As filed with the Securities and Exchange Commission on April 13, 1999
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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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 No.)
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)
John W. McConomy
Executive Vice President and General Counsel
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:
CALCULATION OF REGISTRATION FEE
<TABLE>
====================================================================================================================
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, 61,441 $28.625 $1,758,748 $489
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 Stock on the New York Stock
Exchange on April 8, 1999.
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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>
SUBJECT TO COMPLETION, DATED APRIL 13, 1999
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.
Prospectus
61,441 Shares
Storage USA, Inc.
Common Stock
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Our common stock trades on the New York Stock Exchange under the symbol
"SUS."
We are the general partner of SUSA Partnership, L.P. In September 1998,
SUSA Partnership issued 61,441 units of limited partnership interest to Jesse
Morgan. Mr. Morgan has the option of redeeming all or a portion of those
partnership units for cash or shares of our common stock. If Mr. Morgan chooses
to redeem all or a portion of its partnership units, and if we choose to acquire
those units in exchange for common stock, then Mr. Morgan will receive one share
of our common stock for each unit redeemed. This prospectus relates to resales
of those shares by Mr. Morgan.
The shares may be offered and sold by Mr. Morgan or his transferees
from time to time in open-market or privately-negotiated transactions which may
involve underwriters or brokers.
We will not receive any of the proceeds from the sale of the shares
covered by this prospectus, and the registration of the shares does not
necessarily mean that any of them will be offered or sold by Mr. Morgan.
In part 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 our common stock are described in this prospectus under "Restrictions on
Ownership and Transfer."
------------
Neither the Securities and Exchange Commission nor any other state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful and complete. Any representation to the contrary is a
crime.
------------
The date of this Prospectus is April 13, 1999.
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION........................................................4
FORWARD-LOOKING STATEMENTS...................................................4
DESCRIPTION OF COMMON STOCK..................................................5
RESTRICTIONS ON OWNERSHIP AND TRANSFER.......................................5
FEDERAL INCOME TAX CONSIDERATIONS............................................6
USE OF PROCEEDS.............................................................21
THE SELLING STOCKHOLDERS....................................................21
PLAN OF DISTRIBUTION........................................................22
LEGAL OPINIONS..............................................................22
EXPERTS.....................................................................22
<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, 1998;
and
o The description of the 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. The selling stockholders 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.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This prospectus, and the documents incorporated by reference, may
contain "forward-looking" statements. These forwarding 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 "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.
<PAGE>
STORAGE USA, INC.
Storage USA, Inc. 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 88.1% partnership interest as of December 31, 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, Memphis, Tennessee 38103, and our telephone number is (901)
252-2000.
DESCRIPTION OF COMMON STOCK
We are authorized to issue 150,000,000 shares of common stock, $.01 par
value, and 5,000,000 shares of preferred stock, $.01 par value. As of December
31, 1998, there were 27,727,560 shares of common stock outstanding. No shares of
preferred stock were outstanding. The following is only a summary of some of the
rights of stockholders 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 stockholders, 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. Holders of common stock 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."
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 specified in
the Charter, no stockholder may own, or be deemed to own by virtue of the
attribution provisions of 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 December 31, 1998, Security Capital held 11,765,654 shares, or
approximately 42.2% 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, non-U.S. persons would own 50% or more of Storage USA's
capital stock (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 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
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 the federal income tax laws, and (B) such person provides to the
Board such representations and undertakings as the Board may require.
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 is treated as a non-U.S. person for purposes of this
restriction.
FEDERAL INCOME TAX CONSEQUENCES OF STORAGE USA'S STATUS AS A REIT
This section summarizes the federal income tax issues that you, as a
stockholder, 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 stockholders 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 Stockholders" 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.
Stockholders" below).
The statements in this section are based on the current federal income
tax laws governing 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 investing in the 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.
- --------------------------------------------------------------------------------
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
stockholders. 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
stockholders 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
stockholders. 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:
o Storage USA will pay federal income tax on taxable income (including net
capital gain) that it does not distribute to its stockholders 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
stockholders.
o Storage USA will pay income tax at the highest corporate rate on (1) 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 (2) 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.
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 (1) the gross income attributable to the greater of the amounts by
which it fails the 75% and 95% gross income tests, multiplied by (2) a
fraction intended to reflect its profitability.
o If Storage USA fails to distribute during a calendar year at least the
sum of (1) 85% of its REIT ordinary income for such year, (2) 95% of its
REIT capital gain net income for such year, and (3) 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, or a corporation
generally subject to full corporate-level tax, in a merger or other
transaction in which it acquires a basis in the asset that is 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 (1) the amount of gain that it
recognizes at the time of the sale or disposition and (2) 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 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 the REIT
provisions of the federal income tax laws;
4. it is neither a financial institution nor an insurance company subject
to special provisions of the federal income tax laws;
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 federal income tax laws to include
certain entities, during the last half of any taxable year;
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 Internal Revenue 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 federal income tax laws; 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 five 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 requirement five, it will be deemed to have
satisfied requirement five for such taxable year. For purposes of determining
share ownership under requirement five, 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 the federal income tax
laws, 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 requirement five.
Storage USA believes that 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 one direct corporate subsidiary, Storage USA
Trust, a Maryland real estate investment trust (the "Trust"), 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. The Trust is a
qualified REIT subsidiary. Accordingly, it is not subject to federal corporate
income taxation, though it may be subject to state and local taxation.
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 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. Qualifying income for purposes of that
75% gross income test includes:
o rents from real property;
o interest on debt secured by mortgages on real property or on interests
in real property; and
o dividends or other distributions on and gain from the sale of shares in
other REITs.
Second, at least 95% of its gross income 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. Gross income from
Storage USA's sale of property that it holds primarily for sale to customers in
the ordinary course of business is excluded from both income tests. 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
the following conditions are met:
o First, the rent must not be based, in whole or in part, on the income or
profits of any person, but may be based on a fixed percentage or
percentages of receipts or sales.
o 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.
o 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.
o 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 considered to be provided for the tenants'
convenience. In addition, Storage USA may provide a minimal 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.
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. 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, those revenues qualify as
rents from real property for purposes of both gross income tests. 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, 5% of whose voting stock and 100% of whose nonvoting stock 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. We believe that those 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. Storage USA also receives dividends from SUSA
Management, Inc. and Storage USA Franchise Corp., a Tennessee corporation of
which SUSA Partnership owns 100% of the nonvoting stock. We believe that those
dividends are qualifying income for purposes of the 95% test.
Storage USA does not receive any rent that is based on the income or
profits of any person. In addition, other than with respect to its leasing
arrangement with SUSA Management, Inc. 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 our rental income 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:
o 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;
o providing general security for the facilities;
o cleaning and repairing of units at the facilities as tenants move in and
out;
o 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);
o 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;
o maintaining underground utilities and structural elements of the
facilities;
o 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;
o for a fee, acting as an agent for moving truck rental companies for
tenants of certain facilities and walk-in customers;
o for a fee, providing packing and shipping services to tenants of certain
facilities and walk-in customers; and
o 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 both gross income tests. Gains on sales of the facilities or of Storage USA's
interest in SUSA Partnership generally will be qualifying income for purposes of
both gross income tests. Storage USA anticipates that income on its other
investments, including its indirect investments in SUSA Management, Inc. and
Storage USA Franchise Corp., will not result in Storage USA failing either gross
income test for any year.
A REIT will incur a 100% tax on the net income derived from any 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 federal income tax laws
prescribing when an asset sale will not be characterized as a prohibited
transaction. We cannot provide assurance, 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, 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.
If Storage USA fails to satisfy one or both of the 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:
o its failure to meet such tests is due to reasonable cause and not due to
willful neglect;
o we attach a schedule of the sources of its income to its tax return; and
o 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:
o cash or cash items, including certain receivables;
o government securities;
o interests in real property, including leaseholds and options to acquire
real property and leaseholds;
o interests in mortgages on real property;
o stock in other REITs; and
o investments in stock or debt instruments during the one-year period
following Storage USA's receipt of new capital that it raises through
equity offerings or offerings of debt with at least a five-year term.
The second asset test has two components:
o First, of Storage USA's investments not included in the 75% asset class,
the value of its interest in any one issuer's securities may not exceed
5% of the value of its total assets; and
o Second, Storage USA may not own more than 10% of any one issuer's
outstanding voting securities.
For purposes of both components of the second asset test, "securities"
does not include Storage USA's stock in any qualified REIT subsidiary or in
other REITs or its interest in any partnership.
The Clinton Administration's budget proposal for fiscal year 2000 would
allow Storage USA to own up to 100% of the stock in two types of taxable REIT
subsidiaries: (1) qualified business subsidiaries, which could perform
activities unrelated to Storage USA's tenants, such as third-party management,
development, and other independent business activities, as well as provide
"customary" services to Storage USA's tenants, and (2) qualified independent
contractor subsidiaries, which could both perform activities that a qualified
business subsidiary could perform and provide "non-customary" services to
Storage USA's tenants. Storage USA would be subject to restrictions on its stock
ownership of those taxable subsidiaries. The taxable REIT subsidiary provision
would be effective after the date of enactment. There would be a transition
period during which Storage USA could convert its existing taxable subsidiaries
on a tax-free basis into qualified business subsidiaries or qualified
independent contractor subsidiaries. Existing taxable subsidiaries, however,
would not be grandfathered after the transition period.
SUSA Partnership owns 5% of the voting stock and 100% of the nonvoting
stock of SUSA Management, Inc., which together constitute 99% of the beneficial
economic interest therein. In addition, SUSA Partnership owns 100% of the
nonvoting stock of Storage USA Franchise Corp., 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 SUSA Management, Inc. and Storage
USA Franchise Corp. held by SUSA Partnership.
SUSA Partnership does not own more than 10% of the voting securities of
SUSA Management, Inc. or Storage USA Franchise Corp. In addition, based upon its
analysis of the estimated value of the stock of each of SUSA Management, Inc.
and Storage USA Franchise Corp. 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 SUSA Management, Inc. nor its pro rata share of the stock
of Storage USA Franchise Corp. 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 SUSA Management, Inc. or
Storage USA Franchise Corp., including as a result of Storage USA 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.
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 (1) it satisfied the
asset tests at the close of the preceding calendar quarter and (2) 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 (2) 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
stockholders in an aggregate amount at least equal to:
o the sum of (1) 95% of its "REIT taxable income" (computed without regard
to the dividends paid deduction and its net capital gain or loss) and
(2) 95% of its after-tax net income, if any, from foreclosure property;
minus
o 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 stockholders. Furthermore, if
it fails to distribute during a calendar year, or by the end of January
following such calendar year in the case of distributions with declaration and
record dates falling in the last three months of the calendar year, at least the
sum of:
o 85% of its REIT ordinary income for such year;
o 95% of its REIT capital gain income for such year; and
o 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. Stockholders." 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.
It is possible that, from time to time, Storage USA may experience
timing differences between (1) the actual receipt of income and actual payment
of deductible expenses and (2) 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 stockholders 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 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 stockholders 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.
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 and 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
stockholders. In fact, Storage USA would not be required to distribute any
amounts to stockholders in such year. In such event, to the extent of its
current and accumulated earnings and profits, all distributions to stockholders
would be taxable as ordinary income. Subject to certain limitations of the
federal income tax laws, corporate stockholders 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. Stockholders
As long as Storage USA qualifies as a REIT, a taxable "U.S.
stockholder" must take into account distributions made out of Storage USA's
current or accumulated earnings and profits and that Storage USA 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 without 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 (1) a U.S. court is able to exercise
primary supervision over the administration of such trust and (2) one or
more U.S. persons have the authority to control all substantial
decisions of the trust.
A U.S. stockholder generally will recognize distributions that Storage
USA designates as capital gain dividends as long-term capital gain 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.
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.
Stockholders may not include in their individual income tax returns any
net operating losses or capital losses of the Company. Instead, such losses
would be carried over by the Company for potential offset against its future
income generally. Taxable distributions from the Company and gain from the
disposition of the Common Stock will not be treated as passive activity income
and, therefore, stockholders generally will not be able to apply any "passive
activity losses" (such as losses from certain types of limited partnerships in
which the shareholder is a limited partner) against such income. In addition,
taxable distributions from the Company and gain from the disposition of Common
Stock generally will be treated as investment income for purposes of the
investment interest limitations. The Company will notify stockholders after the
close of the Company's taxable year as to the portions of the distributions
attributable to that year that constitute ordinary income, return of capital,
and capital gain.
Taxation of U.S. Stockholders 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 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 that 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," or 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 generally may designate whether such a
distribution is taxable to its non-corporate stockholders 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 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 stockholders and to the 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 stockholder may be
subject to backup withholding at the rate of 31% with respect to distributions
unless such holder (1) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (2) 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 stockholder 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 stockholder's income tax liability. In addition,
Storage USA may be required to withhold a portion of capital gain distributions
to any stockholders 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. stockholders. Those regulations alter
certain procedural aspects of backup withholding compliance and are effective
for distributions made after December 31, 1999. See "--Taxation of Non-U.S.
Stockholders."
Taxation of Tax-Exempt Stockholders
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts and annuities generally are
exempt from federal income taxation. However, they are subject to taxation on
their unrelated business taxable income. While many investments in real estate
generate unrelated business taxable income, the Internal Revenue Service has
issued a published ruling that dividend distributions from a REIT to an exempt
employee pension trust do not constitute unrelated business taxable income,
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 tax-exempt stockholders
generally should not constitute unrelated business taxable income. However, if a
tax-exempt shareholder were to finance its acquisition of the common stock with
debt, a portion of the income that it receives from Storage USA would constitute
unrelated business taxable income 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 special provisions of the federal
income tax laws are subject to different unrelated business taxable income
rules, which generally will require them to characterize distributions that they
receive from Storage USA as unrelated business taxable income. Finally, in
certain circumstances, a qualified employee pension or profit sharing trust that
owns more than 10% of Storage USA's stock is required to treat a percentage of
the dividends that it receives from Storage USA as unrelated business taxable
income. Such 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. That rule
applies to a pension trust holding more than 10% of Storage USA's stock only if:
o the percentage of its dividends that the tax-exempt trust must treat as
unrelated business taxable income is at least 5%;
o Storage USA qualifies as a REIT by reason of the modification of the
rule requiring that no more than 50% of Storage USA's shares be owned by
five or fewer individuals 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 either (1) one pension trust owns more than 25% of the value of Storage
USA's stock or (2) a group of pension trusts individually holding more
than 10% of the value of Storage USA's stock collectively owns more than
50% of the value of Storage USA's stock.
Taxation of Non-U.S. Stockholders
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
stockholders (collectively, "non-U.S. stockholders") are complex. This section
is only a summary of such rules. We urge non-U.S. stockholders 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. stockholders 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 either:
o 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
o 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
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 special provisions
of the federal income tax laws. 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. Under those rules, 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. stockholders, 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 stockholder not entitled to
treaty relief or exemption also may be subject to the 30% branch profits tax on
such a distribution. 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 tax liability for the amount Storage USA withholds.
A non-U.S. stockholder generally will not incur tax under the
provisions applicable to distributions that are attributable to gain from the
sale of U.S. real property interests on gain from the sale of its common stock
as long as at all times non-U.S. persons hold, directly or indirectly, less than
50% in value of Storage USA's stock. We cannot assure you that that test will be
met. 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 the provisions applicable to distributions that are
attributable to gain from the sale of U.S. real property interests 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 those provisions, a non-U.S.
stockholder would be taxed in the same manner as U.S. stockholders 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. Furthermore, a non-U.S. stockholder will incur tax on gain not
subject to the provisions applicable to distributions that are attributable to
gain from the sale of U.S. real property interests if (1) 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. stockholders with respect to such gain, or (2) 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.
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 the Company'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 (1) is treated as a
partnership under Treasury Regulations, effective January 1, 1997, relating to
entity classification (the "check-the-box regulations") and (2) 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:
o the entity had a reasonable basis for its claimed classification;
o 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
o 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.
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 real property rents, gains from the sale
or other disposition of real property, interest, and dividends (the "90% passive
income exception").
Treasury regulations (the "PTP regulations") 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 (1) 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 (2) 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 partnership, grantor trust, or S corporation that owns an interest
in the partnership is treated as a partner in such partnership only if (1)
substantially all of the value of the owner's interest in the entity is
attributable to the entity's direct or indirect interest in the partnership and
(2) a principal purpose of the use of the 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 "Federal
Income Tax Consequences of Storage USA's Status as a REIT -- 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 "Federal Income Tax
Consequences of Storage USA's Status as a REIT -- 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.
Income Taxation of the Partnerships and their Partners
Partners, Not the Partnerships, Subject to Tax. A partnership is not a
taxable entity for federal income tax purposes. Rather, 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 if they do not comply with the
provisions of the federal income tax laws governing partnership allocations. 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 the
federal income tax laws governing partnership allocations.
Tax Allocations With Respect to Contributed Properties. 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. SUSA Partnership's partnership
agreement requires such allocations to be made in a manner consistent with the
federal income tax laws governing partnership allocations.
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 the Partnership, the federal income tax
laws governing partnership allocations 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 "Federal Income Tax Consequences of Storage
USA's Status as a REIT -- Requirements for Qualification -- Distribution
Requirements."
Under SUSA Partnership's 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 the federal income
tax laws governing partnership allocations 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.
Basis in Partnership Interest. Storage USA's adjusted tax basis in its
partnership interest in SUSA Partnership generally is equal to (1) the amount of
cash and the basis of any other property contributed to SUSA Partnership by
Storage USA, (2) increased by (A) its allocable share of SUSA Partnership's
income and (B) its allocable share of indebtedness of SUSA Partnership, and (3)
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 by
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.
Sale of a Partnership's Property
Generally, any gain realized by a Partnership on the sale of property
held by the Partnership for more than one year will be long-term capital gain,
except for any portion of such gain that is treated as depreciation or cost
recovery recapture. Any gain recognized by a Partnership on the disposition of
contributed properties will be allocated first to the partners of the
Partnership 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 "Federal Income Tax Consequences of Storage USA's Status as
a REIT -- 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.
Taxable Subsidiaries
SUSA Partnership owns 100% of the nonvoting stock, and 5% of the voting
stock, of SUSA Management, Inc., representing in the aggregate a 99% economic
interest therein. In addition, SUSA Partnership owns 100% of the nonvoting stock
of Storage USA Franchise Corp. 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 SUSA Management Inc. and
Storage USA Franchise Corp. 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 SUSA Management
Inc. and Storage USA Franchise Corp. may not exceed 5% of the total value of
Storage USA's assets. In addition, Storage USA's proportionate share of the
equity securities of each of SUSA Management Inc. and Storage USA Franchise
Corp. may not constitute more than 10% of the voting securities of such entity.
Storage USA does not own, directly or indirectly, more than 10% of the voting
securities of SUSA Management, Inc. or Storage USA Franchise Corp., and it
believes that its proportionate share of the value of the securities of each of
SUSA Management Inc. and Storage USA Franchise Corp. does not exceed 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.
SUSA Management Inc. and Storage USA Franchise Corp. are organized as
corporations and pay federal, state, and local income taxes on their taxable
income at normal corporate rates. Any such taxes reduce amounts available for
distribution by SUSA Management Inc. and Storage USA Franchise Corp., which in
turn will reduce amounts available for distribution to Storage USA's
stockholders.
The Clinton Administration's budget proposal for fiscal year 2000 would
allow Storage USA to own up to 100% of the stock in two types of taxable REIT
subsidiaries: (1) qualified business subsidiaries, which could perform
activities unrelated to Storage USA's tenants, such as third-party management,
development, and other independent business activities, as well as provide
"customary" services to Storage USA's tenants, and (2) qualified independent
contractor subsidiaries, which could both perform activities that a qualified
business subsidiary could perform and provide "non-customary" services to
Storage USA's tenants. Storage USA would be subject to restrictions on its stock
ownership of those taxable subsidiaries. The taxable REIT subsidiary provision
would be effective after the date of enactment. There would be a transition
period during which Storage USA could convert its existing taxable subsidiaries
on a tax-free basis into qualified business subsidiaries or qualified
independent contractor subsidiaries. Existing taxable subsidiaries, however,
would not be grandfathered after the transition period.
USE OF PROCEEDS
Storage USA will not receive any proceeds from the sale of the common
stock.
THE SELLING SHAREHOLDER
This prospectus relates to the offer and sale of up to 61,441 shares of
common stock by Mr. Morgan or donees, pledgees, transferees or other successors
in interest. Mr. Morgan served as an officer of Storage USA from March, 1993 to
February, 1994 and from February, 1996 until December, 1997. Prior to the filing
of this registration statement, as of March 1, 1999, Mr. Morgan owned 20,000
shares of common stock.
SUSA Partnership issued 61,441 units of partnership interest to Mr.
Morgan in connection with its acquisition of self-storage facilities from Mr.
Morgan in September 1998. Mr. Morgan may choose to redeem any or all of those
units, at Storage USA's option, for cash or shares of our common stock. If Mr.
Morgan chooses to redeem his shares, and if Storage USA chooses to acquire the
units in exchange for shares of its common stock, rather than cash, Mr. Morgan
will receive one share of our common stock for each unit redeemed. We agreed to
register those shares of common stock.
We do not know if, when, or in what amounts Mr. Morgan will sell
shares. Consequently, we cannot estimate how many shares will be held by Mr.
Morgan after completion of the offering.
PLAN OF DISTRIBUTION
Mr. Morgan may sell the common stock in transactions on the NYSE or in
privately negotiated transactions, including transactions with exchange funds,
through the writing of options on the shares or a combination of such methods of
sale, at fixed prices that may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. Alternatively, the shares may be offered to or through
underwriters, brokers or dealers who may act solely as agents, or who may
acquire shares as principals. The distribution of the shares through such
persons may be effected in one or more transactions that may take place on the
NYSE, including block trades or ordinary broker's transactions, or through
privately negotiated transactions or sales to one or more brokers or dealers for
resale of such securities as principals, or otherwise at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Mr. Morgan may pay usual and customary or
specifically negotiated brokerage fees or commissions in connection with such
sales. In connection with such sales, Mr. Morgan and any participating brokers
or dealers may be deemed "underwriters" as such term is defined in the
Securities Act and the commissions paid or discounts allowed to any of such
underwriters, brokers, dealers or agents, in addition to any profits received on
resale of the shares if any such underwriters, brokers, dealers or agents should
purchase any shares as a principal, may be deemed to be underwriting discounts
or commissions under the Securities Act.
Pursuant to their respective agreements, Storage USA has agreed to
indemnify Mr. Morgan against certain liabilities, including certain liabilities
under the Securities Act. Insofar as indemnification of Mr. Morgan for
liabilities arising under the Securities Act may be permitted pursuant to their
respective agreements with Storage USA, Storage USA is aware that, in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and, therefore, may be unenforceable.
Storage USA has agreed to pay the expenses of registering all of the
shares of common stock offered hereby under the Securities Act, including all
registration, filing and exchange listing fees, blue sky expenses, fees of its
own counsel and accountants, and underwriters' fees customarily paid by issuers
(excluding underwriting discounts, commissions and transfer taxes).
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.
EXPERTS
The consolidated balance sheets of Storage USA, Inc. as of December 31,
1998 and 1997, the consolidated statements of operations, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1998, and the financial statement schedule of Storage USA as of December 31,
1998, 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.
<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...... $ 489.00
Accounting fees and expenses............................. 2,000.00
Legal fees and expenses.................................. 2,000.00
--------
TOTAL........................................... $4,489.00
Item 15. Indemnification of Officers and Directors.
The Company'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 the Company pursuant to the provisions of the
Charter described above shall be paid out of the assets of the Company and shall
not be recoverable from the stockholders. 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. The Company 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 stockholders 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 stockholders, (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. The Company's Charter
contains a provision eliminating the personal liability of its directors or
officers to the Company or its stockholders for money damages to the maximum
extent permitted by Tennessee law from time to time.
The Second Amended and Restated Agreement of Limited Partnership of the
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
the 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 the Partnership, SUSA Management, Inc. or the Company,
and such other persons (including affiliates of the Company or the Partnership)
as the Company, may designate from time to time in its discretion. Any such
indemnification will be made only out of assets of the Partnership, and in no
event may an Indemnitee subject the limited partners of the 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, the Partnership has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy and, therefore, unenforceable. The Partnership has purchased liability
insurance for the purpose of providing a source of funds to pay the
indemnification described above.
Item 16. Exhibits.
4.1* Form of Common Stock Certificate
4.2** Amended Charter of Storage USA
4.3*** 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.
4.4* Restated and Amended Bylaws of Storage USA
5 Opinion of Hunton & Williams
8 Tax Opinion of Hunton & Williams
23.1 Consent of Hunton & Williams (included in Exhibits 5 and 8)
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 Amendment No. 1 to
Registration Statement on Form S-3, File No. 333-4556, 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 current report on Form
8-K, filed with the Commission on November 20, 1998, and
incorporated by reference herein.
<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
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.
<PAGE>
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 13th day of April, 1999.
STORAGE USA, INC.
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 April 13, 1999. 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.
<TABLE>
<CAPTION>
Signature Title & Capacity
--------- ----------------
<S> <C>
Chairman of the Board, Chief Executive
------------------------------------ Officer and Director
Dean Jernigan (Principal Executive Officer)
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
/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>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------ -------
4.1* Form of Common Stock Certificate
4.2** Amended Charter of Storage USA
4.3*** 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.
4.4* Restated and Amended Bylaws of Storage USA
5 Opinion of Hunton & Williams
8 Tax Opinion of Hunton & Williams
23.1 Consent of Hunton & Williams (included in Exhibits 5 and 8)
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 Amendment No. 1 to Registration
Statement on Form S-3, File No. 333-4556, 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 current report on Form 8-K, filed
with the Commission on November 20, 1998, and incorporated by reference
herein.
Exhibit 5
April 13, 1999
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 61,411
shares of its common stock (the "Shares") which are proposed to be offered and
sold as described in the Company'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 the Company 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. The Company 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 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
Exhibit 8
April 13, 1999
Storage USA, Inc.
165 Madison Avenue
Suite 1300
Memphis, Tennessee 38103
Storage USA, Inc.
Qualification as
Real Estate Investment Trust
Ladies and Gentlemen:
We have acted as counsel to Storage USA, Inc., a Tennessee
corporation (the "Company"), in connection with the preparation of a Form S-3
registration statement filed with the Securities and Exchange Commission ("SEC")
on April 13, 1999 (the "Registration Statement") with respect to the offer and
sale from time to time in open-market or privately-negotiated transactions which
may involve underwriters or brokers of up to 61,441 shares (the "Secondary
Shares") of the common stock, par value $0.01 per share, of the Company (the
"Common Stock") by a selling shareholder named in the prospectus contained as a
part of the Registration Statement (the "Prospectus"). You have requested our
opinion regarding certain U.S. federal income tax matters.
The Company, through SUSA Partnership, L.P., a Tennessee limited
partnership (the "Operating Partnership"), owns interests in self-storage
facilities directly and through the following subsidiary partnerships (the
"Subsidiary Partnerships"): (i) Storage-USA of Palm Beach County Limited
Partnership, (ii) SUSA/38th Avenue, Capitola, L.P., (iii) Clarendon Storage
Associates Limited Partnership, (iv) Buzzman Partners I, Limited Partnership,
(v) Buzzman Partners II, Limited Partnership, (vi) Tamiami Mini-Storage
Partners, Ltd., (vii) 441 Mini-Storage Partners, Ltd., (viii) Sunset
Mini-Storage Partners, Ltd., (ix) Southeast Mini-Storage Limited Partners, (x)
Dade County Mini-Storage Associates, Ltd., (xi) Preston Self Storage, Ltd.,
(xii) SUSA Hackensack, LP, (xiii) SUSA Harrison, LP, (xiv) SUSA Secaucus, LP,
(xv) SUSA Orange, LP, (xvi) Cole/Morgan, Ltd., (xvii) SUSA Nashville, L.P.,
(xviii) SUSA Mesa, L.P., (xix) Prospect Heights Self Storage, LLC, (xx) Storage
Partners of Paoli, LP, (xxi) SUSA Germantown, LP, (xxii) SUSA Columbia, LP,
(xxiii) SUSA Whitney Mesa , LP, (xxiv) Frankford Road Self Storage, Ltd., (xxv)
Spring Creek Self Storage, Ltd., (xxvi) McNeil Drive Self Storage, Ltd., (xxvii)
SUSA/Poplar Partners, LP, (xxviii) Storage Partners of Okeechobee, Ltd., (xxix)
Parklawn Storage Partners, LP, (xxx) SUSA Investments I, LLC, (xxxi) SUSA
Investments II, LLC, and (xxxii) SUSA Hollywood, LP.
The Operating Partnership also owns 100% of the nonvoting stock,
and 5% of the voting stock, of SUSA Management, Inc., a Tennessee corporation
("Management"), representing 99% of the economic interests in Management. In
addition, the Operating Partnership owns 100% of the nonvoting stock of Storage
USA Franchise Corp., a Tennessee corporation ("Franchise"), representing 97.5%
of the equity interests in Franchise.
In giving the opinions set forth below, we have examined the
following:
1. the Company's Charter, as amended and restated;
2. the Company's Bylaws;
3. the Prospectus;
4. the Second Amended and Restated Agreement of Limited Partnership of the
Operating Partnership, dated as of September 21, 1994, among the Company, as
general partner, and several limited partners, as amended on March 19, 1996,
June 14, 1996, and August 14, 1996 (the "Operating Partnership Agreement");
5. the partnership agreements of the Subsidiary Partnerships listed on Exhibit
A attached hereto; and
6. such other documents as we have deemed necessary or appropriate for purposes
of this opinion.
In connection with the opinions rendered below, we have assumed
generally that:
1. Each of the documents referred to above has been duly authorized, executed,
and delivered; is authentic, if an original, or is accurate, if a copy; and has
not been amended.
2. Each partner (a "Partner") of the Operating Partnership and the Subsidiary
Partnerships (each, a "Partnership"), other than the Company and Storage USA
Trust, that is a corporation or other entity has a valid legal existence.
3. Each Partner has full power, authority, and legal right to enter into and to
perform the terms of the Operating Partnership Agreement and the partnership
agreements of the Subsidiary Partnerships (each, a "Partnership Agreement"), and
the transactions contemplated thereby.
4. Each Partnership operates in accordance with the governing law of the state
in which it was formed and the Partnership Agreement pursuant to which it was
formed.
5. Each Partnership Agreement has remained in substantially the same form as it
was upon the most recent amendment and restatement thereof, and has not been
amended in any material respect (except upon the substitution of partners in
accordance with the terms of such Partnership Agreement).
6. During its taxable year ending December 31, 1999, and subsequent taxable
years, the Company has operated and will continue to operate in such a manner
that makes and will continue to make the representations contained in a
certificate, dated the date hereof and executed by a duly appointed officer of
the Company (the "Officer's Certificate"), true for such years.
7. The Company will not make any amendments to its organizational documents or
the organizational documents of the Operating Partnership, the Subsidiary
Partnerships, Management, or Franchise after the date of this opinion that would
affect its qualification as a real estate investment trust ("REIT") for any
taxable year.
8. No action will be taken by the Company, the Operating Partnership, the
Subsidiary Partnerships, the Partners, Management, or Franchise after the date
hereof that would have the effect of altering the facts upon which the opinions
set forth below are based.
In connection with the opinions rendered below, we also have
relied upon the correctness of the representations contained in the Officer's
Certificate.
Based on the factual matters in the documents and assumptions set
forth above, the representations set forth in the Officer's Certificate, the
discussions in the Prospectus under the caption "Federal Income Tax Consequences
of Storage USA's Status as a REIT" (which are incorporated herein by reference),
and without further investigation as to such factual matters, we are of the
opinion that:
(a) the Company qualified to be taxed as a REIT pursuant to sections
856 through 860 of the Internal Revenue Code of 1986, as amended
(the "Code"), for its taxable years ended December 31, 1994
through December 31, 1998, and the Company's organization and
current and proposed method of operation will enable it to
continue to qualify as a REIT for its taxable year ended December
31, 1999, and in the future; and
(b) the descriptions of the law contained in the Prospectus under the
caption "Federal Income Tax Consequences of Storage USA's Status
as a REIT" are correct in all material respects, and the
discussions thereunder fairly summarize the federal income tax
considerations that are likely to be material to a holder of the
Secondary Shares.
We have performed no due diligence and have made no efforts to
verify the accuracy and genuineness of the documents and assumptions set forth
above, or the representations set forth in the Officer's Certificate. We will
not review on a continuing basis the Company's compliance with the documents or
assumptions set forth above, or the representations set forth in the Officer's
Certificate. Accordingly, no assurance can be given that the actual results of
the Company's operations for its 1999 and subsequent taxable years will satisfy
the requirements for qualification and taxation as a REIT.
The foregoing opinions are based on current provisions of the
Code and the Treasury regulations thereunder (the "Regulations"), published
administrative interpretations thereof, and published court decisions. The
Internal Revenue Service has not issued Regulations or administrative
interpretations with respect to various provisions of the Code relating to REIT
qualification. No assurance can be given that the law will not change in a way
that will prevent the Company from qualifying as a REIT.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement. In giving this consent, we do not admit that we are
in the category of persons whose consent is required by Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations promulgated
thereunder by the SEC.
The foregoing opinions are limited to the U.S. federal income tax
matters addressed herein, and no other opinions are rendered with respect to
other federal tax matters or to any issues arising under the tax laws of any
other country, or any state or locality. We undertake no obligation to update
the opinions expressed herein after the date of this letter. This opinion letter
is solely for the information and use of the addressee and the holders of
Secondary Shares, and it may not be distributed, relied upon for any purpose by
any other person, quoted in whole or in part or otherwise reproduced in any
document, or filed with any governmental agency without our express written
consent.
Very truly yours,
/s/ Hunton & Williams
<PAGE>
EXHIBIT A
Subsidiary Partnership Agreements
1. The Agreement of Limited Partnership of Storage-USA of Palm Beach County
Limited Partnership, dated May 2, 1991, as amended by the Third Amendment to the
Agreement of Limited Partnership, dated June 30, 1996, among Storage USA, Inc.
(the "Company"), SUSA Partnership, L.P. (the "Operating Partnership"), Storage
USA Franchise Corp. ("Franchise"), and other limited partners;
2. the Limited Partnership Agreement of SUSA/38th Avenue, Capitola, L.P., dated
June 1, 1995, among the Operating Partnership, as general partner, and several
limited partners;
3. the Limited Partnership Agreement of Clarendon Storage Associates Limited
Partnership, dated as of November 11, 1994, among Highclar, L.L.C., a Virginia
limited liability company, as general partner, the Operating Partnership as
general partner, Highland Limited Partnership, a Virginia limited partnership,
as limited partner, and the Operating Partnership as limited partner;
4. the Second Amended Limited Partnership Agreement of Buzzman Partners I,
Limited Partnership, dated May 22, 1996, between among CRM Realty II Joint
Venture, a New York joint venture ("CRM"), the Operating Partnership, as general
and limited partner, and SUSA Management, Inc. ("Management"), as limited
partner;
5. the Second Amended Limited Partnership Agreement of Buzzman Partners II,
Limited Partnership, dated May 22, 1996, among CRM, the Operating Partnership,
as general and limited partner, and Management, as limited partner;
6. the Amended and Restated Agreement of Limited Partnership of Tamiami
Mini-Storage Partners, L.P., dated as of September 7, 1995, between the
Operating Partnership, as general partner, and the Company, as limited partner;
7. the Amended and Restated Agreement of Limited Partnership of 441 Mini-Storage
Partners, Ltd., dated as of September 7, 1995, between the Operating
Partnership, as general partner, and the Company, as limited partner;
8. the Amended and Restated Agreement of Limited Partnership of Sunset
Mini-Storage Partners, Ltd., dated as of September 7, 1995, between the
Operating Partnership, as general partner, and the Company, as limited partner;
9. the Amended and Restated Agreement of Limited Partnership of Southeast
Mini-Storage Limited Partners, dated September 7, 1995, between the Operating
Partnership, as general partner, and Management, as limited partner;
10. the Amended and Restated Agreement of Limited Partnership of Dade County
Mini-Storage Associates, Ltd., dated September 7, 1995, between the Operating
Partnership, as general partner, and Management, as limited partner;
11. the Amended and Restated Agreement of Limited Partnership of Preston Self
Storage, Ltd., dated November 8, 1995, between Peachtree Development II, Inc., a
Texas corporation, as general partner, and the Operating Partnership, as limited
partner, as amended on November 9, 1995;
12. the Limited Partnership Agreement of SUSA Hackensack LP, dated November 27,
1996, between SUSA New Jersey, Inc., a wholly-owned subsidiary of Franchise, as
general partner ("New Jersey, Inc."), and the Operating Partnership, as limited
partner;
13. the Limited Partnership Agreement of SUSA Harrison LP, dated November 27,
1996, between New Jersey, Inc., as general partner, and the Operating
Partnership, as limited partner;
14. the Limited Partnership Agreement of SUSA Secaucus LP, dated November 27,
1996, between New Jersey, Inc., as general partner, and the Operating
Partnership, as limited partner;
15. the Limited Partnership Agreement of SUSA Orange LP, dated November 27,
1996, between New Jersey, Inc., as general partner, and the Operating
Partnership, as limited partner;
16. the Agreement of Limited Partnership of Cole/Morgan, Ltd., dated as of
September 13, 1994, as amended by the First Amendment to the Agreement of
Limited Partnership, dated as of December 31, 1996, among Jesse B. Morgan, Cole
Partners, Ltd., and the Operating Partnership;
17. the Limited Partnership Agreement of SUSA Nashville, L.P., dated October 4,
1996, between SUSA Tennessee, Inc., a wholly-owned subsidiary of Franchise, as
general partner, and the Operating Partnership, as limited partner;
18. the Limited Partnership Agreement of SUSA Mesa, L.P., dated October 17,
1996, between SUSA Arizona, Inc., a wholly-owned subsidiary of Franchise, as
general partner, and the Operating Partnership, as limited partner;
19. the Agreement of Limited Partnership of McNeil Drive Self Storage, Ltd.,
dated as of July 11, 1996, among Peachtree Development V, Inc., a Texas
corporation, as general partner, and the Operating Partnership, as limited
partner;
20. the Agreement of Limited Partnership of Storage Partners of Okeechobee,
Ltd., dated as of September 30, 1996, among the Operating Partnership, as
general partner, and Storage Developers, L.P. and VM Storage, L.P., as limited
partners;
21. the Agreement of Limited Partnership of SUSA Germantown, L.P., dated as of
February __, 1998, between SUSA Maryland, Inc., as general partner, and the
Operating Partnership, as limited partner;
22. the Limited Partnership Agreement of SUSA Poplar Partners, L.P., dated as of
July 16, 1996, among the Operating Partnership, as general partner, and Stanley
H. Trezevant, III, as limited partner;
23. the Operating Agreement of Prospect Heights Self Storage, L.L.C., dated as
of April 16, 1996, between Franchise, as general partner, and the Operating
Partnership, as limited partner;
24. the Agreement of Limited Partnership of Frankford Road Self Storage, Ltd.,
dated as of July 1, 1996, among Peachtree Development VI, Inc., a Texas
corporation, as general partner, and several limited partners;
25. the Limited Partnership Agreement of Parklawn Storage Partners, L.P., dated
as of June __, 1996, between Jesse B. Morgan, as general partner, and the
Operating Partnership, as limited partner;
26. the Agreement of Limited Partnership of Spring Creek Self Storage, Ltd.,
dated as of November 28, 1995, among Peachtree Development IV, Inc., a Texas
corporation, as general partner, and the Operating Partnership, as limited
partner;
27. the Agreement of Limited Partnership of Storage Partners of Paoli, L.P.,
dated as of June 22, 1996, among the Operating Partnership, as general partner,
and Storage Developers, L.P. and VM Storage, L.P., as limited partners;
28. the Limited Partnership Agreement of SUSA Whitney Mesa, Limited Partnership,
dated as of June 3, 1998, between SUSA Nevada, Inc., as general partner, and the
Operating Partnership, as limited partner;
29. the Limited Partnership Agreement of SUSA Columbia, LP, dated as of February
__, 1998, between SUSA Maryland, Inc., as general partner, and the Operating
Partnership, as limited partner;
30. the operating agreement of SUSA Investments I, LLC, dated as of November 5,
1997, by the Operating Partnership, as sole member;
31. the operating agreement of SUSA Investments II, LLC, dated as of November 5,
1997, by the Operating Partnership, as sole member; and
32. the Limited Partnership Agreement of SUSA Hollywood, L.P., dated as of
______ __, 1997, between SUSA California, Inc., as general partner, and the
Operating Partnership, as limited partner.
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 February
3, 1999, on our audits of the consolidated financial statements of the Company
as of December 31, 1998 and 1997, and for each of the three years in the period
ended December 31, 1998, which report is incorporated by reference in the
Company's 1998 Form 10-K and (2) our report dated February 3, 1999, on the
financial statement schedule of the Company as of December 31, 1998, which
report is incorporated by reference in the Company's 1998 Form 10-K.
We also consent to the reference to our firm under the caption "Experts" in this
Registration Statement.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
April 13, 1999
