning after December
31, 1995 (the "PTP Regulations") that provide limited safe
harbors from the definition of a publicly traded partnership.
Pursuant to one of those safe harbors (the "Private Placement
Exclusion"), interests in a partnership will not be treated as
readily tradable on a secondary market or the substantial
equivalent thereof if (i) all interests in the partnership were
issued in a transaction (or transactions) that was not required
to be registered under the Securities Act of 1933, as amended,
and (ii) the partnership does not have more than 100 partners at
any time during the partnership's taxable year. In determining
the number of partners in a partnership, a person owning an
interest in a flow-through entity (i.e., a partnership, grantor
trust, or S corporation) that owns an interest in the partnership
is treated as a partner in such partnership only if (i)
substantially all of the value of the owner's interest in the
flow-through entity is attributable to the flow-through entity's
interest (direct or indirect) in the partnership and (ii) a
principal purpose of the use of the tiered arrangement is to
permit the partnership to satisfy the 100-partner limitation.
Each Partnership qualifies for the Private Placement Exclusion.
If a Partnership is considered a publicly traded partnership
under the PTP Regulations because it is deemed to have more than
100 partners, such Partnership should not be treated as a
corporation because it should be eligible for the 90% Passive
Income Exception. If, however, for any reason a Partnership
were taxable as a corporation, rather than as a partnership, for
federal income tax purposes, the Company would not be able to
qualify as a REIT. See "Federal Income Tax Considerations,
Requirements for Qualification, Income Tests" and
"Requirements for Qualification, Asset Tests." In addition, any
change in a Partnership's status for tax purposes might be
treated as a taxable event, in which case the Company might incur
tax liability without any related cash distribution. See
"Federal Income Tax Considerations, Requirements for
Qualification, Distribution Requirements." Further, items of
income and deduction of such Partnership would not pass through
to its partners, and its partners would be treated as
stockholders for tax purposes. Consequently, such Partnership
would be required to pay
<PAGE>
income tax at corporate tax rates on its net income, and
distributions to its partners would constitute
dividends that would not be deductible in computing such
Partnership's taxable income.
Income Taxation of the Partnerships and their Partners
Partners, Not the Partnerships, Subject to Tax. A
partnership is not a taxable entity for federal income tax
purposes. Rather, the Company is required to take into account
its allocable share of each Partnership's income, gains, losses,
deductions, and credits for any taxable year of such Partnership
ending within or with the taxable year of the Company, without
regard to whether the Company has received or will receive any
distribution from such Partnership.
Partnership Allocations. Although a partnership agreement
generally will determine the allocation of income and losses
among partners, such allocations will be disregarded for tax
purposes under section 704(b) of the Code if they do not comply
with the provisions of section 704(b) of the Code and the
Treasury Regulations promulgated thereunder. If an allocation is
not recognized for federal income tax purposes, the item subject
to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined
by taking into account all of the facts and circumstances
relating to the economic arrangement of the partners with respect
to such item. Each Partnership's allocations of taxable income,
gain, and loss are intended to comply with the requirements of
section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.
Tax Allocations With Respect to Contributed Properties.
Pursuant to section 704(c) of the Code, income, gain, loss, and
deduction attributable to appreciated or depreciated property
that is contributed to a partnership in exchange for an interest
in the partnership must be allocated in a manner such that the
contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated
with the property at the time of the contribution. The amount of
such unrealized gain or unrealized loss is generally equal to the
difference between the fair market value of contributed property
at the time of contribution, and the adjusted tax basis of such
property at the time of contribution (a "Book-Tax Difference").
Such allocations are solely for federal income tax purposes and
do not affect the book capital accounts or other economic or
legal arrangements among the partners. The Partnership was
formed by way of contributions of appreciated property and has
received contributions of appreciated property since the
Company's initial public offering. Consequently, the Partnership
Agreement requires such allocations to be made in a manner
consistent with section 704(c) of the Code.
In general, the carryover basis of the facilities
contributed by the Company to the Partnership will cause the
Company to be allocated lower depreciation and other deductions,
and possibly amounts of taxable income, in the event of a sale of
such a facility, in excess of the economic or book income
allocated to it as a result of such sale. While this will tend
to eliminate the Book-Tax Differences over the life of the
Partnership, the special allocation rules of section 704(c) do
not always entirely rectify the Book-Tax Difference on an annual
basis or with respect to a specific taxable transaction such as a
sale. Therefore, elimination of Book-Tax Differences with
respect to the facilities contributed by the Company may cause
the Company to recognize taxable income in excess of its
proportionate share of the cash proceeds, which might adversely
affect the Company's ability to comply with the REIT distribution
requirements. See "Federal Income Tax Considerations --
Requirements for Qualification -- Distribution Requirements."
The U.S. Department of the Treasury recently issued
regulations requiring partnerships to use a "reasonable method"
for allocating items affected by section 704(c) of the Code and
outlining several reasonable allocation methods. The Partnership
has elected to use the "traditional method" for allocating Code
section 704(c) items with respect to the properties that it
acquires in exchange for Units. Under the Partnership Agreement,
depreciation or amortization deductions of the Partnership
generally will be allocated among the partners in accordance with
their respective interests in the Partnership, except to the
extent that the Partnership is required under Code section 704(c)
to use a method for allocating tax depreciation deductions
attributable to contributed properties that results in the
Company receiving a disproportionate share of such deductions.
In addition, gain on sale of a facility that has been contributed
(in whole or in part) to the Partnership will be specially
allocated to the contributing partners to the extent of any
"built-in" gain with respect to such facility for federal income
tax purposes. The application of section 704(c) to the
Partnership is not entirely clear, however, and may be affected
by Treasury Regulations promulgated in the future.
Basis in Partnership Interest. The Company's adjusted tax
basis in its partnership interest in the Partnership generally is
equal to (i) the amount of cash and the basis of any other
property contributed to the Partnership by the Company, (ii)
increased by (A) its allocable share of the Partnership's income
and (B) its allocable share of indebtedness of the Partnership,
and (iii) reduced, but not below zero, by (A) the Company's
allocable share of the Partnership's loss and (B) the amount of
cash distributed to the Company, and by constructive
distributions resulting from a reduction in the Company's share
of indebtedness of the Partnership.
If the allocation of the Company's distributive share of the
Partnership's loss would reduce the adjusted tax basis of the
Company's partnership interest in the Partnership below zero, the
recognition of such loss will be deferred until such time as the
recognition of such loss would not reduce the Company's adjusted
tax basis below zero. To the extent that the Partnership's
distributions, or any decrease in the Company's share of the
indebtedness of the Partnership (such decrease being considered a
constructive cash distribution to the partners), would reduce the
Company's adjusted tax basis below zero, such distributions
<PAGE>
(including such constructive distributions) constitute taxable
income to the Company. Such distributions and constructive
distributions normally will be characterized as capital gain,
and, if the Company's partnership interest in the Partnership has
been held for longer than the long-term capital gain holding
period (currently one year), the distributions and constructive
distributions will constitute long-term capital gain.
Depreciation Deductions Available to the Partnerships. The
Partnerships have acquired equity interests in facilities, and
expect to acquire additional facilities in the future, for cash.
To that extent, a Partnership's initial basis in such a facility
for federal income tax purpose generally equals the purchase
price paid by the Partnership. The Partnerships depreciate or
will depreciate such depreciable property for federal income tax
purposes under the alternative depreciation system of
depreciation ("ADS"). Under ADS, the Partnerships generally
depreciate or will depreciate furnishings and equipment over a
10-year recovery period using a straight line method and a half-
year convention. If, however, a Partnership places more than 40%
of its furnishings and equipment in service during the last three
months of a taxable year, a mid-quarter depreciation convention
must be used for the furnishings and equipment placed in service
during that year. Under ADS, the Partnerships generally
depreciate or will depreciate buildings and improvements over a
40-year recovery period using a straight line method and a mid-
month convention. However, to the extent that a Partnership has
acquired or will acquire equity interests in facilities in
exchange for partnership interests in the Partnership, the
Partnership's initial basis in each such facility for federal
income tax purposes should be the same as the transferor's basis
in that facility on the date of acquisition. The Partnerships
depreciate or will depreciate such depreciable property for
federal income tax purposes under ADS. Although the law is not
entirely clear, the Partnerships depreciate or will depreciate
such depreciable property for federal income tax purposes over
the same remaining useful lives and under the same methods used
by the transferors. A Partnership's tax depreciation deductions
will be allocated among the partners in accordance with their
respective interests in the Partnership (except to the extent
that the Partnership is required under Code section 704(c) to use
a method of allocating depreciation deductions attributable to
the contributed properties that results in the Company receiving
a disproportionate share of such deductions.)
Sale of a Partnership's Property
Generally, any gain realized by a Partnership on the sale of
property held by the Partnership for more than one year will be
long-term capital gain, except for any portion of such gain that
is treated as depreciation or cost recovery recapture. Any gain
recognized by a Partnership on the disposition of contributed
properties will be allocated first to the partners of the
Partnership under section 704(c) of the Code to the extent of
their "built-in gain" on those properties for federal income tax
purposes. The partners' "built-in gain" on the contributed
properties sold will equal the excess of the partners'
proportionate share of the book value of those properties over
the partners' tax basis allocable to those properties at the time
of the sale. Any remaining gain recognized by the Partnership on
the disposition of the contributed properties, and any gain
recognized by the Partnership or the disposition of the other
properties, will be allocated among the partners in accordance
with their respective percentage interests in the Partnership.
The Company's share of any gain realized by a Partnership on
the sale of any property held by the Partnership as inventory or
other property held primarily for sale to customers in the
ordinary course of the Partnership's trade or business will be
treated as income from a prohibited transaction that is subject
to a 100% penalty tax. Such prohibited transaction income also
may have an adverse effect upon the Company's ability to satisfy
the income tests for REIT status. See "Federal Income Tax
Considerations, Requirements for Qualification, Income Tests."
The Company, however, does not presently intend to allow any
Partnership to acquire or hold any property that represents
inventory or other property held primarily for sale to customers
in the ordinary course of the Company's or such Partnership's
trade or business.
Nonqualified Subsidiaries
The Partnership owns 94% of the nonvoting stock, and 5% of
the voting stock, of Subsidiary Corp., representing in the
aggregate a 99% economic interest therein. In addition, the
Partnership owns 100% of the nonvoting stock of Franchise, which
represents a 97.5% economic interest therein. By virtue of its
ownership of the Partnership, the Company is considered to own
its pro rata share of the stock of the Nonqualified Subsidiaries.
As noted above, for the Company to qualify as a REIT the
Company's proportionate share of the value of the securities of
each Nonqualified Subsidiary held by the Partnership may not
exceed 5% of the total value of the Company's assets. In
addition, the Company's proportionate share of each Nonqualified
Subsidiary's equity securities may not constitute more than 10%
of the voting securities of such Nonqualified Subsidiary. The
Partnership owns 5% of the voting securities of Subsidiary Corp.,
but does not own any of the voting securities of Franchise. The
Company believes that neither its proportionate share of the
value of the securities of Subsidiary Corp. held by the
Partnership, nor its proportionate share of the value of the
securities of Franchise held by the Partnership exceeds 5% of the
total value of the Company's assets. If the Service were to
challenge successfully those determinations, however, the Company
likely would fail to qualify as a REIT.
Each Nonqualified Subsidiary will be organized as a
corporation and will pay federal, state, and local income taxes
on its taxable income at normal corporate rates. Any such taxes
will reduce amounts available for distribution by such
Nonqualified Subsidiary, which in turn will reduce amounts
available for distribution to the Company's stockholders.
<PAGE>
Prospectus
$100,000,000
Storage USA, Inc.
Common Stock
Storage USA, Inc. (the "Company") intends to issue from time
to time its shares of Common Stock, $.01 par value ("Common
Stock"), having an aggregate initial public offering price not to
exceed $100,000,000, on terms to be determined at the time of
sale. The number of shares offered and the initial public
offering price will be set forth in the applicable Prospectus
Supplement. The Common Stock will be listed on the New York
Stock Exchange.
The Common Stock may be offered directly, through agents
designated from time to time by the Company, or to or through
underwriters or dealers. If any designated agents or any
underwriters are involved in the sale of Common Stock, they will
be identified and their compensation will be described in the
applicable Prospectus Supplement. See "Plan of Distribution."
No Common Stock may be sold without delivery of the applicable
Prospectus Supplement.
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.
The date of this Prospectus is September 30, 1996.
<PAGE>
IN CONNECTION WITH AN OFFERING OF COMMON STOCK, THE
UNDERWRITERS, IF ANY, FOR SUCH OFFERING MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF
SUCH COMMON STOCK AT LEVELS ABOVE THOSE 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.
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, proxy
statements and other information with the Securities and Exchange
Commission (the "Commission"). Such 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 at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its Regional Offices at
Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661 and Suite 1300, 7 World Trade Center,
New York, New York 10048, and can also be inspected and copied at
the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005. Copies of such material can be obtained
from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of the
prescribed fees or from the Commission's site on teh World Wide
Web at http://www.sec.gov.
This Prospectus is part of a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the
"Registration Statement") filed by the Company with the
Commission 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 of the
Commission. For further information, reference is made to the
Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the
Commission (Commission File No. 001-12910) under the Exchange Act
are hereby incorporated by reference in this Prospectus: (i) the
Company's Annual Report on Form 10-K for the year ended December
31, 1995 as amended by Form 10-K/A filed June 28, 1996; (ii) the
Company's Quarterly Reports on Form 10-Q for the quarter ended
March 31, 1996, as amended by Form 10-Q/A filed June 28, 1996,
and the quarter ended June 30, 1996; (iii) the Company's Current
Reports on Form 8-K filed on March 7, April 1, April 5 and August
2, 1996, and the Company's Current Report on Form 8-K filed on
June 21, 1996, as amended by Form 8-K/A filed on July 17, 1996;
and (iv) the description of the Common Stock contained in the
Company's Registration Statement on Form 8-A filed on March 15,
1994, under the Exchange Act, including any reports filed under
the Exchange Act for the purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination
of the offering of all of the Common Stock shall be deemed to be
incorporated by reference herein.
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, in any accompanying
Prospectus Supplement relating to a specific offering of Common
Stock or in any other subsequently filed document, as the case
may be, 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 or any accompanying Prospectus Supplement.
The Company will provide on request and without charge to
each person to whom this Prospectus is delivered a copy (without
exhibits) of any or all documents incorporated by reference into
this Prospectus. Requests for such copies should be directed to
Storage USA, Inc., 10440 Little Patuxent Parkway, Suite 1100,
Columbia, Maryland 21044, Attention: Secretary (telephone
401/730-9500).
<PAGE>
THE COMPANY
Storage USA, Inc. was formed in 1985 to own, develop,
construct and operate self storage facilities throughout the
United States. On March 23, 1994, the Company completed an
initial public offering of its common stock and became a
self-managed, self-advised real estate investment trust engaged
in the business of owning, managing, acquiring and developing
self-storage facilities. The Company operates through SUSA
Partnership, L.P. (the "Operating Partnership"), of which it is
the sole general partner and in which it owns approximately a 94%
interest, and through SUSA Management, Inc., which provides
self-storage management and ancillary services to the Operating
Partnership and in which the Operating Partnership owns a 99%
economic interest.
At July 31, 1996, the Company owned 207 facilities
containing 13.9 million net rentable square feet in 29 states and
the District of Columbia and managed for others 16 facilities
containing an additional 1.0 million net rentable square feet.
Average physical and economic occupancy for the facilities owned
by the Company at July 31, 1996, were 90% and 83%, respectively.
Average weighted annual rent per square foot for these facilities
was $9.42.
The Company is incorporated in Tennessee. Its executive
offices are located at 10440 Little Patuxent Parkway, Suite 1100,
Columbia, Maryland 21044, and its telephone number is (410)
730-9500.
USE OF PROCEEDS
The Company will contribute the net proceeds of any sale of
Common Stock to the Operating Partnership in exchange
for additional units of partnership interest. Unless otherwise
set forth in the applicable Prospectus Supplement, the net
proceeds from the sale of any Common Stock will be used by the
Company and the Operating Partnership for general corporate
purposes, which may include repayment of indebtedness, making
improvements to properties and the acquisition of additional
properties.
DESCRIPTION OF CAPITAL STOCK
General
The Company is authorized to issue 150,000,000 shares of
Common Stock, $.01 par value, and 5,000,000 shares of Preferred
Stock, $.01 par value ("Preferred Stock"). At August 14, 1996,
there were 21,474,692 shares of Common Stock outstanding and no
shares of Preferred Stock outstanding.
The following information with respect to the capital stock
of the Company is subject to the detailed provisions of
the Company's Amended Charter (the "Charter") and Amended and
Restated Bylaws (the "Bylaws"), as currently in effect. These
statements do not purport to be complete, or to give full effect
to the provisions of statutory or common law, and are subject to,
and are qualified in their entirety by reference to, the terms of
the Charter and Bylaws.
Common Stock
The holders of Common Stock are entitled to one vote per
share on all matters voted on by shareholders, including
elections of directors. Except as otherwise required by law or
provided in any resolution adopted by the Board of Directors with
respect to any series of Preferred Stock, the holders of such
shares of Common Stock exclusively possess all voting power. The
Charter does not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding
series of Preferred Stock, the holders of Common Stock
are entitled to such distributions as may be declared from time
to time by the Board of Directors from funds available therefor,
and upon liquidation are entitled to receive pro rata all
assets of the Company available for distribution to such holders.
All shares of Common Stock issued will be
<PAGE>
fully paid and nonassessable, and the holders thereof will not
have preemptive rights. Pursuant to the terms of a Stock
Purchase Agreement, dated as of March 1, 1996, as amended (the
"Stock Purchase Agreement"), among the Company, Security Capital
Holdings, S.A. and Security Capital US Realty ("Security
Capital"), Security Capital has been granted the right to
purchase, under certain circumstances, shares of the Company's
Common Stock in connection with future issuances by the Company.
The Transfer Agent for the Common Stock is First Union
National Bank of North Carolina, Charlotte, North Carolina. The
Common Stock is traded on the NYSE under the symbol "SUS." The
Company will apply to the NYSE to list the additional shares of
Common Stock to be sold pursuant to any Prospectus Supplement,
and the Company anticipates that such shares will be so listed.
RESTRICTIONS ON TRANSFER OF CAPITAL STOCK
For the Company to qualify as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code"), shares of capital
stock must be held by a minimum of 100 persons for at least 335
days in each taxable year following its 1994 taxable year or
during a proportionate part of a shorter taxable year. In
addition, at all times during the second half of each taxable
year following its 1994 taxable year, no more than 50% in value
of the shares of beneficial interest of the Company may be owned,
directly or indirectly and by applying certain constructive
ownership rules, by five or fewer individuals (the "5/50 Rule").
Because the Board of Directors believes it is essential for the
Company to continue to qualify as a REIT, the Charter restricts
the acquisition of shares of Common Stock (the "Ownership
Limitation").
The Ownership Limitation provides that, subject to certain
exceptions specified in the Charter, no shareholder may own, or
be deemed to own by virtue of the attribution provisions of the
Code, more than 9.8% of the outstanding shares of Common Stock.
Pursuant to a Strategic Alliance Agreement, dated as of March
19, 1996, among the Company and Security Capital, the Board of
Directors of the Company proposed, and the shareholders approved,
an amendment to the Charter that provides that Security Capital
and its affiliates may beneficially own, in the aggregate, up to
37.5% of the common stock of the Company (the "Special
Shareholder Limit"). The Ownership Limitation prevents any
non-U.S. holder (other than Security Capital and its affiliates)
from acquiring additional shares of the Company's capital stock
if, as a result of such acquisition, the Company would fail to
qualify as a domestically-controlled REIT (computed assuming that
Security Capital owns the maximum percentage of the Company's
capital stock that it is permitted to own under the Special
Shareholder Limit).
The Ownership Limitation also provides that if any holder of
capital stock of the Company purports to transfer shares to a
person or there is a change in the capital structure of the
Company, and either the purported transfer or the change in
capital structure would result in the Company failing to qualify
as a REIT, or such transfer or the change in capital structure
would cause the transferee to hold shares in excess of the
applicable ownership limit, then the capital stock being
transferred (or in the case of an event other than a transfer,
the capital stock beneficially owned) that would cause one or
more of the restrictions on ownership or transfer to be
violated shall be automatically transferred to a trust for the
benefit of a designated charitable beneficiary. The
purported transferee of such shares shall have no right to
receive dividends or other distributions with respect to
such shares and shall have no right to vote such shares. Any
dividends or other distributions paid to such purported
transferee prior to the discovery by the Company that
the shares have been transferred to a trust shall
be paid upon demand to the trustee of the trust for the benefit
of the charitable beneficiary. The trustee of the
trust will have all rights to dividends with respect to shares of
capital stock held in trust, which rights will be
exercised for the exclusive benefit of the charitable
beneficiary. Any dividends or distributions paid over to the
trustee will be held in trust for the charitable beneficiary.
The trustee shall designate a transferee of such stock
so long as the ownership of such shares of stock by the
transferee would not violate the restrictions on
ownership or transfer. Upon the sale of such shares, the
purported transferee shall receive the lesser of (A)(i)
the price per share such purported transferee paid for the
capital stock in the purported transfer that resulted in
the transfer of shares of capital stock to the trust, or (ii) if
the transfer or other event that resulted in the
transfer of shares of capital stock to the trust was not a
transaction in which the purported record transferee
gave full value for such shares, a price per share equal to the
market price on the date of the purported transfer
<PAGE>
or other event that resulted in the transfer of the shares to the
trust, and (B) the price per share received by the
trustee from the sale or other disposition of the shares held in
the trust.
The Board of Directors may grant an exemption for the
Ownership Limitation to any person so requesting, so long as (A)
the Board has determined that such exemption will not result in
the Company being "closely held" within the meaning of Section
856(h) of the Code, and (B) such person provides to the Board
such representations and undertakings as the Board may require.
PLAN OF DISTRIBUTION
The Company may sell Common Stock in or outside the United
States to or through underwriters or may sell Common Stock to
investors directly or through designated agents. Any such
underwriter or agent involved in the offer and sale of the Common
Stock will be named in the applicable Prospectus Supplement.
Underwriters may offer and sell the Common Stock at a fixed
price or prices, which may be changed, or from time to time at
market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. The
Company also may, from time to time, authorize underwriters
acting as agents to offer and sell the Common Stock upon the
terms and conditions set forth in any Prospectus Supplement.
Underwriters may sell Common Stock to or through dealers, and
such dealers may receive compensation in the form of discounts,
concessions or commissions (which may be changed from time to
time) from the underwriters and/or 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 Common
Stock 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 Common Stock may
be deemed to be underwriters, and any discounts and commissions
received by them from the Company or from purchasers of Common
Stock and any profit realized by them on resale of the Common
Stock 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 Common Stock
from the Company at the public offering price set forth in such
Prospectus Supplement pursuant to Delayed Delivery Contracts (the
"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 principal amount of
Common Stock sold pursuant to Contracts shall not be less nor
more than, the respective amounts stated in such Prospectus
Supplement. Institutions with which 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 Common Stock covered by its Contract 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) the Company shall have sold to such underwriters
the total principal amount of the Common Stock less the principal
amount thereof covered by Contracts. A commission indicated in
the Prospectus Supplement will be paid to agents and underwriters
soliciting purchases of Common Stock pursuant to Contracts
accepted by the Company. Agents and underwriters shall have no
responsibility in respect of the delivery or performance of
Contracts.
Certain of the underwriters and their affiliates may be
customers of, engage in transactions with, and perform services
for, the Company in the ordinary course of business.
<PAGE>
Up to 3,162,939 shares of Common Stock may be sold by the
Company prior to September 30, 1996, at a price of $31.30 per
share, $99 million in the aggregate, directly to Security
Capital, pursuant to the Stock Purchase Agreement.
LEGAL OPINIONS
The validity of the Common Stock will be passed upon for the
Company by Hunton & Williams, Richmond, Virginia.
EXPERTS
The consolidated financial statements of the Company
incorporated by reference in its annual report on Form 10-K, and
as amended by Form 10-K/A, for the year ended December 31, 1995,
and the historical summaries included in the Current Report on
Form 8-K, dated April 5, 1996, and Form 8-K/A, dated July 17,
1996, have been audited by Coopers & Lybrand L.L.P., independent
accountants, as set forth in their reports thereon, included
therein, and incorporated herein by reference. Such 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.
