STORAGE USA INC
S-3, 1998-11-20
REAL ESTATE INVESTMENT TRUSTS
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    As filed with the Securities and Exchange Commission on November 20, 1998
                                                      Registration No. 333-_____

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
                                    FORM S-3
                             REGISTRATION STATEMENT
                                      Under
                           THE SECURITIES ACT OF 1933
                             -----------------------

                                STORAGE USA, INC.
             (Exact name of registrant as specified in its charter)

           TENNESSEE                                            62-1251239
(State or other jurisdiction of                              (I.R.S. Employer 
 incorporation or organization)                           Identification Number)


                               165 Madison Avenue
                                   Suite 1300
                            Memphis, Tennessee 38103
                                 (901) 252-2000
               (Address, including zip code, and telephone number,
        including area code, of registrant's principal executive offices)

                                Mr. Dean Jernigan
                      Chairman and Chief Executive Officer
                                Storage USA, Inc.
                               165 Madison Avenue,
                                   Suite 1300
                            Memphis, Tennessee 38103
                                 (901) 252-2000
            (Name, address, including zip code, and telephone number,
                   including area code, of agent for service)

                                    Copy to:
                              Mr. Randall S. Parks
                                Hunton & Williams
                          Riverfront Plaza, East Tower
                              951 East Byrd Street
                          Richmond, Virginia 23219-4074

Approximate  date of commencement  of proposed sale to the public:  From time to
time after the effective date of this Registration  Statement in light of market
conditions and other factors.

If the only securities  being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [ ]

If any of the  securities  being  registered on this form are to be offered on a
delayed or continuous  basis  pursuant to Rule 415 under the  Securities  Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the  Securities  Act  registration  statement  number of the  earlier  effective
registration statement for the same offering:[ ]

If this Form is a  post-effective  amendment filed pursuant to Rule 462(c) under
the  Securities  Act,  check  the  following  box and  list the  Securities  Act
registration  statement number of the earlier effective  registration  statement
for the same offering: [ ]

If delivery of the  prospectus is expected to be made pursuant to Rule 434 under
the Securities Act, please check the following box: [ ]
<TABLE>
                                           CALCULATION OF REGISTRATION FEE
====================================================================================================================
                                                        Proposed Maximum     Proposed Maximum
       Title of Each Class of        Aggregate Amount  Offering Price Per   Aggregate Offering       Amount of
    Securities to be Registered      to be Registered        Unit(1)             Price(1)         Registration Fee
- ---------------------------------------------------------------------------------------------------------------------

<S>                                       <C>             <C>                  <C>                 <C>
 Common Stock, $.01 par value,            125,135         $29.5625             $3,699,303          $1,028
 per share
====================================================================================================================
</TABLE>
(1)  Calculated  pursuant to Rule 457(c) under the  Securities  Act of 1933,  as
amended,  based  upon the  prices of the  Common  Shares  on the New York  Stock
Exchange on November 18, 1998.
                              --------------------
The Registrant hereby amends this  Registration  Statement on such date or dates
as may be necessary to delay its effective date until the Registrant  shall file
a further amendment which specifically  states that this registration  statement
shall  thereafter  become  effective  in  accordance  with  Section  8(a) of the
Securities Act of 1933, as amended,  or until this registration  statement shall
become effective on such date as the Securities and Exchange Commission,  acting
pursuant to said Section 8(a), may determine.


<PAGE>

THE  INFORMATION IN THIS  PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.  WE MAY
NOT SELL  THESE  SECURITIES  UNTIL THE  REGISTRATION  STATEMENT  FILED  WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL  THESE  SECURITIES,  AND IT IS NOT  SOLICITING  AN  OFFER  TO BUY  THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.


                 SUBJECT TO COMPLETION, DATED NOVEMBER ___, 1998
Prospectus
                                 125,135 Shares
                                Storage USA, Inc.
                                  Common Stock

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

         Storage USA Common  Stock trades on the New York Stock  Exchange  under
the symbol "SUS."

         We  may  issue  up  to  125,135  shares  of  Common  Stock  to  certain
individuals and entities (the "Unitholders") who sold self-storage facilities to
SUSA Partnership,  L.P. on November 6, 1997. As partial  consideration for their
properties,  the  Unitholders  received  a total of  125,135  units  of  limited
partnership interest in SUSA Partnership.

         We will issue shares of Common Stock if:

               1.   the Unitholders  choose to redeem their  partnership  units,
                    and

               2.   Storage  USA  elects to  exchange  the  units for  shares of
                    Common Stock.

         The  Unitholders  will  receive one share of Common Stock for each unit
exchanged.  The Unitholders will not pay, and we will not receive,  any cash for
the shares of Common Stock.

         So that we can continue to qualify as a "real estate  investment trust"
under the Internal  Revenue Code, our Charter does not permit anyone to own more
than 9.8% of our outstanding  Common Stock. This and other limits on who can own
Common Stock are described in this prospectus  under  "Restrictions on Ownership
and Transfer."

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

Neither  the  Securities  and  Exchange  Commission  nor  any  State  securities
commission has approved or disapproved of these securities or determined if this
prospectus  is truthful or  complete.  Any  representation  to the contrary is a
criminal offense.

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

                The date of this Prospectus is November __, 1998.


<PAGE>
                                TABLE OF CONTENTS


WHERE YOU CAN FIND MORE INFORMATION........................................3

A WARNING ABOUT FORWARD-LOOKING STATEMENTS.................................4

DESCRIPTION OF CAPITAL STOCK...............................................5

RESTRICTIONS ON OWNERSHIP AND TRANSFER.....................................6

REDEMPTION OF UNITS........................................................7

COMPARISON OF OWNERSHIP OF UNITS AND SHARES................................8

FEDERAL INCOME TAX CONSIDERATIONS.........................................17

PLAN OF DISTRIBUTION......................................................39

LEGAL OPINIONS............................................................39

EXPERTS...................................................................40


                                       2
<PAGE>
                       WHERE YOU CAN FIND MORE INFORMATION

         We file annual,  quarterly and special  reports,  proxy  statements and
other  information  with the SEC.  You may read and copy any document we file at
the SEC's public  reference  rooms in  Washington,  D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public  reference  rooms. Our SEC filings are also available on the SEC's
Website at "http://www.sec.gov."

         The SEC allows us to "incorporate by reference"  information from other
documents  that we file with them,  which means that we can  disclose  important
information by referring to those  documents.  The  information  incorporated by
reference is considered to be part of this  prospectus,  and information that we
file  later  with  the  SEC  will   automatically   update  and  supersede  this
information.  We  incorporate  by reference the  documents  listed below and any
future filings we make with the SEC under Sections 13(a),  13(c), 14 or 15(d) of
the Securities  Exchange Act of 1934 prior to the sale of all the shares covered
by this prospectus:

o         Annual Report on Form 10-K for the year ended December 31, 1997;

o         Quarterly  Reports on Form 10-Q for the quarters  ended March 31, June
          30, and September 30, 1998;

o         Current  Reports on Forms 8-K and 8-K/A  filed with the SEC on January
          20, 1998,  January 26, 1998,  February 17, 1998,  March 6, 1998, March
          25, 1998, October 13, 1998 and November 20, 1998;

o         The  description  of  the  Class  A  Common  Stock  contained  in  our
          Registration  Statement  on Form 8-A,  filed with the SEC on March 15,
          1994.

         You may  request a copy of these  filings,  at no cost,  by  writing or
telephoning:

                               Storage USA, Inc.
                               165 Madison Avenue
                               Suite 1300
                               Memphis, Tennessee  38101
                               Attention:  Secretary
                               Telephone:  901/252-2000

         You should rely only on the  information  incorporated  by reference or
provided in this  prospectus or any  supplement.  We have not authorized  anyone
else to provide  you with  different  information.  We will not make an offer of
these  shares in any state  where the offer is not  permitted.  You  should  not
assume that the  information in this prospectus or any supplement is accurate as
of any date other than the date on the front of those documents.


                                       3
<PAGE>
                   A WARNING ABOUT FORWARD-LOOKING STATEMENTS

         This  prospectus,  and the documents  incorporated  by  reference,  may
contain  "forward-looking"  statements  as  described  in  Section  27A  of  the
Securities  Act and  Section  21E of the  Securities  Exchange  Act of 1934,  as
amended. These forward-looking statements usually include words like "believes,"
"anticipates"  and "expects" and describe our  expectations  for the future.  Of
course,  these  expectations  may not be met in important  ways for a variety of
reasons.  We have  described  these  reasons in our most recent Annual Report on
Form 10-K under the heading  "Forward  Looking  Statements and Risk Factors" and
the other  reports we file with the SEC,  and you should  review them before you
decide to buy our  stock.  We are not  required  to update  any  forward-looking
statements we make and we may not.


                                       4
<PAGE>
                                STORAGE USA, INC.

         Storage USA, Inc. ("Storage USA") is a self-managed,  self-advised real
estate  investment  trust ("REIT").  We manage,  acquire,  develop and franchise
self-storage  facilities.  We do business through SUSA Partnership,  L.P. ("SUSA
Partnership"),  of which we are the sole general  partner and in which we own an
approximate 88% partnership  interest as of September 30, 1998. Our self-storage
facilities  operate  under  the  Storage  USA name and  offer  low-cost,  easily
accessible and enclosed  storage space for personal and business use,  primarily
on a month-to-month  basis. All of our facilities are fenced, have locked gates,
are  lighted at night and have  computer-controlled  gates that  permit  certain
tenants to access their  storage  units 24 hours a day or are being  upgraded to
those standards.

         We are a Tennessee  corporation.  Our executive  offices are located at
165 Madison Avenue,  Suite 1300,  Memphis,  Tennessee  38103,  and our telephone
number is (410) 730-9500.


                          DESCRIPTION OF CAPITAL STOCK

         Storage USA 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, 650,000
shares of which have been  designated  as 8 7/8% Series A Cumulative  Redeemable
Preferred  Stock.  As of September 30, 1998,  there were  27,735,870   shares of
Common Stock  outstanding.  No shares of Preferred Stock were  outstanding.  The
following is only a summary of some of the rights of shareholders  that might be
important  to you.  You should  refer to our  Charter and By-laws for a complete
statement of your rights as a shareholder.  Both the Charter and the By-laws are
filed  with the SEC as  exhibits  to the  registration  statement  of which this
prospectus is a part.

         Common  Stock.  As a holder of Common  Stock you will have 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,  only holders
of Common Stock have voting rights.  The Charter does not provide for cumulative
voting in the  election of  directors  or for  preemptive  rights to acquire new
shares issued by Storage USA. Common  shareholders will receive dividends if the
Board declares them out of available funds.

         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."



                                       5
<PAGE>

         Preferred  Stock.  Under  the  Charter,   the  Board  of  Directors  is
authorized,  without further stockholder action, to issue up to 5,000,000 shares
of  Preferred  Stock.  The Board  may  issue  Preferred  Stock in  series,  with
different preferences,  conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or other provisions.

         The Board has designated  650,000  shares of Preferred  Stock as 8 7/8%
Series A Cumulative  Redeemable  Preferred  Stock ("Series A Preferred  Stock").
Series A Preferred  Stock is issuable in certain  circumstances  in exchange for
units of 8 7/8% Series A Cumulative Redeemable Preferred partnership interest in
SUSA Partnership,  which have terms essentially identical to those of the Series
A Preferred  Stock. If issued,  the Series A Preferred Stock will be entitled to
receive  cumulative  preferential  dividends  at the rate of $8.78 per share per
year  and  will  have a  liquidation  preference  of $100  per  share.  Series A
Preferred  Stock  will be  redeemable  at the option of  Storage  USA  beginning
November  1, 2003 at a  redemption  price of $100 per share,  plus  accrued  but
unpaid  dividends.  The Series A  Preferred  Stock has voting  rights  only with
respect to certain matters that would adversely affect its rights.

                     RESTRICTIONS ON OWNERSHIP AND TRANSFER

         The  Charter  provides  that,   subject  to  certain   exceptions,   no
stockholder may own, or be deemed to own by virtue of the attribution provisions
of the Internal Revenue Code of 1986 as amended (the "Code"),  more than 9.8% of
the outstanding  shares of Common Stock or 9.8% of the outstanding shares of any
series of Preferred Stock (the "Ownership Limitation").  Pursuant to a Strategic
Alliance Agreement,  dated as of March 19, 1996, as amended,  among Storage USA,
Security Capital U.S. Realty and Security  Capital Holdings S.A.  (together with
Security  Capital U.S.  Realty,  "Security  Capital"),  Security Capital and its
affiliates may  beneficially  own, in the  aggregate,  up to 42.5% of the Common
Stock  outstanding  (the "Special  Stockholder  Limit").  At September 14, 1998,
Security Capital held 11,765,654  shares,  or approximately  42.4% of the Common
Stock outstanding.  The Ownership Limitation prevents any non-U.S. holder (other
than Security  Capital and its affiliates) from acquiring  additional  shares of
Storage  USA's capital  stock if, as a result of such  acquisition,  Storage USA
would fail to qualify as a  domestically-controlled  REIT  (determined  assuming
that Security Capital owns the maximum percentage of Storage USA's capital stock
that it is permitted to own under the Special Stockholder Limit).

         The Charter provides that if any holder of capital stock of Storage USA
purports  to  transfer  shares to a person  or there is a change in the  capital
structure  of Storage USA,  and either the  purported  transfer or the change in
capital  structure  would result in Storage USA 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 Storage USA that the shares have been transferred to a


                                       6
<PAGE>

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  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  from the  Ownership
Limitation to any person so requesting,  so long as (A) the Board has determined
that such  exemption  will not result in Storage USA 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.


                               REDEMPTION OF UNITS

         Under the Second Amended and Restated Agreement of Limited  Partnership
for SUSA Partnership (the "Partnership Agreement"), the limited partners of SUSA
Partnership  generally  have the  right to  redeem  their  units of  partnership
interest  (the  "Units").   Each  limited   partner  may,   subject  to  certain
limitations,  require that SUSA Partnership redeem all or a portion of his Units
at any time after one year from the date he acquired  the Units by  delivering a
redemption  notice to Storage  USA.  The form of the notice is an exhibit to The
Partnership Agreement.

         A Limited Partner must request the redemption of at least 500 Units. If
the limited  partner owns less than 500 Units, he must request the redemption of
all of his Units.

         When a limited partner redeems his Units,  SUSA  Partnership can choose
to exchange the Units for either:


                    (1)       a number of shares  of Common  Stock  equal to the
                              number  of  Units  redeemed  (subject  to  certain
                              adjustments) or


                    (2)       cash in an amount equal to the market value of the
                              number of shares  of  Common  Stock he would  have
                              received pursuant to clause (1) above.

         To determine  the amount of cash that SUSA  Partnership  will pay under
clause (2),  SUSA  Partnership  will assume that the market  value of the Common
Stock is equal to the average of the closing  trading prices of the Common Stock
for the ten  consecutive  trading  days  before the day on which the  redemption
notice was received by Storage USA.



                                       7
<PAGE>

         The limited partner shall not receive Common Stock for his Units if the
issuance of Common Stock to him would:

          o         result in any person owning, directly or indirectly,  Common
                    Stock in excess of the Ownership Limitation,

          o         result in Common Stock being owned by fewer than 100 persons
                    (determined without reference to any rules of attribution),

          o         result  in  Storage  USA being  "closely  held"  within  the
                    meaning of Section 856(h) of the Code,

          o         cause Storage USA to own, actually or constructively, 10% or
                    more of the ownership interests in a tenant of Storage USA's
                    or SUSA Partnership's  real property,  within the meaning of
                    Section 856(d)(2)(B) of the Code, or

          o         cause  the  acquisition  of  Common  Stock by the  redeeming
                    limited   partner   to  be   "integrated"   with  any  other
                    distribution  of Common Stock for purposes of complying with
                    the  registration  provisions of the Securities Act of 1933,
                    as amended.

         Instead of SUSA  Partnership  redeeming the Units,  Storage USA may, in
its sole  discretion,  elect to  purchase  the Units  directly  from the limited
partner for either shares of Common Stock or cash, as described  above.  Storage
USA  anticipates  that it generally will elect exchange the Units for the shares
of Common  Stock being  offered by this  prospectus.  This  transaction  will be
treated as a sale of the Units to Storage USA for federal  income tax  purposes.
See "-- Tax Consequences of Redemption."  After a limited partner redeems Units,
he will no longer have a right to receive  distributions  with  respect to those
Units.

                   COMPARISON OF OWNERSHIP OF UNITS AND SHARES

         Generally,  an  investment  in shares of Common Stock of Storage USA is
substantially  equivalent  economically  to  an  investment  in  Units  in  SUSA
Partnership. Since SUSA Partnership makes distributions to its partners on a per
Unit basis and  Storage USA owns one Unit for each  outstanding  share of Common
Stock,  a  holder  of a share  of  Common  Stock  generally  receives  the  same
distribution   that  a  holder  of  a  Unit  receives.   Shareholders  and  SUSA
Partnership's  limited  partners  generally  share in the risks and  rewards  of
ownership  in the  enterprise  being  conducted  by Storage  USA  (through  SUSA
Partnership). However, there are some differences between ownership of Units and
ownership of shares of Common Stock, some of which may be important to you.

         The   information   below   highlights  a  number  of  the  significant
differences  between SUSA Partnership and Storage USA and compares certain legal
rights  associated  with the ownership of Units and Common Stock,  respectively.
These  comparisons  are  intended to help SUSA  Partnership's  limited  partners
understand how their  investment  will be changed if they redeem their Units for
Common Stock.

         This discussion is summary in nature and does not constitute a complete
discussion of these matters.  If you own Units,  you should carefully review all
of this Prospectus and the registration  statement of which this Prospectus is a
part for additional important information about Storage USA.



                                       8
<PAGE>

         Form of Organization and Assets Owned. SUSA Partnership is organized as
a Tennessee limited partnership, and Storage USA is its General Partner. Storage
USA is a Tennessee corporation.  Storage USA elected to be taxed as a REIT under
the Code  effective for its taxable year ended  December 31, 1994 and intends to
maintain its qualification as a REIT.

         Length of Investment. SUSA Partnership has a stated termination date of
December  31,  2054,  although  it  may  be  terminated  earlier  under  certain
circumstances.  Storage  USA has a perpetual  term and  intends to continue  its
operations indefinitely.

         Additional  Equity.  SUSA  Partnership is authorized to issue Units and
other  partnership  interests  to the  partners  or to  other  persons  for such
consideration  and on such terms and conditions as the General Partner,  Storage
USA in its sole discretion,  may deem appropriate.  In addition,  if Storage USA
offers securities and contributes the proceeds from the sale of those securities
to SUSA  Partnership,  the General  Partner may cause SUSA  Partnership to issue
additional  Units,  or another class or series of  partnership  interest  having
substantially  similar  rights as the new  securities,  to the General  Partner.
Consideration for additional partnership interests may be cash or other property
or other assets permitted by Tennessee law.

         Under  the  Charter,  Storage  USA has the  authority  to  issue  up to
150,000,000  shares of Common Stock and 5,000,000  shares of Preferred Stock. As
long as SUSA  Partnership  is in existence,  the proceeds of all equity  capital
raised by Storage USA will be  contributed  to SUSA  Partnership in exchange for
Units or other interests in SUSA Partnership.

         Management and Control. The General Partner of SUSA Partnership has the
exclusive  power to manage and control all of SUSA  Partnership's  business.  No
limited  partner  has any right to  participate  in or  exercise  management  or
control over the SUSA Partnership's business. Upon the occurrence of an event of
bankruptcy or the dissolution of the General  Partner,  the General Partner will
be deemed to be removed automatically;  otherwise,  the limited partners may not
remove the General Partner with or without cause.

         The  Board of  Directors  has  exclusive  control  over  Storage  USA's
business and affairs, subject to the restrictions in the Charter and Bylaws. The
Board of Directors has adopted  certain  policies  with respect to  acquisition,
development,  investing, financing and conflicts of interest, but these policies
may be altered or eliminated  without a vote of the  shareholders.  Accordingly,
except  for their  vote in the  elections  of  directors,  shareholders  have no
control over the ordinary business policies of Storage USA.

         Fiduciary  Duties.  Under  Tennessee  law, the General  Partner of SUSA
Partnership is accountable to SUSA Partnership as a fiduciary and, consequently,
must  exercise  good faith in all of its dealings  with  respect to  partnership
affairs.  However, under the Partnership  Agreement,  the General Partner is not
required to consider the tax  consequences  to any limited partner of any action
taken by it. So long as it acts in good faith, the General Partner is not liable
to a limited  partner if the limited partner suffers damages or does not receive
certain benefits as a result of action or inaction of the General Partner.



                                       9
<PAGE>

         Under Tennessee law,  Storage USA's directors must perform their duties
in good faith,  in a manner that they believe to be in the best interests of the
company and with the care an ordinarily prudent person in a like situation would
exercise under similar circumstances. Directors of Storage USA who act in such a
manner  generally  will not be liable to  Storage  USA or its  shareholders  for
monetary damages arising from their activities.

         Management Limitation of Liability and Indemnification. The Partnership
Agreement  generally  provides  that the General  Partner will not be liable for
monetary damages to SUSA Partnership or any limited partner for losses sustained
or  liabilities  incurred  as a result  of any act or  omission  if the  General
Partner acted in good faith. In addition, the General Partner is not responsible
for any misconduct or negligence on the part of its agents, provided the General
Partner  appointed  such agents in good faith.  The General  Partner may consult
with legal counsel, accountants, consultants, real estate brokers and such other
persons.  Any action it takes or omits to take while  relying on the  opinion of
such persons,  as to matters which the General Partner reasonably believes to be
within their  professional or expert  competence,  are conclusively  presumed to
have been done or omitted in good faith and in accordance with such opinion.

         The  Partnership  Agreement  also provides for  indemnification  of the
General  Partner,  the directors and officers of the General  Partner,  and such
other persons as the General  Partner may from time to time  designate,  against
any and all liabilities  (joint or several and including  reasonable  legal fees
and  expenses)  arising  from  claims  that  relate  to the  operations  of SUSA
Partnership. However, SUSA Partnership may not indemnify any such person (1) for
an act or omission  that was material to the matter giving rise to the claim and
either was  committed  in bad faith or was the  result of active and  deliberate
dishonesty,  (2) if such person actually  received an improper benefit in money,
property  or  services or (3) in the case of any  criminal  proceeding,  if such
person had  reasonable  cause to believe that the act or omission was  unlawful.
Any indemnification will be made only out of the assets of SUSA Partnership.

         Storage USA's Charter obligates it to indemnify and advance expenses to
present and former  directors  and officers to the maximum  extent  permitted by
Tennessee  law.  The  Tennessee  Business  Corporation  Act  ("TBCA")  permits a
corporation  to indemnify its present and former  directors and officers,  among
others, against judgments, settlements,  penalties, fines or reasonable expenses
incurred  with  respect  to a  proceeding  to which  they may be made a party by
reason  of  their  service  in those or  other  capacities  if (1) such  persons
conducted themselves in good faith, (2) they reasonably believed, in the case of
conduct in their official  capacities with the  corporation,  that their conduct
was in its best  interests  and, in all other cases,  that their  conduct was at
least not  opposed to its best  interests,  and (3) in the case of any  criminal
proceeding,  they had no  reasonable  cause to believe  that their  conduct  was
unlawful.  Any  indemnification by Storage USA pursuant to the provisions of the
Charter  described  above will be paid out of the assets of Storage USA and will
not be recoverable from the shareholders.

         The TCBA  permits the charter of a Tennessee  corporation  to include a
provision eliminating or limiting the personal liability of its directors to the
corporation  or its  shareholders  for monetary  damages for breach of fiduciary
duty as a  director.  However,  a  corporation  cannot  eliminate  or limit  the
liability of a director (1) for any breach of the director's  duty of loyalty to
the corporation or its shareholders, (2) for acts or omissions not in good faith


                                       10
<PAGE>

or which involve  intentional  misconduct or a knowing  violation of the law, or
(3) for  unlawful  distributions  that exceed  what could have been  distributed
without violating the TBCA or the corporation's  charter.  Storage USA's Charter
contains a provision  eliminating  the personal  liability  of its  directors or
officers to Storage  USA or its  shareholders  for money  damages to the maximum
extent permitted by Tennessee law from time to time.

         Anti-Takeover  Provisions.   Except  in  limited  circumstances,   SUSA
Partnership's   General  Partner  has  exclusive   management   power  over  the
partnership's  business  and  affairs.  The limited  partners may not remove the
General  Partner with or without cause.  Under the  Partnership  Agreement,  the
General  Partner  may, in its sole  discretion,  prevent a limited  partner from
transferring  his interest or any rights as a limited  partner except in certain
limited  circumstances.  The General Partner may exercise this right of approval
to deter, delay or hamper attempts by persons to acquire a controlling  interest
in SUSA Partnership.

         As described above under  "Restrictions on Ownership and Transfer," the
Charter  contains  provisions  restricting  the  acquisition of shares of Common
Stock.

         In addition, Tennessee has adopted a series of statutes which may delay
or prevent a tender offer or takeover attempt that a shareholder  might consider
in its best interest.

         Under  the  Tennessee  Investor  Protection  Act,  unless  a  Tennessee
corporation's   board  of  directors  has   recommended  a  takeover   offer  to
shareholders which was made on substantially equal terms to all shareholders, no
offeror  beneficially owning 5% or more of any class of equity securities of the
offeree  company,  any of which  was  purchased  within  one  year  prior to the
proposed takeover offer, may offer to acquire any class of equity security of an
offeree company pursuant to a tender offer, if after the acquisition thereof the
offeror would be directly or  indirectly a beneficial  owner of more than 10% of
any class of outstanding  equity securities of the company (a "Takeover Offer").
However,  this  prohibition  does not apply if the offeror,  before  making such
purchase,  has made a public  announcement  of his  intention  with  respect  to
changing or influencing  the management or control of the offeree  company,  has
made a full, fair and effective  disclosure of such intention to the person from
whom he intends  to acquire  such  securities  and has filed with the  Tennessee
Commissioner  of Commerce and  Insurance  (the  "Commissioner")  and the offeree
company a statement  signifying  such  intentions and containing such additional
information as the Commissioner by rule prescribes.

         Such an offeror must provide that any equity  securities  of an offeree
company  deposited or tendered  pursuant to a Takeover Offer may be withdrawn by
an  offeree  at any time  within  seven  days from the date the offer has become
effective  following  filing with the  Commissioner  and  the offeree  company a
public  announcement  of the  terms or after 60 days from the date the offer has
become effective.  If an offeror makes a Takeover Offer for less than all of the
outstanding  equity  securities  of any class,  and if the number of  securities
tendered  is greater  than the number the  offeror has offered to accept and pay
for, the  securities  shall be accepted pro rata. If an offeror varies the terms
of a Takeover Offer before its expiration  date by increasing the  consideration
offered to offerees,  the offeror shall pay the increased  consideration for all
equity  securities  accepted,  whether accepted before or after the variation in
the terms of the offer.



                                       11
<PAGE>

         Under the  Tennessee  Business  Combination  Act,  subject  to  certain
exceptions,  no Tennessee  corporation may engage in any "business  combination"
with an "interested  shareholder"  for a period of five years following the date
that such shareholder became an interested shareholder unless prior to such date
the  board  of  directors  of  the  corporation  approved  either  the  business
combination or the  transaction  which resulted in the  shareholder  becoming an
interested shareholder.

         "Business  combination"  is defined by the statute as any (1) merger or
consolidation;  (2) share exchange; (3) sale, lease, exchange,  mortgage, pledge
or other transfer of assets representing 10% or more of (A) the aggregate market
value of the corporation's  consolidated  assets, (B) the aggregate market value
of the corporation's  shares, or (C) the corporation's  consolidated net income;
(4)  issuance  or  transfer of shares  from the  corporation  to the  interested
shareholder;  (5) plan of liquidation or dissolution  proposed by the interested
shareholder;   (6)   transaction  or   recapitalization   which   increases  the
proportionate  share of any outstanding voting securities owned or controlled by
the interested shareholder;  or (7) financing arrangement whereby any interested
shareholder receives,  directly or indirectly, a benefit, except proportionately
as a shareholder.

         "Interested  shareholder"  is  defined  as (1) any  person  that is the
beneficial owner, directly or indirectly,  of 10% or more of the voting power of
any class or series of  outstanding  voting stock of the  corporation  or (2) an
affiliate or associate of the  corporation  who at any time within the five-year
period  immediately  prior to the date in  question  was the  beneficial  owner,
directly  or  indirectly,  of 10% or more of the  voting  power of any  class or
series of the outstanding voting stock of the corporation.

         Consummation of a business combination that is subject to the five-year
moratorium is permitted after such period when the transaction complies with all
applicable  charter  and bylaw  requirements  and either (A) is  approved by the
holders  of  two-thirds  of the  voting  stock  not  beneficially  owned  by the
interested shareholder, or (B) meets certain fair price criteria.

         The  Tennessee  Greenmail Act  prohibits a Tennessee  corporation  from
purchasing,  directly  or  indirectly,  any of its  shares at a price  above the
market  value of such  shares  (defined as the average of the highest and lowest
closing  market price for such shares  during the 30 trading days  preceding the
purchase and sale of the shares or preceding the commencement of announcement or
a tender  offer if the seller of such  shares has  commenced  a tender  offer or
announced an intention to seek control of the  corporation)  from any person who
holds more than 3% of the class of securities  to be  purchased,  if such person
has held such  shares for less than two  years,  unless  the  purchase  has been
approved by the affirmative vote of a majority of the outstanding shares of each
class of voting  stock issued by the  corporation  or the  corporation  makes an
offer,  of at least  equal  value per  share,  to all  holders of shares of such
class.

         The  Tennessee  Control  Share  Acquisition  Act provides that "control
shares" of a Tennessee  corporation  acquired in a "control  share  acquisition"
have the same voting rights as all other shares of the same class or series only
if approved at an annual or special  meeting by the holders of a majority of all


                                       12
<PAGE>

shares entitled to vote generally with respect to the election of directors, but
excluding shares of stock owned by an acquiring  person,  officers and employees
of the corporation who are also directors.

         "Control  shares" are voting shares of stock which,  if aggregated with
all of the other  shares  of stock  previously  acquired  by the  person,  would
entitle  the  acquiror to  exercise  or direct the  exercise of voting  power in
electing  directors  within one of the  following  ranges of voting  power:  (A)
one-fifth (1/5) or more but less than one-third  (1/3) of all voting power;  (B)
one-third  (1/3) or more but less than a majority of all voting power;  or (C) a
majority or more of all voting power.  Control shares do not include shares that
the acquiring  person is then entitled to vote as a result of having  previously
obtained   shareholder   approval.  A  "control  share  acquisition"  means  the
acquisition, directly or indirectly, by any person of ownership of, or the power
to direct the exercise of voting power with respect to,  issued and  outstanding
control shares.

         A person who has made or proposes to make a control share  acquisition,
upon the  satisfaction  of certain  conditions  (including an undertaking to pay
expenses and deliver a control share acquisition  statement to the corporation),
may compel the board of directors to call a special  meeting of  shareholders to
be held  within 50 days of demand to consider  the voting  rights to be accorded
the control shares acquired or to be acquired in the control share  acquisition.
If no request for a special meeting of shareholders  is made,  consideration  of
the voting rights to be accorded the control  shares  acquired or to be acquired
in the  control  share  acquisition  shall be  presented  at the next  annual or
special meeting of shareholders.

         If voting rights are not approved at the shareholders'  meeting,  or if
the acquiring person does not deliver a control share  acquisition  statement as
permitted by the act, then, subject to certain  conditions and limitations,  the
corporation  may redeem all but not less than all of the control shares acquired
in a control  share  acquisition,  at any time during the period  ending 60 days
after the last  acquisition of control shares by an acquiring  person,  from the
acquiring  person  for  the  fair  value  of such  shares.  If a  control  share
acquisition  statement is filed,  fair value is  determined  as of the effective
date of the vote of the  shareholders  denying  voting  rights to the  acquiring
person or, if no such statement is filed, as of the date of the last acquisition
of control  shares by the acquiring  person  without regard to the effect of the
denial of voting rights.

         If voting  rights for control  shares are  approved  at a  shareholders
meeting  and the  acquiror  becomes  entitled  to vote a majority  of the shares
entitled to vote, all  shareholders who have not voted in favor of granting such
voting rights to the acquiring person may exercise  appraisal  rights.  The fair
value of the shares as determined for purposes of such appraisal rights includes
consideration of the valuations,  future events or transactions bearing upon the
corporation's value to the acquiring shareholder as described in any valuations,
projections  or estimates  made by or on behalf of the  acquiring  person or his
associates.

         The Tennessee  Control Share  Acquisition  Act does not apply to shares
acquired in a merger,  consolidation  or share exchange if the  corporation is a
party to the transaction.



                                       13
<PAGE>

         Storage USA's Bylaws  contain a provision  exempting from the Tennessee
Control Share  Acquisition  Act any and all such  acquisitions  by any person of
Storage  USA's  shares of capital  stock.  There can be no  assurance  that such
provision will not be amended or eliminated at any point in the future.

         Voting Rights. Under the Partnership  Agreement,  limited partners have
voting  rights  only as to the  continuation  of  SUSA  Partnership  in  certain
circumstances and certain amendments of the Partnership Agreement,  as described
more fully  below.  Otherwise,  all  decisions  relating  to the  operation  and
management of SUSA Partnership are made by the General Partner.  As of September
30, 1998,  Storage USA held  approximately  88% of the outstanding  interests in
SUSA  Partnership.  As  limited  partners  redeem  their  Units,  Storage  USA's
percentage ownership of SUSA Partnership will increase.  If additional Units are
issued to third parties,  Storage USA's percentage ownership of SUSA Partnership
will decrease.

         Shareholders  of  Storage  USA have the right to vote on,  among  other
things,  a merger or sale of  substantially  all of the assets of  Storage  USA,
certain amendments to the Charter and dissolution of the company.  All shares of
Common  Stock have one vote,  and the Charter  permits the Board of Directors to
classify and issue  Preferred  Stock in one or more series  having  voting power
which may differ  from that of the Common  Stock.  See  "Description  of Capital
Stock."

         Amendment of The Partnership  Agreement or the Charter. The Partnership
Agreement  may be amended by the  General  Partner  without  the  consent of the
limited  partners,  except that certain  amendments  affecting  the  fundamental
rights of a limited  partner  must be  approved  by consent of limited  partners
holding more than 51% of the Units.  Such consent is required for any  amendment
that would (1) affect the redemption  rights, (2) adversely affect the rights of
limited partners to receive  distributions payable to them under The Partnership
Agreement,  (3) alter SUSA  Partnership's  profit and loss  allocations,  or (4)
impose any  obligation  upon the  limited  partners to make  additional  capital
contributions to SUSA Partnership.

         The Charter may be amended by the affirmative  vote of the holders of a
majority of the outstanding  shares of the Common Stock,  with the  shareholders
voting as a class  with one vote per share (or by the  written  consent  of such
majority if such a vote becomes  permissible under Tennessee law). Storage USA's
Bylaws may be amended by the Board of  Directors  or by vote of the holders of a
majority of the outstanding  shares,  provided that certain provisions cannot be
amended without the  affirmative  vote of 80% of the members of the entire Board
of Directors or the holders of 75% of the  outstanding  shares of capital  stock
entitled to vote generally in the election of the directors.

         Vote Required to Dissolve SUSA  Partnership or Storage USA. At any time
prior to December 31, 2054 (upon which date SUSA  Partnership  will  terminate),
the  General  Partner  may  elect  to  dissolve  SUSA  Partnership  in its  sole
discretion.   Such  dissolution  shall  also  occur  upon  (1)  the  bankruptcy,
dissolution or withdrawal of the General  Partner  (unless the limited  partners
unanimously elect to continue SUSA  Partnership),  (2) 90 days after the sale or
other  disposition of all or substantially all the assets of SUSA Partnership or
(3) the redemption of all of the outstanding Units (other than those held by the
General Partner, if any).



                                       14
<PAGE>

         Under  Tennessee  law, the Board of Directors  generally must recommend
and the holders of a majority of the  outstanding  Common Stock entitled to vote
must approve any proposal in order to dissolve Storage USA.

         Vote Required to Sell Assets or Merge. Under The Partnership Agreement,
the sale, exchange, transfer or other disposition of all or substantially all of
SUSA Partnership's assets or merger or consolidation of the partnership requires
only the consent of the General Partner.

         Under  Tennessee  law,  any merger or share  exchange  of  Storage  USA
requires  the  separate  approval  of the Board of  Directors  and each group of
shareholders entitled to vote on such matter by a majority of all votes entitled
to be cast by such group.  Under Tennessee law, the sale of all or substantially
all of the  Storage  USA's  assets  other than in the normal  course of business
requires the approval of the Board of Directors and holders of a majority of the
outstanding  shares of Common Stock. No approval of the shareholders is required
for the sale of  Storage  USA's  assets  in the  usual  and  regular  course  of
business.

         Compensation, Fees and Distributions.  Storage USA does not receive any
compensation  for its  services  as General  Partner of SUSA  Partnership.  As a
partner in SUSA Partnership,  however, the General Partner has the same right to
allocations and distributions as other partners.  In addition,  SUSA Partnership
will  reimburse  the  General  Partner  for all of its  expenses  related to the
ongoing operation of SUSA Partnership and any offering of partnership  interests
in SUSA Partnership or capital stock of Storage USA.

         Liability of Investors.  Under The Partnership Agreement and applicable
state law, the liability of the limited  partners for SUSA  Partnership's  debts
and  obligations is generally  limited to the amount of their  investment in the
partnership,  and  limited  partners  are  generally  not  liable for any debts,
liabilities, contracts or obligations of SUSA Partnership.

         Under  Tennessee  law,  Storage USA's  shareholders  are not personally
liable for the debts or obligations of the company.

         Nature of Investments.  The Units constitute equity interests entitling
each  limited  partner to his pro rata share of cash  distributions  made to the
limited  partners of SUSA  Partnership.  SUSA Partnership  generally  intends to
retain and reinvest in its  business  proceeds of the sale of property or excess
refinancing proceeds.

         The shares of Common Stock constitute  equity interests in Storage USA.
Storage USA is entitled to receive its pro rata share of  distributions  made by
SUSA  Partnership  with  respect  to the Units  owned by Storage  USA,  and each
shareholder  will  be  entitled  to his  pro  rata  share  of any  dividends  or
distributions  paid with respect to the Common Stock.  The dividends  payable to
the  shareholders  are not  fixed in amount  and are only  paid if,  when and as
declared by the Board of Directors.  In order to qualify as a REIT,  Storage USA
must  distribute at least 95% of its annual  taxable income  (excluding  capital
gains), and any taxable income (including capital gains) not distributed will be
subject to corporate income tax.



                                       15
<PAGE>

         Potential  Dilution of Rights.  The General Partner of SUSA Partnership
is  authorized,  in its sole  discretion  and without the consent of the limited
partners,  to cause the  partnership  to issue  additional  limited  partnership
interests and other equity  securities  for any purpose at any time on terms and
conditions established by the General Partner.

         Storage  USA's  Board  of  Directors  may  issue,  in  its  discretion,
additional  shares of Common Stock and a variety of other equity securities with
such powers, preferences and rights as the Board of Directors may designate. The
issuance of additional  shares of either Common Stock or other similar or senior
equity   securities  may  result  in  the  dilution  of  the  interests  of  the
shareholders.

         Liquidity.  Subject to certain  exceptions,  a limited  partner may not
transfer any of his Units without (1) obtaining the prior written consent of the
General  Partner,  which  consent  may be  withheld  in its  sole  and  absolute
discretion,  and  (2)  meeting  certain  other  requirements  set  forth  in the
Partnership  Agreement.  However,  subject  to certain  restrictions,  a limited
partner may transfer  Units (A) as a gift to a member of a his immediate  family
or a trust for the benefit of a member of a his immediate  family  or (B) if the
limited  partner  is a  corporation  or  other  business  entity,  to any of its
affiliates or subsidiaries or to any successor in interest.

         Limited  partners  should  expect to hold their Units until they redeem
them for cash or shares of Common Stock, or until SUSA  Partnership  terminates.
The  right of a  transferee  to become a  substituted  limited  partner  also is
subject to the  consent of the  General  Partner,  and the  General  Partner may
withhold its consent in its sole and absolute discretion. If the General Partner
does not consent to the admission of a transferee,  the transferee  will succeed
to all economic rights and benefits  attributable  to such Units  (including the
right of redemption)  but will not become a limited partner or possess any other
rights of limited partners (including the right to vote on or consent to actions
of the  partnership).  The General  Partner may  require,  as a condition of any
transfer,  that the  transferring  limited  partner assume all costs incurred by
SUSA Partnership in connection with such transfer.

         Federal  Income  Taxation.  SUSA  Partnership is not subject to federal
income taxes. Instead, each holder of an interest in SUSA Partnership takes into
account  its  allocable  share of the  partnership's  taxable  income or loss in
determining its federal income tax liability.

         Income  and loss from SUSA  Partnership  generally  is  subject  to the
"passive activity"  limitations.  Under the "passive activity" rules, income and
loss from SUSA Partnership that is considered "passive" income or loss generally
can be offset against  income and loss  (including  passive loss  carry-forwards
from prior years) from other investments that constitute  "passive  activities."
(However,  if SUSA  Partnership is considered a "publicly  traded  partnership,"
then  income and loss from SUSA  Partnership  can only be offset  against  other
income and loss from SUSA Partnership.) Income of the partnership, however, that
is  attributable to dividends or interest does not qualify as passive income and
cannot be offset with losses and deductions from a "passive activity."

         Cash distributions from SUSA Partnership are not taxable to a holder of
Units except to the extent they exceed such  holder's  basis in its Units (which
will include such holder's  allocable share of SUSA  Partnership's  debt).  Each
year, holders of Units will receive a Schedule K-1 tax form containing  detailed
tax  information  for inclusion in preparing  their federal  income tax returns.


                                       16
<PAGE>

Holders of Units are  required  in some cases to file state  income tax  returns
and/or  pay  state  income  taxes in the  states  where  SUSA  Partnership  owns
property,  even if they are not  residents  of those  states,  and in some  such
states SUSA  Partnership is required to remit a withholding  tax with respect to
distributions to such nonresidents.

         Storage  USA  elected to be taxed as a REIT  effective  for its taxable
year ended  December  31, 1994.  So long as it qualifies as a REIT,  Storage USA
generally will be permitted to deduct  distributions  paid to its  shareholders,
which  effectively  will  reduce  (or  eliminate)  the  "double  taxation"  that
typically results when a corporation earns income and distributes that income to
its  shareholders  in the form of  dividends.  A REIT,  however,  is  subject to
federal income tax on income that is not  distributed and also may be subject to
federal income and excise taxes in certain  circumstances.  The maximum  federal
income tax rate for corporations currently is 35% and for individuals is 39.6%.

         Dividends paid by Storage USA will be treated as "portfolio"  income to
its  shareholders  and cannot be offset with losses from  "passive  activities."
Distributions  made by Storage USA to its taxable  domestic  shareholders out of
current or  accumulated  earnings and profits will be taken into account by them
as ordinary income.  Distributions that are designated as capital gain dividends
generally  will  be  taxed  as  long-term  capital  gain,   subject  to  certain
limitations.  Distributions  in excess of current and  accumulated  earnings and
profits  will be treated as a  non-taxable  return of capital to the extent of a
shareholder's  adjusted  basis  in its  Common  Stock,  and  the  excess  over a
shareholder's  adjusted basis will be taxed as capital gain. Each year,  Storage
USA  shareholders  (other than certain types of  institutional  investors)  will
receive IRS Form 1099, which is used by corporations to report dividends paid to
their  shareholders.  Shareholders  who are individuals  generally should not be
required to file state income tax returns  and/or pay state income taxes outside
of their  state of  residence  with  respect to  Storage  USA's  operations  and
distributions.  Storage USA may be required to pay state income and/or franchise
taxes in certain states.

                        FEDERAL INCOME TAX CONSIDERATIONS

         The following  sections  summarize  the federal  income tax issues that
you, as a redeeming  limited  partner and  shareholder,  may consider  relevant.
Because  this  section is a summary,  it does not  address all of the tax issues
that may be important to you. In addition, this section does not address the tax
issues that may be important to certain types of  shareholders  that are subject
to  special  treatment  under the  federal  income tax laws,  such as  insurance
companies,   tax-exempt   organizations  (except  to  the  extent  discussed  in
"--Taxation  of  Tax-Exempt  Shareholders"  below),  financial  institutions  or
broker-dealers, and non-U.S. individuals and foreign corporations (except to the
extent discussed in "--Taxation of Non-U.S. Shareholders" below).

         In addition, the Charter restricts certain transfers of Common Stock to
persons who are not U.S. citizens, partnerships or corporations. Any transfer to
any of these  non-U.S.  persons is void if it would  result in non-U.S.  persons
holding 50% or more of the fair market  value of Storage  USA's  capital  stock.
Security Capital,  which as of September 14, 1998 owned  approximately  42.4% of
the outstanding  Common Stock,  is treated as a non-U.S.  person for purposes of
this restriction.



                                       17
<PAGE>

         The statements in this section are based on the current  federal income
tax laws  governing our  qualification  as a REIT. We cannot assure you that new
laws,  interpretations thereof, or court decisions, any of which may take effect
retroactively, will not cause any statement in this section to be inaccurate.

         WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR  REGARDING THE SPECIFIC TAX
CONSEQUENCES  TO YOU OF  REDEEMING  YOUR UNITS FOR  COMMON  STOCK AND OF STORAGE
USA'S ELECTION TO BE TAXED AS A REIT. SPECIFICALLY,  YOU SHOULD CONSULT YOUR OWN
TAX  ADVISOR  REGARDING  THE  FEDERAL,  STATE,  LOCAL,  FOREIGN  AND  OTHER  TAX
CONSEQUENCES OF SUCH INVESTMENT AND ELECTION, AND REGARDING POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.

                         Tax Consequences of Redemption

         The  following   discussion   summarizes  certain  federal  income  tax
considerations that may be relevant to a limited partner who exercises his right
to require the redemption of his Units.

         Tax  Treatment  of  Redemption  of Units.  If Storage  USA  assumes the
redemption  obligation and purchases Units from a redeeming limited partner, the
Partnership  Agreement  provides that the redemption  will be treated by Storage
USA, SUSA  Partnership,  and the redeeming limited partner as a sale of Units by
the  limited  partner  to  Storage  USA.  The sale will be fully  taxable to the
redeeming limited partner,  and he will realize for tax purposes an amount equal
to the sum of the cash or the value of the Common Stock received in exchange for
the  Units,  plus the amount of any  partnership  liabilities  allocable  to the
redeemed Units at the time of the purchase.

         If  Storage  USA does not elect to assume  the  obligation  to redeem a
limited  partner's Units,  then SUSA Partnership may either (A) redeem the Units
for cash or  shares  of  Common  Stock  that  Storage  USA  contributes  to SUSA
Partnership  to effect  the  redemption,  or (B)  redeem the Units for cash that
Storage USA does not contribute to SUSA Partnership to effect the redemption. If
SUSA  Partnership  redeems  the Units for cash or Common  Stock  contributed  by
Storage USA, the  redemption  likely would be treated for tax purposes as a sale
of such Units in a fully  taxable  transaction.  In that  event,  the  redeeming
partner  will realize an amount equal to the sum of the cash or the value of the
shares of Common Stock  received in  connection  with the  redemption,  plus the
amount of any  partnership  liabilities  allocable to the redeemed  Units at the
time of the redemption.  The  determination of the amount of gain or loss in the
event of sale treatment is discussed more fully below.

         If SUSA  Partnership  chooses  to  redeem  Units  for cash  that is not
contributed by Storage USA to effect the redemption,  the tax consequences would
be the  same  as  described  in the  previous  paragraph,  except  that  if SUSA
Partnership  redeems less than all of the Units owned by a limited partner,  the
limited  partner would not be permitted to recognize  any loss  occurring on the
transaction.  The limited partner will recognize taxable gain only to the extent
that the sum of the cash and the amount of any partnership liabilities allocable
to the  redeemed  Units,  exceeds  his  adjusted  basis  in  all  of  his  Units
immediately before the redemption.



                                       18
<PAGE>

         Tax Treatment of Disposition of Units by Limited Partner Generally.  If
a Unit is redeemed  in a manner  that is treated as a sale of the Unit,  or if a
limited partner  otherwise  disposes of a Unit (other than in a transaction that
is treated as a redemption for tax purposes),  the determination of gain or loss
from such sale or other disposition will be based on the difference  between the
amount  realized for tax purposes and the tax basis in such Unit.  See "-- Basis
of Units."

         Upon the sale of a Unit, the "amount  realized" will be measured by the
sum of the cash and fair market value of other property (e.g.,  shares of Common
Stock) received, plus the amount of any partnership liabilities allocable to the
Unit sold. To the extent that the amount realized exceeds the limited  partner's
basis in the Unit sold, the limited  partner will recognize  gain. The amount of
gain recognized, or the tax liability resulting from such gain, could exceed the
amount of cash and the value of any other property received during the sale.

         Except as described  below,  any gain  recognized  upon a sale or other
disposition  of  Units  will be  treated  as gain  attributable  to the  sale or
disposition  of a capital  asset.  To the extent,  however,  that (A) the amount
realized  upon the sale of a Unit that is  attributable  to a limited  partner's
share of SUSA Partnership's  "unrealized receivables" (as defined in Section 751
of the Code) exceeds (B) the basis attributable to those assets, the excess will
be treated as ordinary income. Unrealized receivables include, to the extent not
previously  included  in SUSA  Partnership's  income,  any rights to payment for
services rendered or to be rendered. Unrealized receivables also include amounts
that would be subject to recapture as ordinary  income if SUSA  Partnership  had
sold its  assets at their fair  market  value at the time of the  transfer  of a
Unit.

         Basis of Units.  In  general,  if a limited  partner was deemed to have
received his Units upon  liquidation of a  partnership,  he will have an initial
tax basis in his Units  ("Initial  Basis") equal to his basis in his interest in
the liquidated partnership. Similarly, in general, if a limited partner received
his Units in exchange  for a  contribution  of a  partnership  interest or other
property to SUSA  Partnership,  he will have an Initial Basis equal to his basis
in the contributed partnership interest or other property.

         A limited  partner's  Initial  Basis  generally is increased by (1) his
share of SUSA  Partnership's  taxable  income and (2)  increases in his share of
SUSA  Partnership's   liabilities  (including  any  increase  in  his  share  of
liabilities  occurring  in  connection  with the  transactions  resulting in the
issuance of the Units).

         Generally, a limited partner's basis in his Units is decreased (but not
below zero) by (1) his share of SUSA Partnership's distributions,  (2) decreases
in his share of SUSA  Partnership's  liabilities  (including any decrease in his
share of liabilities occurring in connection with the transactions  resulting in
the issuance of the Units), (3) his share of SUSA  Partnership's  losses and (4)
his  share  of  SUSA  Partnership's  nondeductible  expenditures  that  are  not
chargeable to capital.

         Potential  Application of Disguised Sale Regulations to a Redemption of
Units.  There  is a risk  that a  redemption  of Units  may  cause  the  limited
partner's  original transfer of property to the SUSA Partnership in exchange for
Units to be treated as a "disguised sale" of property.



                                       19
<PAGE>

         The Code and the Treasury  Regulations  thereunder (the "Disguised Sale
Regulations")  generally  provide that,  unless an exception  applies,  if (A) a
partner  contributes  property to a partnership  and (B) the  partnership at the
same time or afterwards  transfers money or other  consideration  (including the
assumption  of or  taking  subject  to a  liability)  to the  partner,  then the
transaction  will be presumed to be a sale, in whole or in part, of the property
by the partner to the partnership.

         Further,  the Disguised Sale Regulations provide generally that, in the
absence  of  an  applicable  exception,  if  money  or  other  consideration  is
transferred  by a  partnership  to a partner  within two years of the  partner's
contribution  of property to the  partnership,  the  transactions  will be, when
viewed  together,  presumed to be a sale of the contributed  property unless the
facts and circumstances clearly establish that the transfers do not constitute a
sale. The Disguised Sale Regulations also provide that, if two years have passed
between  the  contribution  of  property  and the  transfer  of  money  or other
consideration  from the  partnership  to a  partner,  the  transactions  will be
presumed not to be a sale unless the facts and  circumstances  clearly establish
that the transfers constitute a sale.

         Accordingly,  if SUSA Partnership  redeems a Unit, the Internal Revenue
Service  could argue that the  Disguised  Sale  Regulations  apply,  because the
redeeming  limited  partner will receive cash or shares of Common Stock after he
has contributed  property to SUSA  Partnership.  If the Internal Revenue Service
were to make that  argument  successfully,  the  original  issuance of the Units
could be taxable as a disguised sale under the Disguised Sale  Regulations.  Any
gain recognized thereby may be eligible for installment  reporting under Section
453 of the Code, subject to certain limitations.

                             Taxation of Storage USA

         Storage USA elected to be taxed as a REIT under the federal  income tax
laws  commencing  with its taxable year ended  December  31,  1994.  Storage USA
believes  that it has  operated in a manner  intended to qualify as a REIT since
its election to be a REIT and it intends to continue to so operate. This section
discusses the laws  governing the federal income tax treatment of a REIT and its
shareholders. These laws are highly technical and complex.

         Storage USA's qualification as a REIT depends on its ability to meet on
a  continuing  basis  certain  qualification  tests set forth in the federal tax
laws.  Those  qualification  tests involve the percentage of income that Storage
USA earns from specified sources,  the percentage of its assets that fall within
certain categories,  the diversity of its share ownership, and the percentage of
its earnings that it distributes.  We describe the REIT  qualification  tests in
more detail below.  For a discussion of the tax treatment of Storage USA and its
shareholders  if  Storage  USA fails to  qualify as a REIT,  see  "--Failure  to
Qualify."

         If Storage USA qualifies as a REIT, it generally will not be subject to
federal   income  tax  on  the  taxable   income  that  it  distributes  to  its
shareholders.  The benefit of that tax  treatment  is that it avoids the "double
taxation"  (i.e., at both the corporate and  stockholder  levels) that generally
results from owning stock in a corporation. However, Storage USA will be subject
to federal tax in the following circumstances:



                                       20
<PAGE>

          o         Storage  USA will pay federal  income tax on taxable  income
                    (including  net capital gain) that it does not distribute to
                    its shareholders  during,  or within a specified time period
                    after, the calendar year in which the income is earned.

          o         Storage USA may be subject to the "alternative  minimum tax"
                    on any items of tax  preference  that it does not distribute
                    or allocate to its shareholders.

          o         Storage  USA will pay  income tax at the  highest  corporate
                    rate on (i) net income from the sale or other disposition of
                    property   acquired   through   foreclosure    ("foreclosure
                    property")  that it holds primarily for sale to customers in
                    the   ordinary   course   of   business   and   (ii)   other
                    non-qualifying income from foreclosure property.

          o         Storage USA will pay a 100% tax on net income  from  certain
                    sales  or  other   dispositions   of  property  (other  than
                    foreclosure  property)  that it holds  primarily for sale to
                    customers  in the ordinary  course of business  ("prohibited
                    transactions").

          o         If Storage USA fails to satisfy the 75% gross income test or
                    the  95%  gross  income  test  (as  described   below  under
                    "--Requirements  for   Qualification--Income   Tests"),  and
                    nonetheless  continues to qualify as a REIT because it meets
                    certain  other  requirements,  it will pay a 100% tax on (i)
                    the gross income  attributable to the greater of the amounts
                    by  which  it  fails  the 75% and 95%  gross  income  tests,
                    multiplied  by  (ii) a  fraction  intended  to  reflect  its
                    profitability.

          o         If Storage USA fails to distribute during a 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,  it will pay a 4% excise tax on the excess of
                    such  required  distribution  over the  amount  it  actually
                    distributed.

          o         Storage  USA may elect to retain  and pay  income tax on its
                    net long-term capital gain.

          o         If  Storage  USA  acquires  any asset  from a C  corporation
                    (i.e.,   a   corporation    generally    subject   to   full
                    corporate-level  tax) in a merger  or other  transaction  in
                    which it acquires a  "carryover"  basis in the asset  (i.e.,
                    basis  determined by reference to the C corporation's  basis
                    in the asset  (or  another  asset)),  it will pay tax at the
                    highest  regular  corporate rate applicable if it recognizes
                    gain on the sale or  disposition  of such  asset  during the
                    10-year  period after it acquires such asset.  The amount of
                    gain on  which  it will  pay  tax is the  lesser  of (i) the
                    amount of gain that it recognizes at the time of the sale or
                    disposition  and (ii) the  amount of gain that it would have
                    recognized  if it had sold the asset at the time it acquired
                    the asset.  The rule  described in this paragraph will apply
                    assuming that Storage USA makes an election under IRS Notice
                    88-19 upon its acquisition of an asset from a C corporation.

Requirements for REIT Qualification

         A REIT is a corporation, trust, or association that meets the following
requirements:

          1.        it is managed by one or more trustees or directors;

          2.        its  beneficial   ownership  is  evidenced  by  transferable
                    shares,  or  by  transferable   certificates  of  beneficial
                    interest;

          3.        it would  be  taxable  as a  domestic  corporation,  but for
                    sections 856 through 860 of the Code;

          4.        it is  neither  a  financial  institution  nor an  insurance
                    company subject to certain provisions of the Code;



                                       21
<PAGE>

          5.        at least 100 persons are beneficial  owners of its shares or
                    ownership certificates;

          6.        not more  than 50% in value  of its  outstanding  shares  or
                    ownership certificates is owned, directly or indirectly,  by
                    five or fewer individuals (as defined in the Code to include
                    certain  entities)  during the last half of any taxable year
                    (the "5/50 Rule");

          7.        it  elects  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 to elect and maintain REIT status;

          8.        it uses a calendar year for federal  income tax purposes and
                    complies with the recordkeeping requirements of the Code and
                    the   Treasury   regulations   thereunder   (the   "Treasury
                    Regulations"); and

          9.        it meets certain other qualification tests, described below,
                    regarding the nature of its income and assets.

         Storage  USA must  meet  requirements  1 through  4 during  its  entire
taxable year and must meet  requirement  5 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.  If Storage USA complies with all the  requirements  for ascertaining
the ownership of its  outstanding  shares in a taxable year and has no reason to
know that it violated  the 5/50 Rule,  it will be deemed to have  satisfied  the
5/50 Rule for such taxable year.  For purposes of  determining  share  ownership
under  the  5/50  Rule,  an  "individual"   generally  includes  a  supplemental
unemployment compensation benefits plan, a private foundation, or a portion of a
trust  permanently  set aside or used  exclusively for charitable  purposes.  An
"individual,"  however,  generally  does not include a trust that is a qualified
employee  pension  or profit  sharing  trust  under  Code  section  401(a),  and
beneficiaries  of such a trust will be treated as holding  shares of Storage USA
in proportion to their actuarial interests in the trust for purposes of the 5/50
Rule.

         Storage  USA  believes  it has  issued  sufficient  Common  Stock  with
sufficient  diversity  of ownership  to satisfy  requirements  5 and 6 set forth
above. In addition,  Storage USA's Charter  restricts the ownership and transfer
of the Common Stock so that Storage USA should continue to satisfy  requirements
5 and 6. The provisions of the Charter restricting the ownership and transfer of
the Common Stock are described in "Restrictions on Ownership and Transfer."

         Storage USA currently has several direct corporate subsidiaries and may
have additional  corporate  subsidiaries in the future.  A corporation that is a
"qualified  REIT  subsidiary" is not treated as a corporation  separate from its
parent REIT. All assets, liabilities, and items of income, deduction, and credit
of a "qualified REIT subsidiary" are 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 is owned by the REIT.  Thus, in
applying the requirements  described herein,  any "qualified REIT subsidiary" of
Storage USA will be ignored, and all assets,  liabilities,  and items of income,
deduction, and credit of such subsidiary will be treated as assets, liabilities,
and items of income,  deduction, and credit of Storage USA. Storage USA's direct
corporate  subsidiaries are qualified REIT subsidiaries.  Accordingly,  they are
not subject to federal corporate income taxation,  though they may be subject to
state and local taxation.



                                       22
<PAGE>

         In the case of a REIT that is a partner in a  partnership,  the REIT is
treated as owning its  proportionate  share of the assets of the partnership and
as  earning  its  allocable  share of the gross  income of the  partnership  for
purposes  of the  applicable  REIT  qualification  tests.  Thus,  Storage  USA's
proportionate  share of the  assets,  liabilities  and  items of  income of SUSA
Partnership  and of any other  partnership  in which Storage USA has acquired or
will acquire an interest,  directly or indirectly (a "Subsidiary  Partnership"),
are treated as assets and gross  income of Storage USA for  purposes of applying
the various REIT qualification requirements.

Income Tests

         Storage USA must satisfy two gross  income  tests  annually to maintain
its  qualification as a REIT. First, at least 75% of its gross income (excluding
gross income from prohibited transactions) for each taxable year must consist of
defined  types  of  income  that  it  derives,  directly  or  indirectly,   from
investments relating to real property or mortgages on real property or temporary
investment income (the "75% gross income test").  Qualifying income for purposes
of the 75% gross income test includes  "rents from real  property,"  interest on
debt secured by mortgages on real property or on interests in real property, and
dividends  or other  distributions  on and gain from the sale of shares in other
REITs.  Second,  at least 95% of its gross income  (excluding  gross income from
prohibited  transactions)  for each  taxable year must consist of income that is
qualifying  income for purposes of the 75% gross income test,  dividends,  other
types of interest, gain from the sale or disposition of stock or securities,  or
any  combination of the foregoing  (the "95% gross income test").  The following
paragraphs discuss the specific application of these tests to Storage USA.

         Rent that  Storage USA  receives  from real  property  that it owns and
leases  to  tenants  will  qualify  as  "rents  from  real  property"  (which is
qualifying  income for purposes of the 75% and 95% gross  income  tests) only if
several  conditions are met.  First,  the rent must not be based, in whole or in
part,  on the  income  or  profits  of any  person.  However,  "rents  from real
property"  generally  does not exclude an amount solely because it is based on a
fixed  percentage or percentages of receipts or sales.  Second,  neither Storage
USA nor a direct or indirect owner of 10% or more of its stock may own, actually
or  constructively,  10% or more of a tenant from whom it receives rent.  Third,
all of the rent  received  under a lease of real  property  will not  qualify as
"rents from real property" unless the rent attributable to the personal property
leased  in  connection  with such  lease is no more  than 15% of the total  rent
received  under the lease.  Finally,  Storage USA generally  must not operate or
manage its real  property or furnish or render  services to its  tenants,  other
than through an "independent  contractor" who is adequately compensated and from
whom Storage USA does not derive revenue.  However, Storage USA need not provide
services  through an "independent  contractor," but instead may provide services
directly,  if the services are "usually or  customarily  rendered" in connection
with the rental of space for  occupancy  only and are not  otherwise  considered
"rendered to the  occupant."  In  addition,  Storage USA may render a de minimis
amount of  "non-customary"  services to the  tenants of a  property,  other than
through an independent contractor,  as long as its income from the services does
not exceed 1% of its income from the related property.



                                       23
<PAGE>

         Storage  USA,  through SUSA  Partnership,  derives most 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  ("Management") 5% of whose voting stock and 100% of whose nonvoting
stock  (which  together  constitute  99% of  the  beneficial  economic  interest
therein)  are owned by SUSA  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").  Storage
USA also receives  dividends from Management and Storage USA Franchise  Corp., a
Tennessee corporation ("Franchise"). SUSA Partnership owns 100% of the nonvoting
stock,  which represents 97.5% of the beneficial  economic interest therein,  of
Franchise.  We believe 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 Management and Franchise qualify as dividends for purposes of the 95% test.
Furthermore, Storage USA believes that the Ancillary Revenues and other types of
potentially  nonqualifying  gross  income  earned by Storage USA in each taxable
year are equal to,  and will  continue  to be equal to,  less than 5% of Storage
USA's total gross income and,  thus,  that such items of income do not adversely
affect Storage USA's qualification as a REIT.

         Other than with respect to its leasing arrangement with Management with
respect to the sale of lock and packing supplies (the revenue from which Storage
USA will treat as  nonqualifying  income for purposes of the 75% and 95% tests),
Storage USA 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,  we
believe  that any  personal  property  rented  in  connection  with our  storage
facilities is well within the 15% restriction. However, in order for the Primary
Revenues to constitute "rents from real property,"  Storage USA must not provide
services (other than within the 1% de minimis exception  described above) 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.

         Storage USA,  through  SUSA  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 rest
rooms, 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 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,  SUSA 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 SUSA Partnership at a facility, (viii) for a fee, acting as an


                                       24
<PAGE>

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  Storage  USA or  SUSA
Partnership to move their goods and belongings into and out of the units without
additional  charge.  Storage USA  believes  that the  services  provided by SUSA
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.

         Storage USA's investment,  through SUSA 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 Storage  USA's
interest in SUSA Partnership generally will be qualifying income for purposes of
the 75% and 95% gross income tests.  Storage USA anticipates  that income on its
other  investments,   including  its  indirect  investments  in  Management  and
Franchise,  will not result in Storage USA  failing the 75% or 95% gross  income
test for any year.

         A REIT  will  incur  a 100%  tax on the net  income  derived  from  any
"prohibited  transaction."  A  "prohibited  transaction"  generally is a sale or
other  disposition of property (other than  foreclosure  property) that the REIT
holds  primarily  for sale to  customers  in the  ordinary  course of a trade or
business.  We believe that none of Storage USA's or SUSA Partnership's assets is
held for sale to customers and that a sale of any such asset would not be in the
ordinary  course of its business.  Whether a REIT holds an asset  "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  asset.  Nevertheless,  we will attempt to comply
with the terms of safe-harbor  provisions in the Code  prescribing when an asset
sale will not be  characterized  as a prohibited  transaction.  We cannot assure
you,  however,  that we can  comply  with such  safe-harbor  provisions  or that
Storage  USA  or  SUSA  Partnership  will  avoid  owning  property  that  may be
characterized  as property that it holds "primarily for sale to customers in the
ordinary course of a trade or business."

         From time to time,  Storage  USA or SUSA  Partnership  may  enter  into
hedging  transactions  with respect to one or more of its assets or liabilities.
Its hedging  activities may include entering into interest rate swaps,  caps and
floors (or options to purchase such items),  and futures and forward  contracts.
To the extent that Storage USA or SUSA Partnership  enters into an interest rate
swap or cap contract,  option,  futures contract,  forward rate agreement or any
similar  financial  instrument to hedge its 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. To the extent that Storage USA or SUSA
Partnership  hedges  with  other  types of  financial  instruments,  or in other
situations, it is not entirely clear how the income from those transactions will
be treated for purposes of the gross income  tests.  We intend to structure  any
hedging  transactions in a manner that does not jeopardize  Storage USA's status
as a REIT.



                                       25
<PAGE>

         If Storage  USA fails to  satisfy  one or both of the 75% and 95% gross
income tests for any taxable  year,  it  nevertheless  may qualify as a REIT for
such year if it qualifies for relief under certain provisions of the Code. Those
relief provisions  generally will be available if its failure to meet such tests
is due to reasonable cause and not due to willful neglect,  we attach a schedule
of the sources of its income to its tax return, and any incorrect information on
the schedule  was not due to fraud with intent to evade tax. We cannot  predict,
however,  whether in all circumstances  Storage USA would qualify for the relief
provisions. In addition, as discussed above in "--Taxation of Storage USA," even
if the relief provisions apply,  Storage USA would incur a 100% tax on the gross
income  attributable to the greater of the amounts by which it fails the 75% and
95% gross  income  tests,  multiplied  by a fraction  intended  to  reflect  its
profitability.

Asset Tests

         To maintain its qualification as a REIT,  Storage USA also must satisfy
two asset tests at the close of each quarter of each  taxable  year.  First,  at
least 75% of the value of its total  assets  must  consist of cash or cash items
(including certain receivables), government securities, "real estate assets," or
qualifying  temporary  investments (the "75% asset test"). The term "real estate
assets"  includes  interests  in real  property,  interests in mortgages on real
property and stock in other REITs.  For purposes of the 75% asset test, the term
"interest in real  property"  includes an interest in mortgage loans or land and
improvements thereon, such as buildings or other inherently permanent structures
(including   items  that  are   structural   components  of  such  buildings  or
structures),  a  leasehold  of real  property,  and an  option to  acquire  real
property (or a leasehold of real property). Qualifying temporary investments are
investments in stock or debt  instruments  during the one-year period  following
Storage USA's receipt of new capital that it raises  through equity or long-term
(at least five-year) debt offerings.

         The  second  asset test has two  components.  First,  of Storage  USA's
investments  not included in the 75% asset  class,  the value of its interest in
any one  issuer's  securities  (which does not include its stock in other REITs,
SUSA  Partnership,  or any qualified REIT  subsidiary)  may not exceed 5% of the
value of its total assets (the "5% asset test"). Second, Storage USA may not own
more than 10% of any one issuer's  outstanding voting securities (which does not
include  its stock in other  REITs,  SUSA  Partnership,  or any  qualified  REIT
subsidiary) (the "10% asset test").

         SUSA  Partnership owns 5% of the voting stock and 100% of the nonvoting
stock of Management  (which together  constitute 99% of the beneficial  economic
interest  therein).  In addition,  SUSA  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 SUSA Partnership,  Storage USA
is deemed to own its pro rata share of the assets of SUSA Partnership, including
the stock of Management and Franchise held by SUSA Partnership.

         SUSA Partnership does not own more than 10% of the voting securities of
either  Management  or  Franchise.  In addition,  based upon its analysis of the
estimated  value  of the  stock  of  Management  and  Franchise  owned  by  SUSA
Partnership relative to the estimated value of the other assets owned by Storage
USA,  Storage  USA  believes  that  neither  its pro rata  share of the stock of
Management  nor its pro rata share of the stock of  Franchise  exceeds 5% of the
total  value of  Storage  USA'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  Storage  USA or SUSA  Partnership  increases  its
interest in either Management or Franchise (including as a result of Storage USA


                                       26
<PAGE>

increasing its interest in SUSA  Partnership in connection with a stock offering
or as limited  partners of SUSA Partnership  exercise their redemption  rights).
Although  Storage  USA 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 SUSA Partnership's  overall interest in either Management
or Franchise.  Storage USA does not expect to own securities of any other issuer
in excess of the restrictions set forth above.

         If Storage  USA should  fail to satisfy the asset tests at the end of a
calendar  quarter,  it would not lose its REIT  status if (i) it  satisfied  the
asset  tests  at the  close  of the  preceding  calendar  quarter  and  (ii) the
discrepancy  between  the value of its assets  and the asset  test  requirements
arose  from  changes  in the  market  values of its assets and was not wholly or
partly  caused  by the  acquisition  of one or more  non-qualifying  assets.  If
Storage  USA did not  satisfy  the  condition  described  in clause  (ii) of the
preceding  sentence,  it  still  could  avoid  disqualification  as  a  REIT  by
eliminating  any  discrepancy  within 30 days  after  the close of the  calendar
quarter in which the discrepancy arose.

Distribution Requirements

         Each taxable year,  Storage USA must distribute  dividends  (other than
capital gain dividends and deemed distributions of retained capital gain) to its
shareholders in an aggregate  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 or loss) and (B) 95% of its net income (after
tax), if any, from foreclosure property,  minus (ii) the sum of certain items of
non-cash income.  Storage USA must pay such distributions in the taxable year to
which  they  relate,  or in  the  following  taxable  year  if it  declares  the
distribution  before it timely files its federal income tax return for such year
and pays the  distribution on or before the first regular  dividend payment date
after such declaration.

         Storage USA will pay federal  income tax on taxable  income  (including
net capital gain) that it does not distribute to shareholders.  Furthermore,  if
it fails to distribute  during a calendar year (or, in the case of distributions
with  declaration  and record  dates  falling  in the last  three  months of the
calendar year, by the end of January  following such 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, it will incur a 4% nondeductible excise tax on the excess of
such required distribution over the amounts it actually distributed. Storage USA
may elect to retain  and pay  income tax on the net  long-term  capital  gain it
receives in a taxable year. See "--Taxation of Taxable U.S. Shareholders." If it
so elects, it will be treated as having distributed any such retained amount for
purposes of the 4% excise tax described above. Storage USA has made, and Storage
USA intends to continue to make, timely distributions  sufficient to satisfy the
annual distribution requirements.



                                       27
<PAGE>

         It is possible  that,  from time to time,  Storage  USA 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.  For example,  Storage USA
may not  deduct  recognized  capital  losses  from its  "REIT  taxable  income."
Further,  it is possible that, from time to time, Storage USA 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. As a result of
the  foregoing,  Storage USA may have less cash than is necessary to  distribute
all of its taxable income and thereby avoid corporate  income tax and the excise
tax imposed on certain undistributed income. In such a situation, it may need to
borrow funds or issue Preferred Stock or additional Common Stock.

         Under  certain  circumstances,  Storage  USA may be able to  correct  a
failure to meet the  distribution  requirement for a year by paying  "deficiency
dividends"  to its  shareholders  in a later year.  Storage USA may include such
deficiency  dividends in its deduction for dividends  paid for the earlier year.
Although  Storage USA may be able to avoid income tax on amounts  distributed as
deficiency  dividends,  it will be  required  to pay  interest  to the  Internal
Revenue  Service based upon the amount of any deduction it takes for  deficiency
dividends.

Recordkeeping Requirements

         Storage  USA must  maintain  certain  records  in order to qualify as a
REIT.  In addition,  to avoid a monetary  penalty,  it must request on an annual
basis certain information from its shareholders  designed to disclose the actual
ownership of its outstanding  stock.  Storage USA has complied,  and Storage USA
intends to continue to comply, with such requirements.



                                       28
<PAGE>

Failure to Qualify


         If Storage USA failed to qualify as a REIT in any taxable year,  and no
relief provision  applied,  it would be subject to federal income tax (including
any  applicable  alternative  minimum  tax) on its  taxable  income  at  regular
corporate  rates. In calculating its taxable income in a year in which it failed
to qualify as a REIT,  Storage USA would not be able to deduct  amounts paid out
to  shareholders.  In fact,  Storage USA would not be required to distribute any
amounts  to  shareholders  in such  year.  In such  event,  to the extent of its
current and accumulated  earnings and profits, all distributions to shareholders
would be taxable as ordinary income. Subject to certain limitations of the Code,
corporate  shareholders might be eligible for the dividends received  deduction.
Unless Storage USA qualified for relief under specific statutory provisions,  it
also would be  disqualified  from  taxation as a REIT for the four taxable years
following  the year  during  which it ceased  to  qualify  as a REIT.  We cannot
predict  whether  in all  circumstances  Storage  USA  would  qualify  for  such
statutory relief.

                      Taxation of Taxable U.S. Shareholders

         As  long  as  Storage  USA   qualifies  as  a  REIT,  a  taxable  "U.S.
Stockholder"  must take into account  distributions out of Storage USA's current
or  accumulated  earnings and profits (and that it does not designate as capital
gain dividends or retained  long-term  capital gain) as ordinary  income. A U.S.
Stockholder  will not qualify for the  dividends  received  deduction  generally
available to corporations.  As used herein, the term "U.S.  Stockholder" means a
holder of Common Stock that for U.S. federal income tax purposes is

          o         a citizen or resident of the United States,

          o         a  corporation,  partnership,  or other  entity  created  or
                    organized in or under the laws of the United States or of an
                    political subdivision thereof,

          o         an estate  whose  income  from  sources  outside  the United
                    States is includible in gross income for U.S. federal income
                    tax purposes  regardless of its connection  with the conduct
                    of a trade or business within the United States, or

          o         any trust with respect to which (A) a U.S.  court is able to
                    exercise primary supervision over the administration of such
                    trust and (B) one or more U.S. persons have the authority to
                    control all substantial decisions of the trust.

         A U.S.  Stockholder  will  recognize  distributions  that  Storage  USA
designates  as capital gain  dividends as long-term  capital gain (to the extent
they do not exceed  Storage  USA's actual net capital gain for the taxable year)
without regard to the period for which the U.S.  Stockholder has held its Common
Stock.  Subject to certain  limitations,  Storage USA will designate its capital
gain  dividends  as  either  20% or 25% rate  distributions.  A  corporate  U.S.
Stockholder, however, may be required to treat up to 20% of certain capital gain
dividends as ordinary income.

         Storage USA may elect to retain and pay income tax on the net long-term
capital  gain  that  it  receives  in a  taxable  year.  In  that  case,  a U.S.
Stockholder  would  be  taxed  on  its  proportionate  share  of  Storage  USA's
undistributed  long-term  capital  gain.  The U.S.  Stockholder  would receive a
credit or refund for its  proportionate  share of the tax Storage USA paid.  The
U.S.  Stockholder  would  increase  the basis in its stock by the  amount of its
proportionate share of Storage USA's undistributed long-term capital gain, minus
its share of the tax Storage USA paid.



                                       29
<PAGE>

         A U.S.  Stockholder  will not incur tax on a distribution  in excess of
Storage USA's current and accumulated  earnings and profits if such distribution
does not exceed  the  adjusted  basis of the U.S.  Stockholder's  Common  Stock.
Instead,  such distribution will reduce the adjusted basis of such Common Stock.
A U.S. Stockholder will recognize a distribution in excess of both Storage USA's
current and accumulated earnings and profits and the U.S. Stockholder's adjusted
basis in its Common Stock 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 U.S.  Stockholder.  In addition, if
Storage USA declares a  distribution  in October,  November,  or December of any
year that is payable to a U.S.  Stockholder of record on a specified date in any
such month, such  distribution  shall be treated as both paid by Storage USA and
received by the U.S.  Stockholder  on December  31 of such year,  provided  that
Storage USA  actually  pays the  distribution  during  January of the  following
calendar year. We will notify U.S. Shareholders after the close of Storage USA's
taxable year as to the portions of the  distributions  attributable to that year
that constitute ordinary income or capital gain dividends.

Taxation of U.S. Shareholders on the Disposition of the Common Stock

         In general,  a U.S.  Stockholder who is not a dealer in securities must
treat any gain or loss realized upon a taxable  disposition  of the Common Stock
as long-term  capital gain or loss if the U.S.  Stockholder  has held the Common
Stock for more than one year and otherwise as  short-term  capital gain or loss.
However,  a U.S.  Stockholder  must  treat any loss upon a sale or  exchange  of
Common  Stock held by such  shareholder  for six months or less (after  applying
certain  holding  period  rules) as a  long-term  capital  loss to the extent of
capital gain dividends and other  distributions  from Storage USA that such U.S.
Stockholder  treats as long-term  capital  gain.  All or a portion of any loss a
U.S.  Stockholder realizes upon a taxable disposition of the Common Stock may be
disallowed if the U.S. Stockholder purchases other shares of Common Stock within
30 days before or after the disposition.

Capital Gains and Losses

         A taxpayer  generally  must hold a capital asset for more than one year
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%.
The maximum tax rate on  long-term  capital  gain  applicable  to  non-corporate
taxpayers is 20% for sales and  exchanges of assets held for more than one year.
The  maximum  tax rate on  long-term  capital  gain from the sale or exchange of
"section 1250 property"  (i.e.,  depreciable real property) is 25% to the extent
that such gain would have been treated as ordinary  income if the property  were
"section  1245  property."  With  respect  to  distributions  that  Storage  USA
designates as capital gain  dividends  and any retained  capital gain that it is
deemed to  distribute,  Storage USA may  designate  (subject to certain  limits)
whether such a distribution  is taxable to its  non-corporate  shareholders at a
20% or 25%  rate.  Thus,  the tax rate  differential  between  capital  gain and
ordinary income for non-corporate taxpayers may be significant. In addition, the


                                       30
<PAGE>

characterization  of income as capital  gain or  ordinary  income may affect the
deductibility  of capital losses.  A  non-corporate  taxpayer may deduct capital
losses not offset by capital  gains  against  its  ordinary  income only up to a
maximum  annual  amount of $3,000.  A  non-corporate  taxpayer may carry forward
unused capital losses indefinitely. A corporate taxpayer must pay tax on its net
capital  gain 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

         Storage USA will report to its shareholders and to the Internal Revenue
Service the amount of  distributions  it pays during each calendar year, and the
amount of tax it  withholds,  if any.  Under the  backup  withholding  rules,  a
shareholder may be subject to backup withholding at the rate of 31% with respect
to distributions 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 Storage USA
with its correct taxpayer identification number also may be subject to penalties
imposed by the Internal Revenue Service.  Any amount paid as backup  withholding
will be creditable against the shareholder's income tax liability.  In addition,
Storage USA may be required to withhold a portion of capital gain  distributions
to any shareholders who fail to certify their non-foreign status to Storage USA.
The  Treasury  Department  has issued  final  regulations  regarding  the backup
withholding rules as applied to Non-U.S.  Shareholders.  Those regulations alter
the  current  system of backup  withholding  compliance  and are  effective  for
distributions  made  after  December  31,  1999.  See  "--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  and  annuities  ("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 Internal
Revenue Service has issued a published ruling that dividend distributions from a
REIT to an exempt employee pension trust do not constitute  UBTI,  provided that
the exempt employee  pension trust does not otherwise use the shares of the REIT
in an unrelated  trade or business of the pension  trust.  Based on that ruling,
amounts that Storage USA distributes to Exempt  Organizations  generally  should
not constitute  UBTI.  However,  if an Exempt  Organization  were to finance its
acquisition  of the Common  Stock with debt,  a portion of the income  that they
receive from Storage USA would  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 that they
receive from Storage USA as UBTI. Finally, in certain circumstances, a qualified
employee  pension  or profit  sharing  trust  that owns more than 10% of Storage


                                       31
<PAGE>

USA's stock is required to treat a percentage of the dividends  that it receives
from Storage USA as UBTI (the "UBTI  Percentage").  The UBTI Percentage is equal
to the gross  income  Storage USA derives  from an  unrelated  trade or business
(determined as if it were a pension trust) divided by its total gross income for
the year in which it pays the  dividends.  The UBTI  rule  applies  to a pension
trust holding more than 10% of Storage USA's stock only if:

          o         the UBTI Percentage is at least 5%;

          o         Storage   USA   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  Storage USA's
                    stock in  proportion  to their  actuarial  interests  in the
                    pension trust; and

          o         Storage USA is a "pension-held  REIT" (i.e.,  either (i) one
                    pension  trust  owns more than 25% of the value of its stock
                    or (ii) a group of pension trusts individually  holding more
                    than 10% of the  value of its stock  collectively  owns more
                    than 50% of the value of its stock).

                        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. This section
is only a summary of such rules. We urge Non-U.S.  Shareholders to consult their
own tax advisors to determine the impact of federal, state, and local income tax
laws on ownership of the Common Stock, including any reporting requirements.

         A  Non-U.S.  Stockholder  that  receives  a  distribution  that  is not
attributable  to gain from Storage  USA's sale or exchange of U.S. real property
interests  (as  defined  below) and that  Storage  USA does not  designate  as a
capital gain dividend or retained capital gain will recognize ordinary income to
the  extent  that  Storage  USA pays such  distribution  out of its  current  or
accumulated  earnings and profits.  A withholding  tax equal to 30% of the gross
amount of the distribution  ordinarily will apply to such distribution unless an
applicable tax treaty reduces or eliminates the tax. However,  if a distribution
is treated as effectively connected with the Non-U.S. Stockholder's conduct of a
U.S. trade or business,  the Non-U.S.  Stockholder  generally will be subject to
federal income tax on the distribution 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. Stockholder that
is a non-U.S. corporation). Storage USA plans to withhold U.S. income tax at the
rate of 30% on the gross  amount  of any such  distribution  paid to a  Non-U.S.
Stockholder unless (i) a lower treaty rate applies and the Non-U.S.  Stockholder
files the  required  form  evidencing  eligibility  for that  reduced  rate with
Storage USA or (ii) the Non-U.S. Stockholder files an IRS Form 4224 with Storage
USA claiming that the  distribution is effectively  connected  income.  The U.S.
Treasury Department has issued final regulations that modify the manner in which
Storage USA will comply with the withholding requirements. Those regulations are
effective for distributions made after December 31, 1999.

         A Non-U.S.  Stockholder  will not incur tax on a distribution in excess
of  Storage  USA's  current  and  accumulated   earnings  and  profits  if  such
distribution  does not exceed the adjusted  basis of its Common Stock.  Instead,
such a  distribution  will reduce the  adjusted  basis of such Common  Stock.  A
Non-U.S.  Stockholder will be subject to tax on a distribution that exceeds both
Storage  USA's  current and  accumulated  earnings  and profits and the adjusted
basis of its  Common  Stock,  if the  Non-U.S.  Stockholder  otherwise  would be
subject  to tax on gain from the sale or  disposition  of its Common  Stock,  as
described  below.  Because Storage USA generally cannot determine at the time it
makes a distribution whether or not the distribution will exceed its current and


                                       32
<PAGE>

accumulated  earnings and profits,  it normally  will withhold tax on the entire
amount of any  distribution at the same rate as it would withhold on a dividend.
However, a Non-U.S.  Stockholder may obtain a refund of amounts that Storage USA
withholds  if it later  determines  that a  distribution  in fact  exceeded  its
current and accumulated earnings and profits.

         Storage USA must  withhold  10% of any  distribution  that  exceeds its
current and accumulated earnings and profits. Consequently,  although it intends
to withhold at a rate of 30% on the entire  amount of any  distribution,  to the
extent that it does not do so, it will  withhold at a rate of 10% on any portion
of a distribution not subject to withholding at a rate of 30%.

         For any year in which  Storage  USA  qualifies  as a REIT,  a  Non-U.S.
Stockholder will incur tax on  distributions  that are attributable to gain from
its sale or exchange of "U.S. real property  interests"  under the provisions of
the Foreign  Investment  in Real Property Tax Act of 1980  ("FIRPTA").  The term
"U.S. real property  interests"  includes certain interests in real property and
stock in corporations at least 50% of whose assets consists of interests in real
property,  but excludes  mortgage loans and  mortgage-backed  securities.  Under
FIRPTA, a Non-U.S.  Stockholder is taxed on  distributions  attributable to gain
from sales of U.S.  real  property  interests  as if such gain were  effectively
connected  with  a  U.S.  business  of  the  Non-U.S.  Stockholder.  A  Non-U.S.
Stockholder  thus would be taxed on such a  distribution  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 a nonresident
alien  individual).  A non-U.S.  corporate  shareholder  not  entitled to treaty
relief  or  exemption  also may be  subject  to the 30%  branch  profits  tax on
distributions  subject  to  FIRPTA.   Storage  USA  must  withhold  35%  of  any
distribution  that it could  designate  as a capital gain  dividend.  A Non-U.S.
Stockholder may receive a credit against its FIRPTA tax liability for the amount
Storage USA withholds.

         A Non-U.S.  Stockholder  generally  will not incur tax under  FIRPTA on
gain from the sale of its Common Stock as long as Storage USA is a "domestically
controlled  REIT." A  "domestically  controlled  REIT" is a REIT in which at all
times during a specified  testing  period  non-U.S.  persons  held,  directly or
indirectly, less than 50% in value of the stock. Storage USA's Charter prohibits
any person (other than Security  Capital)  from  acquiring  Common Stock if such
acquisition  would cause  Storage USA to fail to be a  "domestically  controlled
REIT."  However,  a Non-U.S.  Stockholder  will incur tax on gain not subject to
FIRPTA if (i) the gain is effectively connected with the Non-U.S.  Stockholder's
U.S. trade or business,  in which case the Non-U.S.  Stockholder will be subject
to the same  treatment as U.S.  Shareholders  with respect to such gain, or (ii)
the Non-U.S.  Stockholder is a nonresident  alien  individual who was present in
the U.S.  for 183 days or more during the  taxable  year and has a "tax home" in
the United States,  in which case the Non-U.S.  Stockholder will incur a 30% tax
on his capital gains.  However, a Non-U.S.  Stockholder that owned,  actually or
constructively,  5% or less of the Common  Stock at all times during a specified
testing period will not incur tax under FIRPTA if the Common Stock is "regularly
traded"  on an  established  securities  market.  If the gain on the sale of the
Common Stock were taxed under FIRPTA, a Non-U.S.  Stockholder  would be taxed in
the same  manner 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 non-U.S. corporations).



                                       33
<PAGE>

                             Other Tax Consequences

State and Local Taxes

         Storage USA and/or you may be subject to state and local tax in various
states and  localities,  including  those states and localities in which Storage
USA or you transact  business,  own property or reside.  The state and local tax
treatment in such jurisdictions may differ from the federal income tax treatment
described above. Consequently, you should consult your own tax advisor regarding
the effect of state and local tax laws upon an investment in the Common Stock.

Tax Aspects of Storage USA's Investments in SUSA Partnership and Subsidiary 
Partnerships

         The  following   discussion   summarizes  certain  federal  income  tax
considerations  applicable  to  our  direct  or  indirect  investments  in  SUSA
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

         Storage USA 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  will be classified as a partnership,  rather
than as a corporation, for federal income tax purposes if it (i) is treated as a
partnership under Treasury  Regulations,  effective January 1, 1997, relating to
entity  classification  (the  "Check-the-Box  Regulations")  and  (ii)  is not a
"publicly traded" partnership.

         Under the Check-the-Box  Regulations,  an unincorporated entity with at
least two members may elect to be classified either as an association taxable as
a corporation or as a partnership.  If such an entity fails to make an election,
it generally  will be treated as a partnership  for federal income tax purposes.
The federal income tax  classification  of an entity that was in existence prior
to January 1, 1997, such as the Partnerships,  will be respected for all periods
prior to  January  1,  1997 if (i) the  entity  had a  reasonable  basis for its
claimed classification, (ii) the entity and all members of the entity recognized
the  federal tax  consequences  of any  changes in the  entity's  classification
within the 60 months prior to January 1, 1997,  and (iii) neither the entity nor
any member of the entity was  notified  in writing by a taxing  authority  on or
before May 8, 1996 that the  classification of the entity was under examination.
Each  Partnership  reasonably  claimed  partnership   classification  under  the
Treasury  Regulations  relating  to entity  classification  in  effect  prior to
January  1,  1997.  In  addition,  the  Partnerships  intend to  continue  to be
classified as  partnerships  for federal  income tax purposes and no Partnership
will elect to be treated as an  association  taxable as a corporation  under the
Check-the-Box Regulations.



                                       34
<PAGE>

         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 has issued  regulations  (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
flow-through  entity 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,  Storage  USA would  not be able to  qualify  as a REIT.  See "--
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 Storage USA
might  incur tax  liability  without  any  related  cash  distribution.  See "--
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 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.

                                       35
<PAGE>

Income Taxation of SUSA Partnerships and their Partners

         Partners, Not the Partnerships,  Subject to Tax. A partnership is not a
taxable entity for federal income tax purposes.  Rather, Storage USA 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  Storage  USA,  without  regard to  whether
Storage USA 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.  SUSA
Partnership was formed by way of contributions  of appreciated  property and has
received  contributions  of  appreciated  property  since  Storage USA'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
Storage USA to SUSA  Partnership  will cause  Storage USA 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 SUSA 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 Storage USA may cause Storage USA to recognize taxable
income in excess of its  proportionate  share of the cash proceeds,  which might
adversely  affect  Storage  USA's  ability to comply with the REIT  distribution
requirements.   See  "--   Requirements   for   Qualification   --  Distribution
Requirements."



                                       36
<PAGE>

         The U.S.  Department of the Treasury has 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.
SUSA  Partnership  generally  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 SUSA  Partnership  generally will be allocated among
the partners in accordance with their respective  interests in SUSA Partnership,
except to the extent that SUSA Partnership is required under Code section 704(c)
to use a method for  allocating  tax  depreciation  deductions  attributable  to
contributed  properties that results in Storage USA 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 SUSA  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 SUSA  Partnership is not entirely clear,  however,  and may be
affected by Treasury Regulations promulgated in the future.

         Basis in Partnership Interest.  Storage USA's adjusted tax basis in its
partnership interest in SUSA Partnership generally is equal to (i) the amount of
cash and the basis of any other  property  contributed  to SUSA  Partnership  by
Storage USA,  (ii)  increased by (A) its allocable  share of SUSA  Partnership's
income and (B) its allocable  share of  indebtedness  of SUSA  Partnership,  and
(iii) reduced,  but not below zero, by (A) Storage USA's allocable share of SUSA
Partnership's  loss, and (B) the amount of cash  distributed to Storage USA, and
(C) constructive distributions resulting from a reduction in Storage USA's share
of indebtedness of SUSA Partnership.

         If  the  allocation  of  Storage  USA's   distributive  share  of  SUSA
Partnership's  loss  would  reduce  the  adjusted  tax  basis of  Storage  USA's
partnership  interest in SUSA  Partnership  below zero, the  recognition of such
loss will be deferred until such time as the  recognition of such loss would not
reduce  Storage  USA's  adjusted  tax basis below zero.  To the extent that SUSA
Partnership's  distributions,  or any  decrease  in Storage  USA's  share of the
indebtedness of SUSA Partnership  (such decrease being considered a constructive
cash  distribution  to the  partners),  would reduce  Storage USA's adjusted tax
basis below zero, such distributions (including such constructive distributions)
constitute  taxable income to Storage USA. Such  distributions  and constructive
distributions  normally will be  characterized  as capital gain, and, if Storage
USA's partnership interest in SUSA 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 ("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


                                       37
<PAGE>

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 Storage
USA 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 SUSA 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.

         Storage USA'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 Storage  USA's  ability to satisfy the income tests
for REIT  status.  See "--  Requirements  for  Qualification  -- Income  Tests."
Storage USA,  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 Storage USA's or such
Partnership's trade or business.





                                       38
<PAGE>

Management and Franchise

         SUSA Partnership owns 100% of the nonvoting stock, and 5% of the voting
stock,  of  Management,  representing  in the aggregate a 99% economic  interest
therein.  In addition,  SUSA  Partnership  owns 100% of the  nonvoting  stock of
Franchise which represents a 97.5% economic interest  therein.  By virtue of its
ownership of SUSA  Partnership,  Storage USA is  considered  to own its pro rata
share of the stock of Management and Franchise held by SUSA Partnership.

         As noted  above,  for Storage USA to qualify as a REIT,  Storage  USA's
proportionate  share of the value of the  securities of each of  Management  and
Franchise  held by SUSA  Partnership  may not  exceed 5% of the  total  value of
Storage USA's assets. In addition,  Storage USA's proportionate share of each of
Management and Franchise's equity securities may not constitute more than 10% of
the voting  securities of such entity.  SUSA  Partnership  owns 5% of the voting
securities  of  Management,  but does not own any of the  voting  securities  of
Franchise.  Storage USA  believes  that neither its  proportionate  share of the
value  of the  securities  of  Management  held  by  SUSA  Partnership  nor  its
proportionate  share of the value of the  securities  of Franchise  held by SUSA
Partnership  exceeds  5% of the total  value of  Storage  USA's  assets.  If the
Internal Revenue Service were to challenge  successfully  those  determinations,
however, Storage USA likely would fail to qualify as a REIT.

         Each of Management and Franchise is organized as a corporation and pays
federal,  state and local income taxes on its taxable income at normal corporate
rates.  Any such taxes reduce amounts  available for  distribution by Management
and  Franchise,  which in turn reduces  amounts  available for  distribution  to
Storage USA's stockholders.

                              PLAN OF DISTRIBUTION

         This Prospectus  relates to the possible issuance by Storage USA of the
shares of Common Stock if, and to the extent that, the Unitholders  tender their
Units for  redemption and Storage USA elects to purchase the Units for shares of
Common Stock. On November 6, 1997, SUSA Partnership  issued 125,135 Units to the
Unitholders. Storage USA is registering the issuance of 125,135 shares of Common
Stock so that  the  Unitholders  will  have  freely  tradeable  securities  upon
redemption  of their  Units.  However,  registration  of these  shares  does not
necessarily  mean  that any of such  shares  will be issued  by  Storage  USA or
offered or sold by any Unitholder.

         Storage  USA may from time to time  issue  shares of Common  Stock upon
redemption of Units. Storage USA will exchange the redeeming partner's Units for
shares of Common Stock. Consequently,  with each such redemption,  Storage USA's
interest in SUSA Partnership will increase.

                                 LEGAL OPINIONS

         Hunton & Williams,  Richmond,  Virginia, has delivered to Storage USA a
legal opinion as to the validity of the Common Stock covered by this prospectus.



                                       39
<PAGE>

                                     EXPERTS

         The consolidated  balance sheets of Storage USA as of December 31, 1997
and 1996, and the consolidated  statements of operations,  shareholders'  equity
and cash flows for each of the three  years in the  period  ended  December  31,
1997, the financial  statement  schedule of Storage USA as of December 31, 1997,
the historical summaries of combined gross revenue and direct operating expenses
for  certain  self-storage  facilities  for the year  ended  December  31,  1996
included in Storage USA's Current  Report on Form 8-K/A filed February 17, 1998,
and the  historical  summaries of combined  gross  revenue and direct  operating
expenses for certain  self-storage  facilities  for the year ended  December 31,
1996  included  in Storage  USA's  Current  Report on Form 8-K/A filed March 25,
1998, all incorporated by reference in this  Registration  Statement,  have been
incorporated  herein in reliance on the reports of  PricewaterhouseCoopers  LLP,
independent  accountants,  given on the  authority  of that firm as  experts  in
accounting and auditing.





                                       40
<PAGE>

                                     PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution

         The estimated expenses in connection with the offering are as follows:

         Securities and Exchange Commission registration fee.......    $1,028.00
         Accounting fees and expenses..............................    $2,000.00
         Legal fees and expenses...................................    $3,500.00
         Miscellaneous.............................................    $    0.00

                  TOTAL............................................    $6,528.00


Item 15. Indemnification of Officers and Directors.

         Storage USA's Charter obligates it to indemnify and advance expenses to
present and former  directors  and officers to the maximum  extent  permitted by
Tennessee law. The Tennessee  Business  Corporation Act permits a corporation to
indemnify its present and former directors and officers,  among others,  against
judgments,  settlements,  penalties,  fines or reasonable expenses incurred with
respect  to a  proceeding  to which  they may be made a party by reason of their
service in those or other capacities if (i) such persons conducted themselves in
good  faith,  (ii) they  reasonably  believed,  in the case of  conduct in their
official  capacities  with the  corporation,  that their conduct was in its best
interests  and, in all other cases,  that their conduct was at least not opposed
to its best interests,  and (iii) in the case of any criminal  proceeding,  they
had no reasonable cause to believe that their conduct was unlawful.

         Any  indemnification  by Storage USA pursuant to the  provisions of the
Charter described above shall be paid out of the assets of Storage USA and shall
not be  recoverable  from the  shareholders.  To the extent  that the  foregoing
indemnification  provisions purport to include  indemnification  for liabilities
arising under the  Securities  Act of 1933, in the opinion of the Securities and
Exchange  Commission  such  indemnification  is contrary  to public  policy and,
therefore,  unenforceable.  Storage  USA  has  purchased  director  and  officer
liability  insurance  for the purpose of  providing a source of funds to pay any
indemnification described above.

         The TCBA  permits the charter of a Tennessee  corporation  to include a
provision eliminating or limiting the personal liability of its directors to the
corporation  or its  shareholders  for monetary  damages for breach of fiduciary
duty as a director,  except that such  provision  cannot  eliminate or limit the
liability of a director (i) for any breach of the director's  duty of loyalty to
the  corporation  or its  shareholders,  (ii) for acts or omissions  not in good
faith or which involve intentional misconduct or a knowing violation of the law,
or (iii) for unlawful distributions that exceed what could have been distributed
without violating the TBCA or the corporation's  charter.  Storage USA's Charter
contains a provision  eliminating  the personal  liability  of its  directors or
officers to Storage  USA or its  shareholders  for money  damages to the maximum
extent permitted by Tennessee law from time to time.



                                      II-1
<PAGE>

         The Second  Amended and Restated  Agreement of Limited  Partnership  of
SUSA Partnership provides, generally, for the indemnification of an "indemnitee"
against losses, claims, damages, liabilities,  judgments, fines, settlements and
other amounts (including  reasonable  expenses) that relate to the operations of
SUSA  Partnership  unless it is established  that (i) the act or omission of the
Indemnitee  was  material  and either was  committed in bad faith or pursuant to
active and  deliberate  dishonesty,  (ii) the  Indemnitee  actually  received an
improper personal benefit in money,  property or services,  or (iii) in the case
of any criminal proceeding,  the Indemnitee had reasonable cause to believe that
the act or  omission  was  unlawful.  For this  purpose,  the term  "Indemnitee"
includes  any person made a party to a  proceeding  by reason of his status as a
director or officer of SUSA Partnership,  SUSA Management,  Inc. or Storage USA,
and such other persons (including affiliates of Storage USA or SUSA Partnership)
as Storage  USA, may  designate  from time to time in its  discretion.  Any such
indemnification  will be made only out of assets of SUSA Partnership,  and in no
event may an  Indemnitee  subject the limited  partners of SUSA  Partnership  to
personal  liability  by  reason  of  the   indemnification   provisions  in  The
Partnership Agreement.  Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted pursuant to the foregoing provisions
or  otherwise,  SUSA  Partnership  has been advised  that, in the opinion of the
Securities  and Exchange  Commission,  such  indemnification  is against  public
policy and, therefore,  unenforceable.  SUSA Partnership has purchased liability
insurance   for  the  purpose  of  providing  a  source  of  funds  to  pay  the
indemnification described above.


Item 16. Exhibits.

1.1*     Private Placement Purchase  Agreement,  dated November 12, 1998, by and
         between SUSA  Partnership,  L.P. and Greene Street 1998 Exchange  Fund,
         L.P.,  relating  to the sale of  650,000  8 7/8%  Series  A  Cumulative
         Redeemable Preferred Units of SUSA Partnership, L.P.

3.1*     Articles of  Amendment  to the Amended  Charter of Storage  USA,  Inc.,
         designating  and fixing the rights and preferences of the 8 7/8% Series
         A Cumulative Redeemable Preferred Stock, as filed with the Secretary of
         State of the State of Tennessee on November 12, 1998.

4.1**    Form of  Common Stock Certificate

4.2***   Form of Amended Charter of Storage USA

4.3**    Restated and Amended Bylaws of Storage USA

5        Opinion of Hunton & Williams

8        Tax Opinion of Hunton & Williams (to be filed by amendment)

10.1*    Fourth  Amendment  to the Second  Amended  and  Restated  Agreement  of
         Limited Partnership of SUSA Partnership, L.P., dated November 12, 1998,
         establishing the 8 7/8% Series A Cumulative  Redeemable Preferred Units
         of Partnership  Interest and fixing  distribution and other preferences
         and rights of such units.

10.2*    Registration  Rights  Agreement,  dated as of November 12, 1998, by and
         between Storage USA, Inc. and Greene Street 1998 Exchange Fund, L.P.

23.1     Consent of Hunton & Williams (included in Exhibit 5)

23.2     Consent of PricewaterhouseCoopers LLP

24       Power of Attorney (located on the signature page of
         this Registration Statement)

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

*         Filed as an  Exhibit  to Storage  USA's  current  report on Formm 8-K,
          filed with the  Commission on November 20, 1998, and  incorporated  by
          reference herein.

**        Filed as an Exhibit to Storage  USA's  Registration  Statement on Form
          S-11, File No.  33-74072,  as amended,  and  incorporated by reference
          herein.

***       Filed as an Exhibit to Storage USA's  Amendment No. 1 to  Registration
          Statement  on  Form  S-3,  File  No.  333-4556,  and  incorporated  by
          reference herein.



                                      II-2
<PAGE>

Item 17. Undertakings.

         The undersigned registrant hereby undertakes:

         (1) To file,  during any period in which offers or sales are being made
of  the  securities  registered  hereby,  a  post-effective  amendment  to  this
registration  statement  (i) to  include  any  prospectus  required  by  Section
10(a)(3) of the  Securities  Act of 1933;  (ii) to reflect in the prospectus any
facts or events arising after the effective date of the  registration  statement
(or the most recent post-effective amendment thereof) which,  individually or in
the aggregate,  represent a fundamental  change in the  information set forth in
the  registration  statement  (Notwithstanding  the  foregoing,  any increase or
decrease  in the volume of  securities  offered  (if the total  dollar  value of
securities offered would not exceed that which was registered) and any deviation
from  the  low or  high  and of the  estimated  maximum  offering  range  may be
reflected in the form of prospectus  filed with the Commission  pursuant to Rule
424(b) if, in the aggregate,  the changes in volume and price  represent no more
than 20 percent change in the maximum aggregate  offering price set forth in the
"Calculation   of  Registration   Fee"  table  in  the  effective   registration
statement.);  and (iii) to include any material  information with respect to the
plan of distribution not previously  disclosed in the registration  statement or
any material change to such information in the registration statement; provided,
however,  that the undertakings set forth in subparagraphs (i) and (ii) above do
not  apply  if the  information  required  to be  included  in a  post-effective
amendment by those  paragraphs  is contained in periodic  reports  filed with or
furnished to the Commission by the registrant pursuant to Section 13 or 15(d) of
the Securities  Exchange Act of 1934 that are  incorporated by reference in this
registration statement;

         (2) That,  for the  purpose  of  determining  any  liability  under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such  securities at that time shall be deemed to be the initial bona
fide offering thereof;

         (3) To remove from registration by means of a post-effective  amendment
any of the securities being registered which remain unsold at the termination of
the offering.

         The undersigned registrant hereby further undertakes that, for purposes
of determining  any liability  under the Securities Act of 1933,  each filing of
the  registrant's  annual  report  pursuant  to  Section  13(a)  or 15(d) of the
Securities  Exchange  Act of 1934  (and,  where  applicable,  each  filing of an
employee  benefit  plan's  annual  report  pursuant  to  Section  15(d)  of  the
Securities  Exchange  Act of 1934) that is  incorporated  by  reference  in this
registration  statement  shall  be  deemed  to be a new  registration  statement
relating to the securities offered therein,  and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof; and

         Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors,  officers and controlling  persons of
the registrant pursuant to the foregoing provisions or otherwise, the registrant
has  been  advised  that  the in the  opinion  of the  Securities  and  Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore,  unenforceable. In the event that a claim for indemnification


                                      II-3
<PAGE>

against such  liabilities  (other than the payment by the registrant of expenses
incurred or paid by a director,  officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted against
the  registrant by such director,  officer or  controlling  person in connection
with the securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate  jurisdiction the question whether such  indemnification by
it is against  public policy as expressed in the Act and will be governed by the
final adjudication of such issue.

         The undersigned registrant further hereby undertakes that:

         (1) For purposes of determining  any liability under the Securities Act
of 1933, the  information  omitted from the form of prospectus  filed as part of
this registration statement in reliance upon Rule 430A and contained in the form
of  prospectus  filed by the  registrant  pursuant to Rule  424(b)(1)  or (4) or
497(h) under the Securities Act shall be deemed to be part of this  registration
statement as of the time it was declared effective.

         (2) For the purpose of determining  any liability  under the Securities
Act of 1933,  each  post-effective  amendment that contains a form of prospectus
shall be deemed to be a new  registration  statement  relating to the securities
offered  therein,  and the  offering  of such  securities  at that time shall be
deemed to be the initial bona fide offering thereof.


                                      II-4
<PAGE>
<TABLE>
                                   SIGNATURES

         Pursuant  to the  requirements  of the  Securities  Act  of  1933,  the
registrant  has duly  caused  this  Registration  Statement  to be signed on its
behalf by the undersigned,  thereunto duly  authorized,  in the City of Memphis,
State of Tennessee on this 20th day of November, 1998.

                                By: /s/ Christopher P. Marr 
                                    --------------------------- 
                                    Christopher P. Marr
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)

                                POWER OF ATTORNEY

         Pursuant  to the  requirements  of the  Securities  Act of  1933,  this
Registration  Statement  has  been  signed  by  the  following  persons  in  the
capacities  indicated on November 20, 1998. Each of the undersigned officers and
directors of the registrant  hereby  constitutes  Christopher  P. Marr,  John W.
McConomy  and  Randall  S.  Parks,  any of whom  may act,  his  true and  lawful
attorneys-in-fact  with  full  power  to sign  for  him  and in his  name in the
capacities   indicated  below  and  to  file  any  and  all  amendments  to  the
registration  statement filed herewith,  making such changes in the registration
statement as the  registrant  deems  appropriate,  and  generally to do all such
things in his name and behalf in his  capacity  as an officer  and  director  to
enable the  registrant to comply with the  provisions of the  Securities  Act of
1933 and all requirements of the Securities and Exchange Commission.

<CAPTION>
           Signature                                    Title & Capacity
           ---------                                    ----------------
<S>                                       <C>
      /s/ Dean Jernigan                      Chairman of the Board, Chief Executive
- ---------------------------------                     Officer and Director
         Dean Jernigan                            (Principal Executive Officer)
                                 

     /s/ Christopher P. Marr                         Chief Financial Officer
- ---------------------------------         (Principal Financial and Accounting Officer)
      Christopher P. Marr        


    /s/ C. Ronald Blankenship                               Director
- ---------------------------------
     C. Ronald Blankenship

      /s/ Howard P. Colhoun                                 Director
- ---------------------------------
       Howard P. Colhoun

      /s/ Alan B. Graf, Jr.                                 Director
- ---------------------------------
       Alan B. Graf, Jr.

       /s/ Mark Jorgensen                                   Director
- ---------------------------------
        Mark Jorgensen



                                      II-5
<PAGE>

       /s/ John P. McCann                                   Director
- ---------------------------------
        John P. McCann

     /s/ Caroline S. McBride                                Director
- ---------------------------------
      Caroline S. McBride

     /s/ William D. Sanders                                 Director
- ---------------------------------
      William D. Sanders

      /s/ Harry J. Thie                                     Director
- ---------------------------------
         Harry J. Thie

</TABLE>



                                      II-6
<PAGE>

                                  EXHIBIT INDEX
Exhibit
Number     Exhibit
- ------     -------

1.1*     Private Placement Purchase  Agreement,  dated November 12, 1998, by and
         between SUSA  Partnership,  L.P. and Greene Street 1998 Exchange  Fund,
         L.P.,  relating  to the sale of  650,000  8 7/8%  Series  A  Cumulative
         Redeemable Preferred Units of SUSA Partnership, L.P.

3.1*     Articles of  Amendment  to the Amended  Charter of Storage  USA,  Inc.,
         designating  and fixing the rights and preferences of the 8 7/8% Series
         A Cumulative Redeemable Preferred Stock, as filed with the Secretary of
         State of the State of Tennessee on November 12, 1998.

4.1**    Form of  Common Stock Certificate

4.2***   Form of Amended Charter of Storage USA

4.3**    Restated and Amended Bylaws of Storage USA

5        Opinion of Hunton & Williams

8        Tax Opinion of Hunton & Williams (to be filed by amendment)

10.1*    Fourth  Amendment  to the Second  Amended  and  Restated  Agreement  of
         Limited Partnership of SUSA Partnership, L.P., dated November 12, 1998,
         establishing the 8 7/8% Series A Cumulative  Redeemable Preferred Units
         of Partnership  Interest and fixing  distribution and other preferences
         and rights of such units.

10.2*    Registration  Rights  Agreement,  dated as of November 12, 1998, by and
         between Storage USA, Inc. and Greene Street 1998 Exchange Fund, L.P.

23.1     Consent of Hunton & Williams (included in Exhibit 5)

23.2     Consent of PricewaterhouseCoopers LLP

24       Power of Attorney (located on the signature page of
         this Registration Statement)

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

*         Filed as an  Exhibit  to Storage  USA's  current  report on Formm 8-K,
          filed with the  Commission on November 20, 1998, and  incorporated  by
          reference herein.

**        Filed as an Exhibit to Storage  USA's  Registration  Statement on Form
          S-11, File No.  33-74072,  as amended,  and  incorporated by reference
          herein.

***       Filed as an Exhibit to Storage USA's  Amendment No. 1 to  Registration
          Statement on Form S-3, File No.333-4556, and incorporated by reference
          herein.

                                                                       Exhibit 5

                               HUNTON & WILLIAMS
                              951 East Byrd Street
                             Riverfront Tower, East
                               Richmond, VA 23219





                                November 19, 1998

Board of Directors
Storage USA, Inc.
165 Madison Avenue, Suite 1300
Memphis, Tennessee 38103

                       Registration Statement on Form S-3
                                Storage USA, Inc.

Ladies and Gentlemen:

         We are acting as counsel for  Storage  USA,  Inc.  (the  "Company")  in
connection  with its  registration  under the  Securities Act of 1933 of 125,135
shares of its common stock (the  "Shares")  which are proposed to be offered and
sold as  described  in Storage  USA's  Registration  Statement  on Form S-3 (the
"Registration  Statement")  to be filed today with the  Securities  and Exchange
Commission (the "Commission").

         In rendering this opinion, we have relied upon, among other things, our
examination of such records of Storage USA and  certificates of its officers and
of public officials as we have deemed necessary.

         Based upon the foregoing, we are of the opinion that:

         1. Storage USA is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Tennessee.

         2. The Shares have been duly  authorized and, when the Shares have been
offered and sold as described  in the  Registration  Statement,  will be legally
issued, fully paid and nonassessable.

         We hereby  consent to the filing of this opinion with the Commission as
an exhibit to the  Registration  Statement  and  reference to our firm under the
heading "Legal Matters" in the Registration Statement.


                                       Very truly yours,

                                       /s/ Hunton & Williams

07667

                                                                    Exhibit 23.2






                       CONSENT OF INDEPENDENT ACCOUNTANTS



         We consent  to the  incorporation  by  reference  in this  Registration
Statement of Storage USA, Inc.  (the  "Company") on Form S-3, of: (1) our report
dated  January 30,  1998,  except for Note 16, as to which the date is March 18,
1998, on our audits of the consolidated  financial  statements of the Company as
of  December  31,  1997 and 1996,  and for each of the three years in the period
ended  December  31,  1997,  which  report is  incorporated  by reference in the
Company's 1997 Form 10-K; (2) our report dated January 30, 1998, on our audit of
the financial  statement  schedule of the Company as of December 31, 1997, which
report is  included  in the  Company's  1997 Form  10-K;  (3) our  report  dated
February 17, 1998, on our audits of the  Historical  Summaries of Combined Gross
Revenue and Direct Operating  Expenses for certain  self-storage  facilities for
the year ended December 31, 1996, which report is included in the Company's Form
8-K/A filed  February 17, 1998;  and (4) our report dated March 25, 1998, on our
audits  of the  Historical  Summaries  of  Combined  Gross  Revenue  and  Direct
Operating  Expenses  for  certain  self-storage  facilities  for the year  ended
December 31, 1996,  which report is included in the  Company's  Form 8-K/A filed
March 25, 1998.  We also consent to the  reference to our firm under the caption
"Experts".


                                  /s/ PricewaterhouseCoopers LLP


Baltimore, Maryland
November 19, 1998


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