<PAGE>
Filed pursuant to Rule 424(b)(3)
under the Securities Act of 1933
in connection with Registration
Statement No. 333-1576
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED JUNE 6, 1996
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 10, 1996)
3,600,000 SHARES
STORAGE TRUST REALTY
COMMON SHARES
----------------
Storage Trust Realty (the "Company") is a self-administered and self-managed
real estate investment trust (a "REIT") engaged in the self-storage business.
The Company, which began operations through a predecessor in 1974, owns,
manages, acquires and develops self-storage facilities primarily in the
Southern, Mid-Atlantic, Midwestern and Western regions of the United States.
The Company owns or operates a geographically diverse portfolio of 164 self-
storage facilities (the "Facilities") located in 18 states and containing an
aggregate of approximately 8.2 million net rentable square feet.
All of the common shares of beneficial interest of the Company, $.01 par
value per share (the "Common Shares"), offered hereby are being offered by the
Company (the "Offering"). The Common Shares are listed on the New York Stock
Exchange (the "NYSE") under the symbol "SEA." On June 5, 1996, the last
reported sale price of the Common Shares on the NYSE was $21. See "Price Range
of Common Shares and Distribution History."
To ensure that the Company maintains its qualification as a REIT for federal
income tax purposes, it expects to continue to pay regular quarterly
distributions to its shareholders. In addition, the Declaration of Trust of
the Company restricts the ownership of more than 6% of the Common Shares by
any person or affiliated group, with certain exceptions.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
- --------------------------------------------------------------------------------
Total (3).................................. $ $ $
</TABLE>
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- -------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $350,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 540,000 additional Common Shares solely to cover over-
allotments. If all of such Common Shares are purchased, the total Price to
Public, Underwriting Discount, and Proceeds to Company would be $ , $
and $ , respectively. See "Underwriting."
----------------
The Common Shares are offered by the several Underwriters, subject to prior
sale, when, as and if delivered to and accepted by them, subject to approval
of certain legal matters by counsel for the Underwriters. The Underwriters
reserve the right to withdraw, cancel or modify such offer and to reject
orders in whole or in part. It is expected that delivery of the Common Shares
offered hereby will be made in New York, New York, on or about June , 1996.
----------------
MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
EVEREN SECURITIES, INC.
RAYMOND JAMES & ASSOCIATES, INC.
ROBERTSON, STEPHENS & COMPANY
----------------
The date of this Prospectus Supplement is June , 1996.
<PAGE>
[INSERT MAP SHOWING FACILITIES AND BALCOR/COLONIAL FACILITIES]
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus or incorporated herein and therein by reference. Unless
indicated otherwise, the information contained in this Prospectus Supplement
(i) assumes a public offering price of $21.00 per Common Share, (ii) assumes no
exercise of the Underwriters' over-allotment option and (iii) is presented as
of March 31, 1996, except that property information reflects (a) the
acquisition of the Balcor/Colonial Facilities (as defined below) and (b) the
acquisition of five Facilities previously owned in joint ventures which the
Company now wholly owns. All references to the "Company" in this Prospectus
Supplement and the accompanying Prospectus or incorporated herein or therein by
reference shall be deemed to include the Company, its predecessors, and those
entities of which the Company controls or owns a majority of the economic
interests, unless the context indicates otherwise.
THE COMPANY
Storage Trust Realty (the "Company") is a self-administered and self-managed
real estate investment trust (a "REIT") engaged in the self-storage business.
Between 1974 and the Initial Offering (as defined below), the Company's
management (through the Company's predecessor) developed 36 self-storage
facilities and oversaw the acquisition, development and management of more than
6.5 million square feet of self-storage facilities. The Company, which began
operations through a predecessor in 1974, owns or operates 164 self-storage
facilities (collectively, the "Facilities") in 18 states throughout the
Southern, Mid-Atlantic, Midwestern and Western regions of the United States,
containing an aggregate of approximately 8.2 million net rentable square feet.
The Facilities offer a broad range of features and amenities to customers,
including uniformed customer-service-oriented facility managers, door alarms,
lighting systems, video cameras, twenty-four hour computer-controlled access,
climate-controlled storage spaces, attractive buildings and wide drive aisles.
The Company believes that it is one of the largest owners and operators of
self-storage facilities in the United States. The Company wholly owns 153 of
the Facilities and owns joint venture interests in two of the Facilities. Nine
of the Facilities are managed by a subsidiary of the Company for unrelated
third parties. Since the Company's initial public offering (the "Initial
Offering") in November 1994, the Company has acquired a total of 77 of the
Facilities (including 25 Facilities acquired from Balcor/Colonial Storage
Income Fund-86 in May 1996) and completed expansions at three of the
Facilities, representing a total investment of approximately $171 million. See
"--Recent Developments." This represents an increase in the number of
Facilities which it owns and/or operates of 86%, and an increase in net
rentable square footage of 105%, since the Inital Offering. These acquisitions
were strategically chosen to increase the Company's presence in certain markets
where other Facilities are located or to access attractive new markets. The
Company intends to continue to grow through acquisitions, expansions,
conversions and developments. The Company believes that the recently acquired
Facilities as well as self-storage facilities which may be acquired or
developed in the future have been and can be efficiently integrated into its
operations because of the Company's centralized operating procedures and
management information systems.
Management believes that the Company's future growth will be determined in
part by certain characteristics of the self-storage industry, including the (i)
low level of consumer sensitivity to rent increases, (ii) lack of concentrated
ownership, (iii) shortage of skilled operators, (iv) economies of scale and (v)
increasing customer base. Based on information published in Inside Self-Storage
(August 1995), the ten largest operators of self-storage properties control
approximately 2,800 facilities, which the Company believes constitute
approximately 12% of all of the self-storage facilities in the United States.
Of the remaining self-storage facilities in the United States, most are owned
and operated by single-site owners or other small operators. The Company
believes that the fragmented ownership and shortage of skilled operators in the
self-storage industry will continue to lead to significant opportunities for
growth through acquisitions in the near term for those participants in the
self-storage industry who possess sufficient capital resources and effective
operational skills.
The Company intends to increase cash available for distribution per share and
enhance shareholder value by (i) managing the Facilities and expanding them
where economically feasible, (ii) acquiring additional self-storage facilities,
(iii) converting other commercial real estate into self-storage facilities and
(iv) developing new self-storage facilities.
S-3
<PAGE>
In November 1994, the Company completed its Initial Offering of 5,760,000
common shares of beneficial interest, which resulted in net proceeds of
approximately $92.0 million. In June 1995, the Company completed a second
public offering of 2,875,000 common shares of beneficial interest (the "June
1995 Offering"), which resulted in net proceeds of approximately $53.5 million.
RECENT DEVELOPMENTS
Since the Initial Offering, the Company has significantly expanded its
portfolio of facilities and its operating business through the acquisition,
expansion and conversion of self-storage facilities.
BALCOR/COLONIAL ACQUISITION
On May 24, 1996, the Company completed the acquisition of 25 Facilities (the
"Balcor/Colonial Facilities"), containing approximately 1.5 million net
rentable square feet, from Balcor/Colonial Storage Income Fund--86 at a cost of
approximately $67.6 million. The Balcor/Colonial Facilities are strategically
located to increase the Company's presence in certain markets where other
Facilities are located and to access attractive new markets. Nineteen of the
Balcor/Colonial Facilities are located in markets in which another Facility is
located. The Company expects that the Balcor/Colonial Facilities will allow the
Company to achieve greater economies of scale and market penetration without
competing directly with other Facilities. Prior to his employment with the
Company, one of the senior managers of the Company was involved in the
management of the Balcor/Colonial Facilities. The Company believes that the
Balcor/Colonial Facilities can be efficiently integrated into its operations
because of the Company's centralized operating procedures and management
information systems. Based on management's familiarity with, and analysis of,
the operations of the Balcor/Colonial Facilities and experience in operating
self-storage facilities, the Company believes that the Balcor/Colonial
Facilities offer the potential for growth by implementing the Company's
strategy of (i) generally increasing rents on same-size units as occupancy of
all units of that size at a particular Facility nears 90%, (ii) containing
operating expenses and spreading corporate overhead expense over an increasing
number of facilities and (iii) converting certain of the existing space at the
Balcor/Colonial Facilities to climate-controlled space. See "Properties--
General--The Balcor/Colonial Facilities."
OTHER ACQUISITIONS
In 1995, the Company acquired 47 Facilities containing an aggregate of
approximately 2.5 million net rentable square feet for an aggregate purchase
price of approximately $88.5 million, including the issuance of limited
partnership interests ("Units") in Storage Trust Properties, L.P. (the
"Operating Partnership"), in which the Company is the sole general partner and
holds a 92.82% (as of June 6, 1996) ownership interest, valued at approximately
$3.7 million at the time of issuance. Use of Units can provide tax advantages
to certain sellers of properties and may represent a competitive advantage for
the Company when making acquisitions. In the first quarter of 1996, the Company
acquired two Facilities containing an aggregate of approximately 84,000 net
rentable square feet for an aggregate purchase price of approximately $3.0
million. Consistent with the Company's acquisition strategy, these Facilities
were chosen to increase the Company's presence in certain markets where other
Facilities are located.
The Company completed the acquisition of the third-party interests in five of
the Facilities in which it held joint venture interests in June 1996. These
interests were acquired in exchange for 203,390 Units, having a value of
approximately $4.3 million at the time of issuance, as well as assumption of an
aggregate of $3.4 million of outstanding secured indebtedness, which the
Company had previously guaranteed, with respect to such Facilities. All such
indebtedness was repaid with borrowings under the Acquisition Loan, as defined
below. The transaction was given effect as though it had been completed on
April 1, 1996. The Facilities involved are those located in Clearwater,
Florida, in Columbia, South Carolina and in St. Louis, Florissant and Ferguson,
Missouri.
The Company has entered into contracts to acquire two self-storage facilities
for an aggregate purchase price of approximately $2.5 million. These facilities
contain approximately 73,000 net rentable square feet and are
S-4
<PAGE>
located in two existing markets. The Company is in the process of conducting
its due diligence of these facilities. The closing of these acquisitions is
conditioned upon, among other things, approval of the Executive Committee of
the Board of Trustees. In addition, the Company has executed non-binding
letters of intent with respect to seven self-storage facilities. The Company
has not entered into binding agreements with respect to such facilities, and no
assurance can be given that the acquisition of any of these facilities will be
completed.
EXPANSION AND CONVERSION
Since the Initial Offering, the Company has completed expansion of three of
the Facilities. The aggregate amount invested in completed expansions was
approximately $1.0 million. Additionally, the Company is in the process of
expanding one Facility. The total amount expected to be invested in this
expansion is approximately $400,000. Facilities are generally expanded when
levels of occupancy combined with local demand make it economically feasible to
expand existing storage space. Additionally, in several of the Company's
markets, there is increasing demand for climate-controlled space which the
Company currently rents for a premium over non-climate-controlled space.
DEBT FINANCING
The Company has replaced its $50 million secured line of credit with a $100
million unsecured line of credit (the "Credit Line") on more favorable pricing
and other terms. The Credit Line expires in January 1998, with a one-year
extension at the Company's option upon the satisfaction of certain conditions,
and bears interest at a floating rate of LIBOR plus 175 basis points (a
reduction of the spread over LIBOR of 20 basis points). As of March 31, 1996,
as adjusted to reflect the application of the proceeds of the Offering as
described under the caption "Use of Proceeds," the Company would have had $49.3
million of outstanding Company Debt (as defined below), and Company Debt would
have amounted to 15% of Market Capitalization (as defined below). This is
consistent with the Company's conservative capital strategy and current policy
of limiting the amount of debt as reflected on the Company's consolidated and
combined balance sheet plus obligations of the Company relating to indebtedness
of the Facilities in which the Company owns joint venture interests ("Company
Debt") to less than 50% of the market value of the issued and outstanding
Common Shares (including interests exchangeable for Common Shares) plus Company
Debt (collectively, "Market Capitalization"). Additionally, the Company has
obtained a $17 million unsecured acquisition loan (the "Acquisition Loan") on
which $13.6 million is outstanding. The Acquisition Loan was used to acquire
the Balcor/Colonial Facilities ($10.2 million) and to repay indebtedness in
connection with the five former joint venture Facilities ($3.4 million) which
the Company now wholly owns and will be repaid with proceeds of the Offering.
DISTRIBUTIONS
The Board of Trustees increased the quarterly distribution rate from $.3875
to $.41 per Common Share in the fourth quarter of 1995. The quarterly
distribution rate of $.41, if annualized, would equal an annual distribution
rate of $1.64 per Common Share. See "Price Range of Common Shares and
Distribution History."
THE OFFERING
<TABLE>
<S> <C>
Common Shares Offered(1)................ 3,600,000
Common Shares Outstanding After the
Offering(2)............................ 13,010,104
Use of Proceeds......................... The proceeds of the Offering will be used for
repayment of the Acquisition Loan and the
balance of the proceeds will be used for
repayment of indebtedness outstanding pursuant
to the Credit Line (which indebtedness was
primarily incurred in order to acquire certain
of the Facilities, including the Balcor/Colonial
Facilities).
New York Stock Exchange Symbol.......... SEA
</TABLE>
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(1) Assumes the Underwriters' (as defined herein) over-allotment option to
purchase up to 540,000 Common Shares is not exercised. See "Underwriting."
(2) Includes 675,772 Common Shares issuable upon the exchange of Units.
Pursuant to the partnership agreement of the Operating Partnership, each
Unit is exchangeable for one Common Share. Excludes 427,600 Common Shares
issuable upon the exercise of options granted pursuant to the Storage Trust
Realty 1994 Share Option Plan, as amended.
S-5
<PAGE>
THE COMPANY
The Company is a self-administered and self-managed REIT which was organized
to continue and expand the self-storage business conducted since 1974 by its
predecessor, Burnam Holding Companies Co. and certain of its affiliates
(collectively, "BHC" or the "Predecessor Company"). Between 1974 and the
Initial Offering, the Company's management (through BHC) developed 36 self-
storage facilities and oversaw the acquisition, development and management of
more than 6.5 million square feet of self-storage facilities. The Company owns
or operates 164 Facilities in 18 states throughout the Southern, Mid-Atlantic,
Midwestern and Western regions of the United States, containing an aggregate
of approximately 8.2 million net rentable square feet. The Company has
increased the number of Facilities which it owns and/or operates by 86%, and
increased net rentable square footage by 105%, since the Initial Offering. The
Facilities offer a broad range of features and amenities to customers,
including uniformed customer-service-oriented facility managers, door alarms,
lighting systems, video cameras, twenty-four hour computer-controlled access,
climate-controlled storage spaces, attractive buildings and wide drive aisles.
HISTORY OF BHC
BHC developed one of the first self-storage facilities in the Midwestern
United States in 1974. Over the next several years, BHC became among the first
in the industry to develop and manage facilities in diverse locations,
ultimately developing 36 facilities throughout the Southern, Mid-Atlantic and
Midwestern regions of the United States. In order to capitalize on attractive
property valuations and in response to the Tax Reform Act of 1986, BHC
divested all but two of its facilities in 1986. From 1987 through 1994, BHC
grew its portfolio to a level that included 30 of the Facilities owned by the
Company immediately following the Initial Offering.
The Company believes that, over the last 20 years, BHC has historically been
at the leading edge of many innovations in the self-storage industry such as:
. Developing computer software packages exclusively for self-storage
(1978)--Prior to the mid 1980's there were no nationally established
software vendors for the industry. Driven by the need to manage multiple
facilities from a central office location, BHC developed its own
application software system and has subsequently developed three
successive generations of this software. The Company employs three full-
time employees in its management information systems department to
support the on-site managers.
. Establishing an industry lobby (1978)--Many states did not have statutes
regulating the collection of delinquent accounts for the self-storage
industry. BHC helped form industry trade groups which lobbied for and
passed self-storage legislation in Missouri, Florida and Mississippi.
. Developing standardized manuals and training guides (1981)--As BHC grew
and began to operate in many locations and different states, training and
retaining the proper personnel became increasingly important. In
response, BHC created a comprehensive training manual and training
programs for its facility managers.
. Introducing climate-controlled storage (early 1980's)--As BHC began
development on the Gulf Coast, the need for a low humidity storage
environment became apparent. In the following years, BHC found a growing
demand for this premium product. BHC actively converted existing regular
storage space to climate control and added new climate-controlled storage
space additions to mature facilities.
. Installing computer-controlled access gates (1982)--BHC began
incorporating computer-controlled access gates into its operations in
recognition of customer concerns regarding convenience, safety and
security.
. Conducting facility managers conventions (1984)--BHC held what it
believes was the first managers' convention in the self-storage industry.
In a retreat style format, the managers convention is now held every 18
months, and, in the Company's opinion, has proven an excellent tool for
training and team building exercises.
. Establishing direct marketing (1990)--BHC developed the "40 Hit List"
marketing program for its facility managers addressing specific
techniques such as effective telephone sales and community marketing. BHC
believes that its management techniques for self-storage facilities, as
well as its conservative approach to the development of new properties
and ability to acquire existing properties, enabled BHC to continue to
grow its business during difficult times.
S-6
<PAGE>
BUSINESS OBJECTIVES AND GROWTH STRATEGIES
Business Objectives
The Company intends to increase cash available for distribution per share
and enhance shareholder value by (i) managing the Facilities and expanding
them where economically feasible, (ii) acquiring additional self-storage
facilities, (iii) converting other commercial real estate into self-storage
facilities and (iv) developing new self-storage facilities. The Company's
strategies for accomplishing these objectives are:
Internal Growth Strategies
The Company's internal growth strategy is to increase cash flow at the
Facilities (and any additional facilities hereafter acquired) by (i)
aggressively increasing rents on a regular basis, (ii) containing costs and
improving operating leverage, and (iii) selectively expanding the Facilities,
which includes the addition of climate-controlled space.
. Increasing Rents--The Company pursues an objective of being a price
leader in its local markets and will attempt to increase rents at all of
the Facilities throughout the year. The Company has a general policy
that, as occupancy of all same-size units at a particular Facility nears
90%, it will increase rents applicable to these units. The Company plans
to continue this strategy at the Facilities and to implement it at the
Balcor/Colonial Facilities and any other facilities that may be acquired
or developed in the future.
. Containing Costs and Improving Operating Leverage--The Company seeks to
increase cash flow by containing facility operating expenses and
spreading corporate overhead expense over an increasing number of
facilities. The Company believes that new facilities can be added to the
portfolio with very little additional overhead expense because of the
Company's operating procedures, decentralized regional managers and
management information systems. The use of area managers and regional
managers allows the Company to minimize the levels of management between
on-site managers and senior management.
. Expanding the Facilities--Many of the Facilities maintain levels of
occupancy that when combined with local demand may make it economically
feasible to expand existing storage space. The Company has completed, or
is in the process of completing, expansion at four Facilities.
Additionally, in several of the Company's markets, there is increasing
demand for climate-controlled space which the Company currently rents for
a premium over non-climate-controlled space. The Company is exploring
opportunities to add new climate-controlled space or convert existing
space to climate-controlled space at the Facilities and other facilities
that may be acquired in the future.
External Growth Strategies
The Company's external growth strategy focuses on (i) selectively acquiring
additional self-storage facilities, (ii) converting other commercial real
estate properties into self-storage facilities and (iii) developing new
facilities. The Company's management consists of experienced acquisition,
development, asset management and finance personnel who, when evaluating
potential opportunities for acquisition, development and conversion, analyze
employment, population and income trends, proximity to major transportation
arteries, retail centers and commercial services, visibility and other market
data. The Company has increased the number of Facilities which it owns and/or
operates by 86%, and net rentable square footage by 105%, since the Initial
Offering.
. Acquiring Existing Facilities--The Company intends to acquire self-
storage properties that are (i) in the Company's geographic regions of
operations where the Company can achieve greater market penetration and
economies of scale or in attractive new markets and in new geographic
regions where the Company can acquire sufficient properties to achieve
economies of scale, (ii) available at attractive prices or currently
underperforming and (iii) capable of enhanced performance through the
application of the Company's management expertise. The Company focuses on
acquisitions of Facilities of sufficient size to provide attractive
operating efficiencies. The Company believes attractive opportunities
exist to acquire self-storage facilities because of the fragmented
ownership throughout the industry and the shortage of skilled operators.
By actively targeting underperforming facilities or properties where the
Company can
S-7
<PAGE>
apply its proven management techniques, the Company believes that it will
be able to enhance its yields by increasing cash flows at such properties.
In addition, the Company believes it has the ability to attract potential
sellers of self-storage properties by offering Units in exchange for such
properties, thus allowing the sellers to defer taxes which would otherwise
be payable upon a profitable sale of property. Since the Initial Offering,
the Company has acquired 77 Facilities at an aggregate purchase price of
approximately $165.0 million. See "Prospectus Supplement Summary--Recent
Developments--Other Acquisitions."
. Converting Commercial Real Estate into Self-Storage Facilities--The
Company also has the ability to perform complex conversions of other
commercial real estate, especially in metropolitan markets where
development or acquisition may not be economically feasible. The Company
believes that in certain markets the costs relating to conversion or
redevelopment can be substantially less than those of acquisition or
development. Additionally, the Company believes that conversions can
simultaneously provide rapid fill-in of current regions of the Company's
markets at attractive capitalization rates. Previously completed
conversion projects include an automobile dealership in St. Louis,
Missouri, a hotel in New Orleans, Louisiana, and a 68,000 square foot
former shoe warehouse in Atlanta, Georgia.
. Developing New Facilities--The Company intends to develop self-storage
properties in certain of its markets where there are favorable
demographics and where suitable acquisitions may not be available. The
Company's management (through BHC) developed 36 self-storage properties
between 1974 and the Initial Offering. This development capability will
allow the Company the opportunity to grow when acquisition opportunities
are not plentiful or economically attractive. In making its decision to
develop a facility, the Company obtains information such as census data
for the relevant market with respect to population density, income levels
and the relative proportions of rental, commercial and residential space.
In addition, the Company weighs the costs of acquisition, as measured by
recent market sales or bids, versus the costs of development, including
construction, land acquisition and site preparation. The Company also
intends to develop self-storage facilities where it believes there are
strong barriers to entry, such as a limited number of suitable sites with
the requisite zoning. The Company also intends to focus on development of
Facilities of sufficient size to provide attractive operating
efficiencies.
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Shares in the
Offering, after paying underwriting discounts and transactional expenses, are
expected to be approximately $71.2 million (approximately $82.0 million if the
Underwriter's over-allotment option is exercised in full). The Company expects
to use the net proceeds of the Offering to repay the $13.6 million outstanding
under the Acquisition Loan and to use the balance of the net proceeds to repay
approximately $57.6 million of indebtedness incurred pursuant to the Credit
Line, which indebtedness was primarily incurred in order to acquire certain of
the Facilities, including the Balcor/Colonial Facilities. The outstanding
balance under the Credit Line bears interest at a floating rate of LIBOR plus
175 basis points, and the Credit Line matures on January 25, 1998 with a one-
year extension at the Company's option upon the satisfaction of certain
conditions. The outstanding balance under the Acquisition Loan bears interest
at a floating rate of LIBOR plus 175 basis points, and the Acquisition Loan
matures on August 24, 1996. If the Underwriters' over-allotment option to
purchase 540,000 Common Shares is exercised in full, the Company expects to
use the additional net proceeds for further repayment of indebtedness under
the Credit Line.
S-8
<PAGE>
PRICE RANGE OF COMMON SHARES AND DISTRIBUTION HISTORY
The Common Shares have been traded on the NYSE under the symbol "SEA" since
the Company's Initial Offering. The following table sets forth the quarterly
high and low closing sales prices per Common Share reported on the NYSE.
<TABLE>
<CAPTION>
DISTRIBUTIONS
HIGH LOW DECLARED(3)
------- ------- -------------
<S> <C> <C> <C>
1994
Fourth Quarter (1)................................ $17 7/8 $15 1/2 $.194(4)
1995
First Quarter..................................... $20 5/8 $17 3/8 $.3875
Second Quarter.................................... $21 1/2 $19 5/8 $.3875
Third Quarter..................................... $21 7/8 $20 1/8 $.3875
Fourth Quarter.................................... $22 3/4 $ 19 $.41
1996
First Quarter..................................... $23 3/4 $21 3/4 $.41
Second Quarter (2)................................ $22 1/4 $20 1/2 $.41
</TABLE>
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(1) November 8, 1994 through December 31, 1994.
(2) April 1, 1996 through June 5, 1996.
(3) Distributions are shown for the periods during which they were declared.
These distributions actually were or will be paid in the immediately
subsequent period.
(4) On January 17, 1995, the Company paid a distribution of $.194 (the
proration for the period November 16, 1994 through December 31, 1994 based
on a quarterly distribution rate of $.3875) on each Common Share to the
holders of record as of December 28, 1994.
On June 5, 1996, the last reported sale price of the Common Shares on the
NYSE was $21 per share. On June 5, 1996, the Company had 156 shareholders of
record.
The Company intends to continue to pay regular quarterly distributions to
holders of Common Shares and holders of Units. The Board of Trustees increased
the quarterly distribution rate to $.41 per Common Share in the fourth quarter
of 1995. The quarterly distribution rate of $.41, if annualized, would equal
an annual distribution rate of $1.64 per Common Share. The distribution for
the quarter ended March 31, 1996 represented approximately 90% of the
Company's Funds from Operations for that quarter. On May 9, 1996, the Board of
Trustees declared its regular quarterly distribution of $.41 per Common Share
payable to shareholders of record as of June 14, 1996. Although the Company
intends to maintain this current distribution rate, future distributions by
the Company will be at the discretion of the Board of Trustees and will depend
on the actual Funds from Operations of the Company, its financial condition,
capital requirements, the annual distribution requirements under the REIT
provisions of the Code and such other factors as the Board of Trustees deems
relevant.
The Company anticipates that Funds from Operations will exceed earnings and
profits due to non-cash expenses, primarily depreciation and amortization, to
be incurred by the Company and which are added back to net income in
calculating Funds from Operations. Distributions by the Company to the extent
of its current and accumulated earnings and profits for federal income tax
purposes will be taxable to shareholders as ordinary dividend income.
Distributions in excess of earnings and profits generally will be treated as a
non-taxable reduction of the shareholder's basis in the Common Shares to the
extent thereof (having the effect of deferring taxation on such excess amount
until the sale of such shareholder's Common Shares), and thereafter as taxable
gain. In order to maintain its qualification as a REIT, the Company must make
annual distributions to shareholders of at least 95% of its taxable income
(which does not include net capital gains). Under certain circumstances, the
Company may be required to make distributions in excess of cash available for
distribution in order to meet such distribution requirements. The Company
estimates that the annual distribution necessary for the Company to maintain
its status as a REIT is approximately $1.46 per share. For a discussion of the
tax treatment of distributions to holders of Common Shares, see "Federal
Income Tax Considerations--Taxation of Shareholders" in the accompanying
Prospectus.
S-9
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of March 31, 1996, and the capitalization of the Company on an as adjusted
basis assuming, as of such date, in the first instance, the purchase of the
Balcor/Colonial Facilities and, in the second instance, the purchase of the
Balcor/Colonial Facilities together with the completion of the Offering and
the application of the net proceeds of the Offering as described under the
caption "Use of Proceeds." The information set forth in the following table
should be read in conjunction with the financial statements and notes thereto
incorporated by reference into the accompanying Prospectus and the information
under "Selected Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------
AS AS FURTHER
ACTUAL ADJUSTED (1) ADJUSTED (2)
-------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt (3):
Credit Line........................ $ 44,330 $ 97,500 $ 39,881
Acquisition Loan................... -- 10,230 --
Secured Debt....................... 4,323 4,323 4,323
-------- -------- --------
Total Debt....................... 48,653 112,053 44,204
Shareholders' Equity:
Common Shares of Beneficial
Interest, $0.01 par value per
share, 150,000,000 authorized,
8,734,332 Common Shares issued and
outstanding (12,334,332 Common
Shares as further adjusted)
(4)(5)............................ 87 87 123
Additional paid-in capital......... 140,952 140,952 212,159
Distributions in excess of net
income............................ (2,752) (2,752) (2,752)
-------- -------- --------
Total capitalization............. $186,940 $250,340 $253,734
======== ======== ========
</TABLE>
- --------
(1) Adjusted to reflect the purchase of the Balcor/Colonial Facilities.
(2) Adjusted to reflect the purchase of the Balcor/Colonial Facilities, the
completion of the Offering and the application of the net proceeds of the
Offering as described under the caption "Use of Proceeds."
(3) Does not include the $8.5 million of joint venture indebtedness guaranteed
by the Company as of March 31, 1996. In June 1996, in connection with the
acquisition of the third-party interests in five of the Facilities in
which the Company held joint venture interests, $3.4 million of joint
venture indebtedness was repaid with borrowings under the Acquisition
Loan, which is not reflected in the above table. See "Prospectus
Supplement Summary--Recent Developments--Other Acquisitions" and "Use of
Proceeds."
(4) Does not include 675,772 Common Shares reserved for issuance upon exchange
of issued Units (including the 203,390 Units issued in June 1996) or
427,600 Common Shares reserved for issuance on the exercise of Options.
Any number of authorized and unissued Common Shares may be classified by
the Trustees as preferred shares with such preferences, conversions or
other rights as the Trustees may decide.
(5) Assumes the Underwriters' over-allotment option to purchase up to 540,000
Common Shares is not exercised. See "Underwriting."
SELECTED FINANCIAL INFORMATION
The following table sets forth certain financial information on a pro forma
basis for the Company for the three-month period ended March 31, 1996 and the
year ended December 31, 1995 and on a historical combined basis for the
Company for the three-month periods ended March 31, 1996 and 1995 and for the
years ended December 31, 1995 and 1994, and on a historical combined basis for
certain of the Facilities and the self-storage management, leasing and
development businesses of BHC (the "BHC Properties Group") for the years ended
December 31, 1991 through 1993, which consists of results of operations of the
Facilities owned and/or managed
by the BHC Properties Group and the management, leasing, development and self-
storage businesses related thereto. The following data should be read in
conjunction with the discussion under the caption "Management's
S-10
<PAGE>
Discussion and Analysis of Financial Condition and Results of Operations"
included in this Prospectus Supplement and all of the financial statements and
notes thereto incorporated by reference in the accompanying Prospectus. The
historical selected financial data for BHC Properties Group does not include
the financial information for all of the Facilities. The results of operations
for the interim periods are not necessarily indicative of results of the
Company for a full year. The pro forma information assumes the completion of
the Offering, the application of the net proceeds of the Offering as described
under the caption "Use of Proceeds" and the purchase of the Balcor/Colonial
Facilities and the two Facilities which were acquired in the first quarter of
1996, in each case as of the date of the balance sheet for the balance sheet
data, and as of the first day of the period presented for operating data. Pro
forma information does not include the acquisition, in June 1996, of the
third-party interests in five of the Facilities in which the Company held
joint venture interests nor does it include the repayment of $3.4 million of
indebtedness outstanding on such Facilities which was repaid with borrowings
under the Acquisition Loan as described in "Use of Proceeds." Additionally,
pro forma information does not include full period operating results for
Facilities acquired during the relevant period. The pro forma financial
information is not necessarily indicative of what the actual financial
position and results of operations of the Company would have been as of the
date and for the periods indicated, nor does it purport to represent the
financial position and results of operations for future periods. Per share
data is reflected only for pro forma information and the historical results of
the Company as of March 31, 1996 and 1995 and December 31, 1995 and 1994, as
it is not relevant for the historical combined financial information of the
BHC Properties Group as such information is a combined presentation of
partnerships and corporations.
STORAGE TRUST REALTY AND
BHC PROPERTIES GROUP (HISTORICAL COMBINED)(1)
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AND PROPERTY INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------------------- --------------------------------------------------------------
PRO PRO BHC PROPERTIES
FORMA ACTUAL FORMA ACTUAL GROUP HISTORICAL
---------- ---------------------- ----------- ---------------------- -------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ----------- ---------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues
Rental income.......... $ 9,843 $ 7,762 $ 4,428 $ 38,995 $ 22,916 $ 7,245 $ 4,909 $ 4,191 $ 3,437
Management income(2)... 61 61 36 324 324 320 375 161 43
Other income(2)........ 311 170 64 1,163 599 468 159 176 143
---------- ---------- ---------- ----------- ---------- ---------- ------- ------- -------
Total Revenues........ 10,215 7,993 4,528 40,482 23,839 8,033 5,443 4,528 3,623
========== ========== ========== =========== ========== ========== ======= ======= =======
Property Operating Ex-
penses................ 3,086 2,485 1,273 11,060 6,690 2,310 1,560 1,496 1,456
Interest Expense....... 630 751 215 2,784 1,334 1,823 1,918 1,966 2,190
General and
Administrative
Expense............... 512 482 278 2,174 1,681 617 404 307 248
Depreciation and
Amortization.......... 1,581 1,231 635 6,463 4,106 1,019 839 810 772
Income (loss) before
minority interest..... 4,406 3,044 2,127 18,001 10,028 2,264 722 (51) (1,043)
Net income(3).......... $ 4,243 $ 2,881 $ 2,023 $ 17,356 $ 9,557 $ 1,030 $ 722 $ (51) $(1,043)
Net income per share... $0.34 $0.33 $0.35 $1.41 $1.30 $0.18 -- -- --
Common shares outstand-
ing................... 12,334,332 8,734,332 5,859,332 12,334,332 8,734,332 5,859,332 -- -- --
BALANCE SHEET DATA:
Storage facilities,
before depreciation... $266,516 $198,941 $115,473 $264,799 $194,217 $101,077 $26,763 $25,006 $23,921
Total assets........... 270,183 202,558 116,690 268,637 194,655 104,965 22,511 21,510 20,964
Total liabilities...... 52,847 56,465 25,097 50,518 47,779 13,229 24,899 24,211 23,309
Shareholder's equi-
ty(4)................. 209,531 138,287 87,176 209,713 139,039 87,423 (2,388) (2,701) (2,345)
OTHER DATA:
Cash flows provided by
(used in) operating
activities............ -- 3,440 1,543 -- 14,304 5,167 1,296 536 (256)
Cash flows used in
investing activities.. -- (8,085) (14,395) -- (89,442) (77,345) (1,758) (1,044) (1,281)
Cash flows provided by
financing activities.. -- 5,521 10,532 -- 73,774 75,613 496 674 1,599
Funds from Opera-
tions(5).............. $ 5,924 $ 4,213 $ 2,709 $ 23,566 $ 13,237 $ 3,275 $ 1,561 $ 759 $ (271)
EBITDA(6).............. 6,617 5,026 2,977 27,248 15,468 5,106 3,479 2,725 1,919
Number of facili-
ties(7)............... 155 130 90 155 128 81 25 21 19
Net rentable square
feet(7)............... 7,841 6,269 4,098 7,841 6,185 3,658 1,169 1,032 950
Weighted average
occupancy (net
rentable square foot
basis)(7)(8).......... 83% 82% 81% 83% 81% 86% 89% 87% 82%
Rent per square
foot(7)(9)............ $1.65 $1.67 $1.59 $6.59 $6.61 $6.20 $5.51 $5.01 $4.83
</TABLE>
S-11
<PAGE>
- --------
(1) Except for the pro forma financial statements, the financial information
included in this summary includes the assets and liabilities as of, and the
revenues and expenses subsequent to, the date that BHC initially developed,
acquired or managed each property.
(2) The historical financial information includes revenues from property
management provided by BHC's management company to properties owned by
unrelated third parties and to the joint venture properties. For 1995 and
1996, other income includes revenues of the Subsidiary Company.
(3) Represents the Company's net income (loss) after minority interest of the
holders of Units in the Operating Partnership.
(4) Amounts for the BHC Properties Group represent its accumulated deficit.
(5) Funds from Operations is defined as income (loss) before minority interest
of the holders of Units (computed in accordance with generally accepted
accounting principles ("GAAP")), excluding gains or losses from debt
restructuring and sales of property, provision for losses, and real estate
related depreciation and amortization (excluding amortization of financing
costs). The Company believes that Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT because, along
with cash flows from operating activities, financing activities and
investing activities, it provides investors with an understanding of the
ability of the Company to incur and service debt and to make capital
expenditures. Funds from Operations is not to be considered as an
alternative to net income or any other GAAP measurement as a measure of
operating performance and is not necessarily indicative of cash available
to fund all cash needs. In March 1995, NAREIT issued a clarification of its
definition of Funds from Operations. The clarification provided that
amortization of deferred financing costs was no longer added back to net
income in arriving at Funds from Operations. The Company has adopted the
clarification, and amounts in this table for all years reflect the effect
of such clarification. Adjustments for all periods consist only of
depreciation (including pro-rata joint venture depreciation). The adoption
of this clarification had no effect with respect to BHC Properties Group in
the years ended December 31, 1993, 1992 and 1991. The effect of adoption of
this clarification on Funds from Operations for the years ended December
31, 1995 and 1994 was $938 and $8, respectively. The effect of adoption of
this clarification on Funds from Operations for the quarters ended March
31, 1996 and 1995 was $72 and $63, respectively. The effect of adoption of
this clarification on pro forma Funds from Operations for the year ended
December 31, 1995 and the quarter ended March 31, 1996 was $938 and $72,
respectively.
(6) EBITDA means operating income before minority interest, mortgage and other
interest, income taxes, depreciation and amortization. EBITDA does not
represent cash generated from operating activities in accordance with GAAP,
is not to be considered as an alternative to net income or any other GAAP
measurement as a measure of operating performance, and is not necessarily
indicative of cash available to fund all cash needs. The Company has
included EBITDA herein because, along with cash flows from operating
activities, financing activities and investing activities, it provides
operating information relevant to the Company's ability to incur and
service debt and to make capital expenditures.
(7) Actual rents as of period end. Includes 100% of the Facilities in which the
Company has a joint venture interest.
(8) Determined by dividing net rentable square feet occupied at the end of such
period by total net rentable square feet, excluding Facilities acquired or
opened near the end of the period.
(9) Annual rent per square foot includes a de minimis amount of rental income
from the rental of outside storage pads.
S-12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussions should be read in conjunction with the information
under "Selected Financial Information" and the financial statements and notes
thereto incorporated by reference in the accompanying Prospectus.
The following discussion is based on combined financial statements of the
Predecessor Company through November 15, 1994, the Initial Offering as of
November 16, 1994, and, from November 16, 1994 to March 31, 1996, the
consolidated and combined financial statements of Storage Trust Realty.
RESULTS OF OPERATIONS
Three months ended March 31, 1996 compared to three months ended March 31,
1995
Rental income increased $3,334,000 in the first three months of 1996
compared to the first three months of 1995 as a result of the addition of 38
Facilities between April 1, 1995 and December 31, 1995 and two Facilities in
the first three months of 1996 ($2,729,154) and an increase in rental rates
and occupancy associated with the Facilities owned during both periods
($604,846). Average annualized rent per square foot increased 5.35% to $6.69
in 1996 from $6.35 in 1995 while average occupancy increased to 82% as of
March 31, 1996 from 81% as of March 31, 1995.
Property operating expenses increased $838,000 (90%) reflecting the
operating expenses relating to the Facilities acquired in 1995 and 1996.
Real estate taxes increased $374,000 (109%) primarily due to the taxes on
these Facilities acquired.
General and administrative expenses increased $204,000 (73%) due to the
acquisition of new Facilities.
Interest expense increased $536,000 (249%) due to the increase in mortgages
and borrowings under the Credit Line.
Depreciation and amortization increased $596,000 (94%) due to the increased
investment in storage facilities.
Net income increased $858,000 (42%) as a result of the factors noted above.
1995 compared to 1994
Rental income increased $15,671,000 (216%) in 1995 compared to 1994,
primarily due to the acquisition of 51 Facilities between November 16, 1994
and December 31, 1994, and 47 Facilities in 1995. Average annualized rent per
square foot increased 7% to $6.61 in 1995 from $6.20 in 1994, while the
average occupancy decreased to 81% as of December 31, 1995 from 86% as of
December 31, 1994.
Property operating expenses increased $3,041,000 (172%) reflecting the
operating expenses relating to the Facilities acquired in 1995, and a full
year of operations for 1994 acquisitions.
Real estate taxes increased $1,339,000 (249%) primarily due to the taxes on
these Facilities acquired.
General and administrative expenses increased $1,064,000 (172%) primarily
due to the acquisition of new Facilities and the additional costs of operating
a public company.
Interest expense decreased $489,000 (27%) during 1995 compared to 1994
primarily due to the decrease in mortgages and notes payable.
S-13
<PAGE>
Depreciation and amortization increased $3,087,000 (303%) due to the
increased investment in storage facilities ($2,149,000) and the amortization
of deferred loan fees ($938,000). Included in this amortization is the write-
off of $518,000 of deferred loan fees due to the replacement of the line of
credit.
Net income increased $8,527,000 (828%) as a result of the operations noted
above.
1994 compared to 1993
Rental income increased $2,336,000 (48%) in 1994 compared to 1993 as a
result of the purchase of a St. Louis, Missouri Facility in December 1993
($503,000), the acquisition of 51 Facilities between November 16, 1994 and
December 31, 1994 ($1,260,000), and an increase in average rent per square
foot offsetting occupancy decreases associated with the other facilities
($573,000). Average rent per square foot increased 13% to $6.20 in 1994 from
$5.48 in 1993, while average occupancy decreased to 86% as of December 31,
1994 from 91% as of December 31, 1993.
Property operating expenses increased $617,000 (53%) reflecting the full
year operating expenses of the St. Louis facility and the operating expenses
relating to the 51 additional Facilities.
Real estate taxes increased $133,000 (33%) primarily due to the taxes on
these Facilities acquired.
General and administrative expenses increased $213,000 (53%) due to the
acquisition of new Facilities and the additional costs of operating a public
company.
Interest expense decreased $95,000 (5%) due to the decrease in mortgages and
notes payable.
Depreciation and amortization increased $180,000 (21%) due to the increase
in investment in storage facilities.
Net income increased $308,000 (43%) as a result of the factors noted above.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that Funds from Operations is helpful to investors as a
measure of the performance of an equity REIT because, along with cash flows
from operating activities, financing activities and investing activities, it
provides investors with an understanding of the ability of the Company to
incur and service debt and to make capital expenditures. Funds from Operations
is defined by NAREIT as income (loss) before minority interest of the holders
of Units (computed in accordance with GAAP), excluding gains or losses from
debt restructuring and sales of property, provision for losses, and real
estate related depreciation and amortization (excluding amortization of
financing costs). Funds from Operations is not to be considered as an
alternative to net income or any other GAAP measurement as a measure of
operating performance and is not necessarily indicative of cash available to
fund all cash needs. Funds from Operations for the year ended December 31,
1995 was approximately $13.2 million as compared to $10.7 million for 1994 on
a pro forma basis, as if the Initial Offering had occurred January 1, 1994.
Funds from Operations for the three months ended March 31, 1996 was
approximately $4.2 million as compared to $2.7 million for the first three
months of 1995, due primarily to the acquisition of Facilities.
The Company had outstanding borrowings equal to approximately $115.2 million
on June 6, 1996. This indebtedness consists of (i) $1.6 million of mortgage
indebtedness relating to the Facility located at Hilton Head, South Carolina
which bears interest at the fixed rate of 7.5% and matures on April 3, 1999,
(ii) 100.0 million under the Credit Line and (iii) $13.6 million under the
Acquisition Loan. Assuming that the Offering had been completed (and the net
proceeds thereof used as set forth under the caption "Use of Proceeds") and
the Balcor/Colonial Facilities had been acquired as of March 31, 1996, the
Company would have had approximately $40 million outstanding under the Credit
Line on March 31, 1996. The Credit Line may be used to fund the acquisition,
development or conversion of additional facilities. The credit line expires in
January 1998, with a one-year extension at the Company's option upon
satisfaction of certain conditions, and bears interest at a floating rate of
LIBOR plus 175 basis points. The Acquisition Loan matures on August 24, 1996,
and bears
S-14
<PAGE>
interest at a floating rate of LIBOR plus 175 basis points. In connection with
borrowing under the Acquisition Loan, the Company obtained a 60-day waiver of
the debt-to-assets covenant with respect to the Credit Line, which waiver will
expire on July 22, 1996.
The Company is also obligated with respect to $5.1 million on indebtedness,
which is guaranteed by the Company incurred in connection with the two
facilities in which the Company has a joint venture interest. The joint venture
indebtedness, which is secured by first mortgage liens on the two joint venture
facilities, is a joint and several liability of each of the joint venture
participants, bearing interest at variable and fixed rates (prime rate plus
1.0%, prime rate plus 1.5% and 15% per annum) and maturing at various dates
from January 1997 to August 2003, of which approximately $2.6 million is due on
demand or matures before December 31, 1996.
Expansion of existing facilities, acquisition and development of additional
self-storage facilities and the repayment of principal on mortgage
indebtedness, including Company debt or any amounts that may be outstanding
under the Credit Line, represent the Company's principal liquidity
requirements.
The Company expects to meet its short-term liquidity requirements by net cash
provided by operating activities, any portion of net cash flow not distributed
currently and borrowings under the Credit Line. The Company believes that its
future net cash flow will be adequate to meet operating requirements and
provide for payment of distributions by the Company in accordance with tax
requirements relating to a REIT in the short-term and in the long-term. In
order to maintain its status as a REIT, the Company will be required to make
distributions to its shareholders of at least 95% of its taxable income, which
is expected to consist primarily of its share of the income of the Operating
Partnership. Differences in timing between the recognition of taxable income
and receipt of cash which would be available for distribution could require the
Company to borrow to meet the 95% distribution requirement, although the
Company does not currently anticipate the need to borrow as a result of any
such differences in timing.
CAPITAL EXPENDITURES
The Company expects to spend approximately $1.0 million during the remainder
of 1996 on primarily nonrecurring repairs and refurbishment of the Facilities
(including the Balcor/Colonial Facilities) and approximately $300,000 on
expansion of existing Facilities. The Company believes that it can fund any
necessary capital expenditures through its operations or from the Credit Line
or the Acquisition Loan.
INFLATION
Substantially all of the leases at the Facilities have one-month terms which
thereby provide the Company with the opportunity to achieve increases in rental
income as each lease matures. Such types of leases generally minimize the risk
of inflation to the Company.
SEASONALITY
The Company's and its predecessor's revenues have historically not been
seasonal. The Company does not expect seasonality to materially affect
distributions to shareholders. The Company believes that its geographic
diversity, tenant mix, and rental and expense structures provide adequate
protection against significant fluctuations in cash flow and net income due to
seasonality.
S-15
<PAGE>
PROPERTIES
GENERAL
The Company owns or operates 164 Facilities in specific markets in 18 states
in the Southern, Mid-Atlantic, Midwestern and Western regions of the United
States containing an aggregate of approximately 8.2 million net rentable
square feet. The Company believes that it is one of the largest operators of
self-storage facilities in the United States. The Company conducts
substantially all of its business through the Operating Partnership. Since the
Initial Offering, the Company has grown principally by acquiring additional
self-storage facilities, as well as by improving the operating performance of
the Facilities. The Company's aggressive pricing policy generally involves
periodic rent increases several times throughout the year as occupancy of a
particular unit size at a Facility exceeds 90%. The Company has also increased
the size of its portfolio through selectively expanding certain of the
Facilities. Expansion of three of the Facilities has been completed, and one
Facility is in the process of being expanded. Additionally, the Company has
converted ordinary storage space to climate-controlled space at seven of the
Facilities.
Of the 164 Facilities which the Company owns or operates, the Company wholly
owns 153 of the Facilities (including the Balcor/Colonial Facilities), owns an
interest in two joint venture Facilities and manages nine of the Facilities.
Information with respect to the nine Facilities managed by Storage Realty
Management Co. (the "Subsidiary Company") is set forth under the caption "--
Third-Party Management." The Company historically has pursued a strategy of
growth through acquisitions. Of the Facilities which the Company owns or in
which the Company owns a joint venture interest, the Company owned and/or
operated 30 Facilities prior to completion of the Initial Offering, acquired
48 Facilities concurrently with the Initial Offering and has acquired 77
Facilities (including the Balcor/Colonial Facilities) since the Initial
Offering. The Company intends to continue to grow through acquisitions and
believes that acquired facilities can be effectively integrated into its
operations because of management's experience in operating and acquiring self-
storage facilities and the Company's centralized operating procedures and
management information systems.
The Facilities
As of June 6, 1996, the Facilities owned by the Company, or in which the
Company owns joint venture interests, consisted of 155 self-storage facilities
located in 18 states containing 66,649 units. For these Facilities, the
average number of units per property was approximately 430. As of March 31,
1996 the average occupancy in the Facilities (including the Balcor/Colonial
Facilities, which at that time were not yet owned by the Company) on a square
footage basis was approximately 83%. As of March 31, 1996, the Facilities
managed by the Subsidiary Company consisted of nine self-storage facilities
located in six states containing approximately 362,000 rentable square feet.
The following table sets forth the locations of and other information relating
to the Company's portfolio of owned and joint venture Facilities. The
Facilities were placed in operation during the period from 1974 to 1996, and
the average age of the Facilities is approximately 10 years. The table does
not include those Facilities managed by the Subsidiary Company.
<TABLE>
<CAPTION>
RENTABLE YEAR
SQUARE ACQUIRED BY PERCENTAGE
UNITS FOOTAGE STORAGE TRUST OCCUPANCY(1)
----- -------- ------------- ------------
<S> <C> <C> <C> <C>
FACILITY OWNED BY OPERATING PARTNERSHIP
- ---------------------------------------
ALABAMA
Hillcrest Rd., Mobile, AL.............. 307 34,350 1994 88
Grelot Rd., Mobile AL.................. 423 49,240 1996 97
Azalea, Mobile, AL..................... 279 31,640 1995 58
Moffat Rd., Mobile, AL................. 450 42,838 1995 91
COLORADO
N. Powers, Colorado Springs, CO........ 434 93,784 1995 89
Parkmoor, Colorado Springs, CO......... 499 60,225 1995 81
Van Teylingen, Colorado Springs, CO.... 366 76,850 1995 92
College Ave., Ft. Collins, CO.......... 595 57,190 1995 83
Wedgewood Ave., Longmont, CO........... 447 51,020 1995 88
</TABLE>
S-16
<PAGE>
<TABLE>
<CAPTION>
RENTABLE YEAR
SQUARE ACQUIRED BY PERCENTAGE
UNITS FOOTAGE STORAGE TRUST OCCUPANCY(1)
----- -------- ------------- ------------
<S> <C> <C> <C> <C>
FLORIDA
US1, Big Coppitt, FL................ 244 15,225 1995 90
Semoran Blvd., Casselberry, FL*..... 641 67,159 1996 88
N. Highland, Clearwater, FL (3)..... 436 55,320 1994 89
Cleveland Ave., Fort Myers, FL*..... 583 65,086 1996 96
Ft. Caroline Rd., Jacksonville,
FL*................................ 768 67,925 1996 90
Phillips Hwy., Jacksonville, FL..... 405 59,018 1994 90
Roosevelt, Jacksonville, FL......... 445 54,680 1995 92
Third St., Stock Is., Key West, FL.. 340 30,740 1994 91
International Mall, Miami, FL....... 814 61,775 1995 80
Park Ave., Orange Park, FL.......... 395 52,950 1994 91
Orange Blossom, Orlando, FL......... 834 83,775 1995 66
McLeod, Orlando, FL................. 236 27,855 1995 94
South Semoran Blvd., Orlando, FL*... 345 30,050 1996 90
Brent Lane, Pensacola, FL........... 325 34,382 1994 85
Creighton Blvd., Pensacola, FL...... 399 37,655 1994 93
Alt Hwy. 19 S, Tarpon Springs, FL... 298 49,494 1994 93
Hwy. 19, North, Tarpon Springs,
FL*................................ 748 80,732 1996 96
GEORGIA
2064 Briarcliff, Atlanta, GA*....... 174 45,700 1996 89
Briarcliff, Atlanta, GA............. 435 49,480 1994 84
Spring St., Atlanta, GA............. 413 54,500 1995 -- (2)
Old Petersburg Rd., Augusta, GA..... 352 41,115 1994 86
Peach Orchard Rd., Augusta, GA...... 560 69,307 1994 68
Atlanta Hwy., Bogart, GA............ 398 43,530 1995 83
Decatur Rd., Decatur, GA............ 473 53,110 1994 91
McElroy, Doraville, GA.............. 632 75,910 1995 72
Westmoreland, Douglasville, GA...... 469 45,670 1995 85
Dura Lee, Douglasville, GA.......... 379 41,900 1995 86
Hwy. 5, Douglasville, GA............ 380 49,350 1995 92
Jonesboro, Forest Park, GA.......... 387 44,350 1995 97
Tara Blvd., Jonesboro, GA........... 360 63,185 1994 93
Cobb Parkway, Marietta, GA*......... 431 47,980 1996 97
Whitlock Place, Marietta, GA........ 581 66,530 1995 95
N. Columbia, Milledgeville, GA...... 407 45,375 1995 93
Alpharetta Hwy., Roswell, GA*....... 680 113,310 1996 95
ILLINOIS
East Ave., Carol Stream, IL......... 368 50,625 1994 80
N. Broadway, Chicago, IL............ 453 19,552 1994 77
W. Jarvis, Chicago, IL.............. 314 12,817 1994 63
W. Lake St., Hanover Park, IL....... 489 66,925 1994 89
West Roosevelt Rd., Winfield, IL*... 550 48,145 1996 91
KANSAS
Haskell, Lawrence, KS............... 428 63,780 1995 48
KENTUCKY
Twilight Trail, Frankfort, KY....... 282 37,700 1994 97
East Third St., Lexington, KY*...... 450 55,700 1996 82
Breckenridge Lane, Louisville, KY*.. 329 34,490 1996 93
4301 Poplar Level Rd., Louisville
KY*................................ 447 44,340 1996 96
4324 Poplar Level Rd., Louisville
KY*................................ 351 37,552 1996 95
</TABLE>
S-17
<PAGE>
<TABLE>
<CAPTION>
RENTABLE YEAR
SQUARE ACQUIRED BY PERCENTAGE
UNITS FOOTAGE STORAGE TRUST OCCUPANCY(1)
----- -------- ------------- ------------
<S> <C> <C> <C> <C>
LOUISIANA
Church St., Lake Charles, LA........ 349 65,620 1995 94
MISSISSIPPI
Hwy. 90, Gautier, MS................ 389 36,125 1994 90
Hwy. 49 N, Gulfport, MS............. 488 64,620 1994 74
Pass Road, Gulfport, MS............. 432 55,070 1994 72
MISSOURI
Paris Rd., Columbia, MO............. 302 36,924 1994 68
Rangeline, Columbia, MO............. 693 122,000 1994 75
I-70 Dr. SE, Columbia, MO........... 194 29,625 1995 55
Providence Rd., Columbia, MO........ 249 37,550 1995 84
W. Florissant Ave., Ferguson, MO
(3)................................ 359 38,758 1994 86
N. Hwy. 67, Florissant, MO (3)...... 408 54,061 1994 87
New Halls Ferry, Florrisant, MO..... 666 68,146 1994 71
S M291, Independence, MO............ 565 65,717 1995 76
St. Mary's Blvd., Jefferson City,
MO................................. 344 34,750 1994 91
E. 47th Terr., Kansas City, MO...... 534 59,549 1995 90
J A Reed Rd., Kansas City, MO....... 456 51,072 1995 88
Lindbergh, St. Louis, MO............ 658 73,545 1994 89
Lindbergh, St. Louis, MO............ 443 74,075 1994 77
Bus Barn, St. Louis, MO............. 254 7,376 1995 -- (2)
Third St., St. Louis, MO............ 575 69,443 1995 81
Vandeventer Ave., St. Louis, MO
(3)................................ 516 32,786 1994 64
World Pkwy Cr., St. Louis, MO....... 456 56,195 1995 80
47th St., Kansas City MO............ 303 35,250 1996 94
Florida St., Springfield, MO........ 232 32,814 1994 84
NORTH CAROLINA
E. W. T. Harris Blvd., Charlotte,
NC................................. 361 36,790 1994 86
South Blvd., Charlotte, NC.......... 318 36,074 1994 78
N. Tryon, Charlotte, NC............. 708 69,125 1994 75
N. Duke St., Durham, NC............. 284 34,000 1994 85
Kangaroo Drive, Durham, NC*......... 657 47,502 1996 84
Skibo Rd., Fayetteville, NC......... 352 41,600 1994 89
York Rd., Gastonia, NC.............. 361 38,525 1995 89
O'Henry Blvd., Greensboro, NC....... 395 37,180 1994 76
Oregon St., Kannapolis, NC.......... 426 45,900 1994 84
Maitland, Raleigh, NC............... 352 38,800 1994 88
Shipyard Blvd., Wilmington, NC...... 365 41,092 1994 72
OHIO
Morse Rd., Columbus, OH*............ 518 62,190 1996 70
OKLAHOMA
SE 33rd St., Elmond, OK............. 353 37,480 1994 82
Roxbury Blvd., Oklahoma City, OK.... 374 40,150 1994 78
South Garnett Rd., Tulsa, OK*....... 464 57,540 1996 82
SOUTH CAROLINA
2560 Ashley Phosphate Rd., Charles-
ton, SC............................ 299 36,549 1994 58
2840 Ashley Phosphate Rd., Charles-
ton, SC............................ 215 22,368 1994 50
5715 Dorchester Rd., Charleston,
SC................................. 192 33,050 1994 55
6654 Dorchester Rd., Charleston,
SC................................. 354 43,274 1994 82
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
RENTABLE YEAR
SQUARE ACQUIRED BY PERCENTAGE
UNITS FOOTAGE STORAGE TRUST OCCUPANCY(1)
----- -------- ------------- ------------
<S> <C> <C> <C> <C>
S. Rittenburg Blvd.,
Charleston, SC......... 250 31,033 1994 85
Broad River Rd., Colum-
bia, SC................ 327 38,088 1994 79
Buckner Rd., Columbia,
SC..................... 509 57,180 1994 90
Decker Park Rd., Colum-
bia, SC................ 274 34,414 1994 91
River Dr., Columbia, SC
(3).................... 386 51,450 1994 68
Rosewood Dr. Ext., Co-
lumbia, SC............. 530 31,534 1994 95
Plumbers Rd., Columbia,
SC..................... 332 32,350 1995 70
Pine Knoll Rd., Green-
ville, SC*............. 446 50,325 1996 97
Whitehorse Rd., Green-
ville, SC.............. 448 49,700 1994 86
Wood Lake Rd., Green-
ville, SC.............. 283 30,300 1994 85
Office Park Rd., Hilton
Head, SC............... 421 46,825 1994 97
Yacht Cove, Hilton Head,
SC..................... 497 58,775 1995 81
N. Main St., Mauldin,
SC..................... 334 44,310 1994 84
Grand View Dr., Simpson-
ville, SC.............. 246 30,250 1994 84
Chesnee Hwy., Spartan-
burg, SC............... 414 51,271 1995 70
Wade Hampton Blvd., Tay-
lors, SC............... 298 37,394 1994 91
Edmund Hwy., West Colum-
bia, SC................ 280 34,416 1994 89
Orchard Dr., West Colum-
bia, SC................ 253 26,997 1994 70
TENNESSEE
Gadd Rd., Hixson, TN.... 322 35,115 1994 72
Hwy. 153, Hixson, TN.... 431 46,450 1994 80
Kingston Pike, Knox-
ville, TN.............. 371 39,350 1994 76
Middlebrook Pike, Knox-
ville, TN.............. 300 29,752 1994 93
Myatt Drive, Madison,
TN..................... 323 32,600 1994 92
American Way, Memphis,
TN..................... 380 39,920 1994 95
Raleigh-LaGrange, Mem-
phis, TN............... 365 38,144 1994 85
Summer Ave., Memphis,
TN*.................... 377 46,010 1996 93
Madison Ave., Memphis,
TN..................... 295 27,771 1995 94
4175 Winchester, Mem-
phis, TN............... 366 36,820 1994 71
4765 Winchester, Mem-
phis, TN............... 517 61,608 1995 81
6390 Winchester Rd.,
Memphis, TN*........... 360 39,444 1996 86
Layfayette St., Nash-
ville, TN.............. 339 37,775 1994 84
Metroplex Dr., Nash-
ville, TN.............. 406 49,780 1994 75
Welshwood Dr., Nash-
ville, TN.............. 518 60,475 1995 91
Harding Rd., Red Bank,
TN..................... 350 38,580 1994 91
TEXAS
Inwood Rd., Addison,
TX..................... 553 79,291 1995 90
3006 W. Division, Ar-
lington, TX............ 18 53,020 1994 83
3008 W. Division, Ar-
lington, TX............ 302 49,415 1994 77
W. Trinity Mills, Car-
rollton, TX............ 385 45,816 1994 92
S. Cedar Ridge,
Duncanville, TX........ 332 36,225 1994 97
Spaceway, Duncanville,
TX..................... 161 32,920 1995 91
Cedar Ridge,
Duncanville, TX........ 312 30,700 1995 91
East Buckingham Rd.,
Garland, TX*........... 612 72,572 1996 71
Jackson Drive, Garland,
TX*.................... 299 40,701 1996 83
Fondren, Houston, TX.... 397 41,538 1994 74
Wallisville, Houston,
TX..................... 439 45,194 1994 86
Addicks Satsuma, Hous-
ton, TX................ 434 38,553 1995 91
South Main, Houston,
TX..................... 603 68,300 1995 94
Bingle Rd., Houston,
TX..................... 720 63,200 1995 72
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
RENTABLE YEAR
SQUARE ACQUIRED BY PERCENTAGE
UNITS FOOTAGE STORAGE TRUST OCCUPANCY(1)
------ --------- ------------- ------------
<S> <C> <C> <C> <C>
Hayes Rd., Houston, TX........... 772 68,600 1995 89
Mangum Rd., Houston, TX.......... 466 33,075 1995 54
Southwest, Houston, TX........... 1,669 109,759 1995 61
Bolen Rd., Kennedale, TX......... 314 33,080 1994 85
W. 42nd St., Odessa, TX.......... 345 37,116 1994 79
Avenue K, Plano, TX*............. 897 87,654 1996 90
VIRGINIA
Western Branch Blvd., Chesapeake,
VA*............................. 747 75,201 1996 93
WISCONSIN
W. Dean Rd., Milwaukee, WI*...... 1,107 205,190 1996 67
Foster Court, Waukesha, WI*...... 219 49,632 1996 96
------ ---------
Total Owned...................... 63,787 7,597,598
------ ---------
FACILITY OWNED BY JOINT VENTURE (INTER-
EST OF COMPANY)
S. Lake St., Mundelein, IL
(15%)........................... 365 53,750 1994 90
Tulane Ave., New Orleans, LA
(15%)........................... 392 190,000 1994 80
------ ---------
Total Owned by Joint Venture..... 2,862 243,750
------ ---------
Total............................ 66,649 7,841,348
====== =========
</TABLE>
- --------
(1) Determined by dividing net rentable square feet occupied as of March 31,
1996 by total net rentable square feet.
(2) Became operational at the end of March 1996.
(3) The Company previously held a joint venture interest in these Facilities.
Year acquired by Storage Trust indicates the year in which the Company
first acquired a joint venture interest.
* Balcor/Colonial Facilities.
The Balcor/Colonial Facilities
On May 24, 1996, the Company completed the acquisition of the 25
Balcor/Colonial Facilities containing approximately 1.5 million net rentable
square feet from Balcor/Colonial Storage Income Fund--86 (the "Seller") at a
cost of approximately $67.6 million. As of March 31, 1996, the Balcor/Colonial
Facilities were 86% occupied, and rent per square foot at such Facilities was
$6.46 on an annualized basis. The Balcor/Colonial Facilities are strategically
located to increase the Company's presence in certain markets where other
Facilities are located and to access attractive new markets. Nineteen of the
Balcor/Colonial Facilities are located in markets in which another Facility is
located. The Company expects that the Balcor/Colonial Facilities will allow
the Company to achieve greater economies of scale and market penetration
without competing directly with other Facilities. Prior to his employment with
the Company, one of the senior managers of the Company was involved in the
management of the Balcor/Colonial Facilities. The Company believes that the
Balcor/Colonial Facilities can be efficiently integrated into its operations
because of the Company's centralized operating procedures and management
information systems. Based on management's familiarity with, and analysis of,
the operations of the Balcor/Colonial Facilities and experience in operating
self-storage facilities, the Company believes that the Balcor/Colonial
Facilities offer the potential for growth by implementing the Company's
strategy of (i) generally increasing rents on same-size units as occupancy of
all units of that size at a particular Facility nears 90%, (ii) containing
operating expenses and spreading corporate overhead expense over an increasing
number of facilities and (iii) converting certain of the existing space at the
Balcor/Colonial Facilities to climate-controlled space.
The Balcor/Colonial Facilities and related assets which the Operating
Partnership acquired constitute all or substantially all of the assets of the
Seller, and, if it has not already done so, the Seller is expected to
distribute the consideration it received pursuant to the Agreement of Sale
with respect to the Balcor/Colonial Facilities (as amended by the First
Amendment thereto, the "Agreement") to its partners. Additionally, the
Agreement
S-20
<PAGE>
contains no representations regarding the condition or past operations of the
Balcor/Colonial Facilities, provides that the Operating Partnership purchased
all of the Balcor/Colonial Facilities "as is" and contains provisions limiting
the Seller's liability thereunder. Unknown or undisclosed liabilities, which
could have a material adverse effect upon the Company and the Company's
operations and financial condition, could exist with respect to the
Balcor/Colonial Facilities, and the Company's recourse against the Seller with
respect to such liabilities is limited.
Characteristics of the Facilities
The Facilities in the Company's portfolio are designed to offer affordable,
accessible storage space for personal and business use. In addition, many
Facilities offer climate-controlled units as well as outside storage pads for
vehicles and boats. Customers rent fully enclosed storage units for their
exclusive use which they may freely enter during business hours, and they can
control access to their units by furnishing their own locks. Facilities are
generally fenced, have locked gates and are lighted at night. All Facilities
currently have managers who reside in an on-site apartment, except in two
instances where the manager lives adjacent to the site.
The Facilities are generally near major business and residential districts
in metropolitan areas, clearly visible from and easily accessible to major
traffic arteries and protected by computer-controlled access gates, security
fencing, lighting and the presence of resident managers. The Facilities are
typically constructed of one-story metal, masonry or tilt-up concrete walls,
with an individual roll-up door for each storage space and with removable
steel interior walls to permit reconfiguration, to protect items from damage
and to separate customers' units. Sites have wide drive aisles to accommodate
most vehicles. The Facilities are designed to be aesthetically pleasing, are
kept clean and in good repair by Company-trained managers, and are open for
service during hours and on days convenient to customers and prospective
customers.
Due to the type of simple structures and durable material used for the
Facilities, property maintenance is minimal compared to other types of real
estate investments. Typical capital expenditures include replacing asphalt,
roofs, gates, air conditioning equipment and elevators (as contrasted with
expense items such as repairing asphalt, repairing a door, pointing up masonry
walls, painting trim and facades, repairing a fence, maintaining landscaping,
and repairing damage caused by customer vehicles). Maintenance within a
storage unit between leasing typically consists of sweeping out the unit and
changing a light bulb. Maintenance is the responsibility of the facility
manager.
Climate-controlled units are offered in many of the Facilities for storing
files, antiques and other temperature and humidity-sensitive items.
Approximately 280,000 net rentable square feet at 33 of the Facilities offer
climate-controlled space. The Company plans to add this feature by conversion
of existing units as demand dictates. The marginal costs of building climate-
controlled space are approximately 5% higher than non-climate-controlled space
while the marginal costs of operating and maintaining climate-controlled space
are generally minimal. Based on a recent conversion, the Company believes that
it can receive a rent premium of approximately 30% on climate-controlled space
over rent for non-climate-controlled space.
THIRD-PARTY MANAGEMENT
The Subsidiary Company provides management services to the nine Facilities
owned by unrelated third parties. BHC first began managing facilities for
third parties in 1981. The Subsidiary Company received management fees for
these Facilities from unrelated third parties based on a percentage of revenue
which in the aggregate amounted to approximately $160,000 for the year ended
December 31, 1995 and $37,000 for the three months ended March 31, 1996. The
Facilities managed by the Subsidiary Company contain approximately 362,000 net
rentable square feet and are located in the following six states: Florida,
Georgia, Kansas, North Carolina, South Carolina and Virginia. Management
contracts relating to these Facilities generally provide for a fee of 7% of
revenues and certain of these contracts provide for contractual fee increases
upon the attainment of certain levels of gross revenues or upon termination.
These agreements are unlimited in duration but are subject to either 30- or
60-day termination provisions. The majority of these agreements provide that
the manager will receive a termination fee if the agreement is terminated
within a specified time from the date of the agreement
S-21
<PAGE>
(typically 12 to 24 months). All travel expenses incurred by the Subsidiary
Company are paid out of the revenues of the Facility or are reimbursed by the
respective third-party owners. The Subsidiary Company may consider management
of additional facilities in the future as a precursor to acquisition by the
Operating Partnership or in order for the Company to become familiar with an
attractive new market. All of the management business for unrelated third
parties is expected to be conducted by the Subsidiary Company. The Facilities
managed by the Subsidiary Company are operated with the same standards of
efficiency as the other Facilities.
THE INDUSTRY
The self-storage industry is an integral part of the commercial and
residential real estate markets, serving the storage needs of businesses and
consumers. Initially developed in the early 1960s in the southwestern portion
of the United States, self-storage facilities were built in response to the
growing need for low-cost accessible storage. A number of factors have
accelerated the demand for storage facilities including, among others, a more
mobile society, with individuals moving to new homes and new cities needing
short-term storage for their belongings, the increasing cost of residential
housing (resulting in smaller houses), the increased popularity of apartments
and condominiums, more individuals with growing discretionary income
(resulting in the accumulation of more possessions and the purchase of items
such as boats and recreational vehicles which cannot be stored at residences),
the growing number of small businesses and the escalating cost of other
storage alternatives. In addition to traditional use by consumers, many retail
stores and other businesses use self-storage facilities to store goods
received from warehouses or, in some instances, directly from manufacturers,
through just-in-time delivery systems. Self-storage facilities serve as
additional storage capacity for households acquiring goods or businesses
building inventory or producing storable items, such as new products or
records.
In addition to providing affordable, accessible storage space for personal
and business use, many facilities offer climate-controlled units as well as
outside storage pads for vehicles and boats. With the advent of resident
managers, storing goods becomes a far more convenient process for customers
(i.e., tenants renting self-storage space), resulting in increased customer
awareness and appreciation. Rental units are usually secured by customer locks
and only the customer has the key, thus ensuring controlled access. Facilities
are generally fenced, have locked gates and are lighted at night. Computerized
access gates for self-storage have made the overall storage process more
convenient for the customer.
The successful development of self-storage facilities is becoming
increasingly sophisticated. Specialized skills in areas such as site
selection, design and unit mix are critical to the development of successful
new self-storage projects on a cost-efficient basis. Furthermore, new
development in self-storage has become more difficult due to the lack of
available capital, pressure from zoning boards and municipalities, and
increases in building costs as new facilities are required to meet rigorous
landscaping and other aesthetically-oriented standards.
REGULATION
Environmental Regulations
The Company is subject to federal, state, and local environmental laws,
ordinances and regulations that apply to the development of real property,
including construction activities, the ownership of real property, and the
operation of self-storage facilities.
The Company has not been notified by any governmental authority of any
material noncompliance, claim, or liability in connection with any of the
Facilities. The Company has not been notified of a claim for personal injury
or property damage by a private party in connection with any of the Facilities
in connection with environmental conditions. A Phase I environmental
assessment for each of the Facilities has been prepared by an independent
environmental consultant. The purpose of each such report was to identify, to
the extent reasonably possible and based on reasonably available information,
whether the environmental quality of the property had been affected by
hazardous or toxic substances, including petroleum products and asbestos. The
scope of the
S-22
<PAGE>
Phase I environmental assessment for each such Facility generally included:
(i) a review of reasonably available maps, aerial photographs and other public
information to analyze the past and present uses of the site; (ii) limited
inquiries of federal, state and local agencies having jurisdiction over
certain environmental matters; and (iii) an on-site assessment of the Facility
to inspect for evidence of past or present on-site waste disposal, visible
surface contamination, above-surface and subsurface storage tanks, drums,
barrels and other storage containers, current waste streams and management
practices, ACMs, and PCB transformers. In addition, as part of the Phase I
environmental assessment, abutting properties and nearby sources of potential
contamination were identified and evaluated for potential impact to the
Facility, to the extent reasonably possible.
The Seller had a Phase I environmental assessment for each of the
Balcor/Colonial Facilities prepared by an independent environmental
consultant. The purpose and scope of such assessments was generally the same
as set forth above with respect to Phase I environmental assessments of the
other Facilities. None of these Phase I environmental assessments recommended
any further investigation (except, in one instance, to confirm radon test
results) at any of the Balcor/Colonial Facilities. However, based on the
historical use of two of the sites, the Company has determined that it will
engage an independent environmental consultant to conduct a limited subsurface
soil and groundwater investigation to confirm the opinions expressed in the
Phase I assessments of these sites. The Company received a credit at the
closing of the acquisition of the Balcor/Colonial Facilities in the amount of
$17,500 relating to the Company's cost for such additional investigation.
Additionally, at the closing of the acquisition of the Balcor/Colonial
Facilities, the Seller escrowed $250,000 which may be used to partially cover
the costs of remedying environmental conditions at these two Facilities,
should remediation be necessary. However, the Company (i) must make a claim
with respect to the escrowed amount not later than August 24, 1996 and (ii) is
only entitled to amounts held in escrow as follows: the Company bears
responsibility for the first $125,000 of costs, the Company may recover from
the escrow for the second $125,000 of costs, the Company bears responsibility
for the third $125,000 of costs, the Company may recover from the escrow for
the fourth $125,000 of costs, and the Company bears responsibility for costs
in excess of $500,000. The Company is responsible for the full cost of
remedying any environmental condition at the other Balcor/Colonial Facilities.
Based upon the information which the Company has obtained, it does not
currently expect the aggregate cost of remedying environmental conditions at
the Balcor/Colonial Facilities to have a material adverse effect on the
financial condition or results of operations of the Company.
As a condition to the closing of each of the other facilities which the
Company has under contract, the Company must be provided with satisfactory
Phase I environmental assessments, and such additional assessments as may be
required, confirming to the Company's satisfaction that no environmental
condition requiring remediation under state or federal law exists at the
facility.
The environmental assessments, and in certain cases further investigation,
have not revealed, nor is the Company aware of, any environmental condition
with respect to the Facilities that is expected to have a material adverse
effect on the Company's financial condition or results of operations. No
assurances can be given, however, that (i) the environmental assessments and
further investigation which have been conducted with respect to the
Facilities, including the Balcor/Colonial Facilities, or which will be
conducted with respect to the Balcor/Colonial Facilities and other facilities
which may be acquired or developed in the future, have revealed, or will
reveal, all potential environmental liabilities, (ii) any prior owner or
operator of the real property on which the Facilities are located did not
create a material environmental condition not known to the Company or (iii) an
environmental condition does not otherwise exist as to any one or more of the
Facilities, which liabilities or conditions could have a material adverse
effect upon the financial condition or results of operation of the Company.
Americans with Disabilities Act
Under the ADA, all public accommodations are required to meet certain
federal requirements related to physical access and use by disabled persons.
While the Company believes that the Facilities comply in all material respects
with these physical requirements (or would be eligible for applicable
exemptions from material requirements because of adaptive assistance
provided), a determination that the Company is not in compliance with the ADA
could result in imposition of fines, injunctive relief, damages or attorneys'
fees. If the Company
S-23
<PAGE>
were required to make modifications to comply with the ADA, the Company's
ability to make expected distributions to its shareholders could be adversely
affected; however, management believes that such effect would be minimal.
Local Regulations
As with all real property, storage facilities must conform to local zoning
ordinances. The Facilities' operations have not been subjected to any material
zoning complaints. Typically, self-storage facilities are not a permitted use
within the commercial and retail areas desired by the Company for development
of a new facility. Therefore, the Company must generally obtain a variance to
undertake development of a new facility. The zoning classifications for self-
storage have been narrowed repeatedly so that new self-storage development
within major metropolitan areas is becoming increasingly difficult to obtain.
The restrictive zoning regulations may keep the industry restricted to all but
those who have the experience to show the benefits of self-storage to a
community and have the credentials necessary to persuade zoning boards to
rezone or grant variances.
MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS
The following tables sets forth certain information with respect to the
Trustees, executive officers and other officers of the Company. The Company
currently has a seven member Board of Trustees which includes four members of
the Board of Trustees who are not affiliated with any member of Gordon
Burnam's family or officers or employees of the Company (each, an "Independent
Trustee"). Each of the individuals named below as an officer of the Company
accepted that position upon formation of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Chairman of the Board of Trustees (term will
Gordon Burnam....... 65 expire in 1997)
Chief Executive Officer and Trustee (term will
Michael G. Burnam... 42 expire in 1996)
Chief Operating Officer and Trustee (term will
P. Crismon Burnam... 32 expire in 1998)
Stephen M. Dulle.... 48 Chief Financial Officer
Timothy B. Burnam... 38 Vice President--Construction and Development
Blake Eagle*........ 62 Trustee (term will expire in 1998)
Daniel C. Staton*... 43 Trustee (term will expire in 1996)
Randall K. Rowe*.... 41 Trustee (term will expire in 1997)
Fredrick W. Petri*.. 48 Trustee (term will expire in 1997)
</TABLE>
- --------
*Each of these individuals is an Independent Trustee.
The following is a biographical summary of the experience of the Trustees,
executive officers and other officers of the Company.
Gordon Burnam has been the Chairman of the Board of Trustees of the Company
since its formation. He is the founder and Chairman of BHC, a corporation
owned by Gordon Burnam and members of his immediate family. Since 1974, Gordon
Burnam has been involved in the development of over 30 self-storage
facilities, of which 14 facilities were for BHC. Gordon Burnam now oversees
its Board of Directors. From 1982 to 1984, Gordon Burnam was the Chairman of
the Board of Directors of the Southwestern Insurance Group. Mr. Gordon Burnam
is currently a director of Union Planters Bank of Columbia, was a Central
Region Board Member of the Self Storage Association and was president of the
National Home Builders Association--Columbia Chapter.
Michael G. Burnam has been the Chief Executive Officer and a Trustee of the
Company since its formation. Michael Burnam previously served as the President
of BHC. He began his career in real estate development, and then moved into
self-storage management in 1977. Mike has overseen operations for BHC since
1983. In 1995, Michael Burnam served as President of the Self Storage
Association, a leading industry association. Mike received his B.S. degree in
Agricultural Economics from the University of Missouri in 1975. Michael Burnam
is Gordon Burnam's son.
S-24
<PAGE>
P. Crismon Burnam has been Chief Operating Officer and a Trustee of the
Company since its formation. Cris Burnam joined BHC in 1987, most recently
serving as its Vice President in charge of Finance and Acquisitions. Mr. Cris
Burnam serves as Vice President--Central Region Board of Directors of the Self
Storage Association. Cris received his B.S. degree in Agricultural Economics
from the University of Missouri in 1985. Cris Burnam is Gordon Burnam's son.
Stephen M. Dulle has been Chief Financial Officer of the Company since
August 1994. Prior thereto, Steve was the chief financial officer of each of
Colonial Storage Centers I, Ltd., Colonial Storage Centers II, Ltd. and
Colonial Storage Centers III, Ltd. Mr. Dulle was also the Secretary and
Treasurer of Colonial Storage Management 85, Inc. and Colonial Storage
Management 86, Inc. Prior to joining Colonial in 1980, Mr. Dulle was a Senior
Manager with the public accounting firm of KPMG Peat Marwick. Mr. Dulle
received his B.S. degree in Business Administration from the University of
Missouri in 1971 and his Masters of Business Administration degree in
Accounting and Finance from Indiana University in 1973.
Timothy B. Burnam has been Vice President--Construction and Development of
the Company since its formation. Tim had previously served as President of
Burnam Construction, Inc., a wholly owned subsidiary of BHC, since 1987. Mr.
Tim Burnam is directly responsible for the design, planning and purchasing for
all of the Company's construction and development projects. Since 1987, Burnam
Construction, Inc. has built over 500,000 square feet of self-storage
facilities and 175 apartment units. He attended the University of Missouri and
has over 15 years' experience in the construction and self-storage businesses.
Timothy Burnam is Gordon Burnam's son.
Blake Eagle has been a Trustee of the Company since November 1994. Mr. Eagle
has been, since December 1993, Chairman of the MIT Center for Real Estate, an
academic center which engages in a wide variety of research and special
programs for the real estate industry and operates a master's degree program
in real estate development. From 1985 to 1993, Mr. Eagle was President, Real
Estate Consulting, for the Frank Russell Company, a pension fund consulting
firm. Mr. Eagle is a member of the Urban Land Institute, the National Society
of Real Estate Finance and the American Society of Real Estate Counselors. Mr.
Eagle serves as an advisor to the board of the National Council of Real Estate
Investment Fiduciaries, which he helped establish, and formerly served as a
director of the Institute for Real Estate Research. From 1983 to 1984, Mr.
Eagle served as a member of the board of advisors of the Federal National
Mortgage Association (Fannie Mae). Mr. Eagle received his B.A. degree in
Business Administration from the University of Washington in 1956.
Randall K. Rowe has been a Trustee of the Company since November 1994. Mr.
Rowe is Managing Director and Chief Executive Officer of Transwestern
Investment Company, LLC. From January 1995 until March 1996, he was Managing
Director and Chief Executive Officer of Equity Venture Partners, Inc., a
merchant banking company. From December 1989 until March 1995, he was co-
chairman and chief executive officer of Manufactured Home Communities, Inc.
("MHC") and its predecessor entities. From December 1989 until January 1995,
Mr. Rowe served as Chairman and Chief Executive Officer of Equity Office
Properties, Inc. and President and Chief Executive Officer of Equity Assets
Management, Inc. Mr. Rowe holds an M.B.A. degree from Harvard University
Graduate School of Business and a J.D. degree from the University of Michigan
Law School. Mr. Rowe is a member of the Urban Land Institute, a member of the
board of directors of MHC and Chairman of the Policy Committee of the National
Realty Committee.
Daniel C. Staton has been a Trustee of the Company since November 1994. Mr.
Staton has been the Chief Operating Officer, Executive Vice President and
Director of Duke Realty Investments, Inc. since 1993. From 1981 to 1993, Mr.
Staton was a principal owner of Duke Associates, the predecessor of Duke
Realty Investments, Inc. Mr. Staton works on real estate project development
in Indianapolis, Detroit and Nashville and directly oversees the Cincinnati,
Columbus, Cleveland and St. Louis markets. Prior to joining Duke Associates in
1981, Mr. Staton was a partner and general manager of his own moving company,
Gateway Van & Storage, Inc. in St. Louis, Missouri. Mr. Staton is a member of
the Greater Cincinnati Chamber of Commerce and the International Council of
Shopping Centers and, from 1986 to 1988, he served as president of the Greater
Cincinnati Chapter of the National Association of Industrial and Office Parks.
Mr. Staton received a B.S. degree in Finance from California Western
University in 1982, a B.S. degree in General Business from Ohio University in
1991 and is currently working on his Ph.D. in Entrepreneurship at the Union
Institute.
S-25
<PAGE>
Fredrick W. Petri has been a Trustee of the Company since May 1995. Mr.
Petri has been President of Petrone, Petri & Company, a real estate investment
firm since 1993. Prior thereto, Mr. Petri was an Executive Vice President of
Wells Fargo Bank, where for over 18 years he held various positions involving
real estate. Mr. Petri is a director of DeBartolo Realty Corporation.
Additionally, he is a trustee of the Urban Land Institute and a director of
the Real Estate Center of the University of Wisconsin Business School. He
formerly served as a member of the board of governors and a Vice President of
the National Association of Real Estate Investment Trusts and as a board
member and director of the National Association of Industrial and Office
Parks. Mr. Petri received his B.A. degree in Business and his M.B.A. in
Finance from the University of Wisconsin in 1969 and 1970, respectively.
UNDERWRITING
Subject to the terms and conditions set forth in the terms agreement and the
related purchase agreement (collectively, the "Purchase Agreement") among the
Company and each of the underwriters named below (the "Underwriters"), the
Company has agreed to sell to each of the Underwriters named below, and each
of the Underwriters for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated, A.G. Edwards & Sons, Inc., EVEREN Securities, Inc., Raymond
James & Associates, Inc. and Robertson, Stephens & Company LLC are acting as
representatives (the "Representatives"), has severally agreed to purchase from
the Company, the respective number of Common Shares set forth below opposite
their respective names. The Purchase Agreement provides that the obligations
of the several Underwriters are subject to certain terms and conditions
precedent, and that the Underwriters will be obligated to purchase all of such
shares being sold pursuant to such Purchase Agreement if any of such shares
are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS COMMON SHARES
------------ -------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................
A.G. Edwards & Sons, Inc....................................
EVEREN Securities, Inc......................................
Raymond James & Associates, Inc.............................
Robertson, Stephens & Company LLC...........................
---------
Total................................................... 3,600,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares to the public at the public offering price per
share set forth on the cover page of this Prospectus Supplement, and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a discount
not in excess of $ per share purchased by such dealers on sales to certain
other dealers. Upon completion of the Offering, the public offering price,
concession and discount may be changed.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus Supplement, to purchase up
to 540,000 Common Shares solely to cover over-allotments, if any, at the
initial price per share to the public less the underwriting discount set forth
on the cover page of this Prospectus Supplement. To the extent the
Underwriters exercise this option, each of the Underwriters will be obligated,
subject to certain conditions, to purchase approximately the same percentage
thereof which the number of Common Shares to be purchased by it shown in the
foregoing tables bears to the number of Common Shares initially offered
hereby.
In the Purchase Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act") or to contribute to
payments the Underwriters may be required to make in respect thereof. Insofar
as indemnification of the Underwriters for liabilities arising under the
Securities Act may be permitted pursuant to the foregoing
S-26
<PAGE>
provisions, the Company has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
In connection with the Offering, the Company, the Operating Partnership and
each Trustee and officer of the Company have each agreed not to, directly or
indirectly, offer, sell, contract to sell, grant any options for the sale of
or otherwise dispose of any Common Shares and Units, or any security
convertible into or exercisable for Common Shares or Units, for a period of 90
days from the completion of the Offering, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, except for the issuance of
Common Shares and Units in connection with the Storage Trust Realty 1994 Share
Option Plan, as amended, and except that the Company or the Operating
Partnership, as the case may be, may issue Common Shares or Units,
respectively, in connection with the acquisition of real property or direct or
indirect interests in real property if the recipient of the Common Shares or
Units agrees to be similarly restricted. In connection with the Initial
Offering, the Company and each holder of either Common Shares or Units issued
in connection with the formation of the Company agreed not to offer, sell,
contract to sell or otherwise dispose of any Common Shares for a period of 24
months after the closing of the Initial Offering without the prior written
consent of EVEREN Securities, Inc., the managing underwriter in the Initial
Offering, and the Company.
The Common Shares are traded on The New York Stock Exchange under the symbol
"SEA."
EXPERTS
The consolidated and combined financial statements and related schedule of
Storage Trust Realty and Predecessor Company (as defined in such financial
statements) at December 31, 1995 and 1994, and for each of the three years in
the period ended December 31, 1995, incorporated by reference in the
accompanying Prospectus and the Registration Statement of which the
accompanying Prospectus is a part, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such financial statements are, and
audited financial statements to be included in subsequently filed documents
will be, incorporated herein by reference in reliance upon the reports of
Ernst & Young LLP pertaining to such financial statements (to the extent
covered by consents filed with the Securities and Exchange Commission) given
upon the authority of such firm as experts in accounting and auditing. The
Historical Summaries of Combined Gross Revenue and Direct Operating Expenses
with respect to the two facilities acquired since December 31, 1995 for the
year ended December 31, 1995, incorporated by reference in the accompanying
Prospectus and the Registration Statement of which the accompanying Prospectus
is a part, have been audited by Ernst & Young LLP, independent auditors, as
set forth in their report thereon included therein and incorporated in the
accompanying Prospectus by reference. The historical summary of combined gross
revenue and direct operating expenses of the Balcor/Colonial Facilities for
the year ended December 31, 1995 has been incorporated by reference in the
Registration Statement, of which the accompanying Prospectus is a part, in
reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority
of said firm as experts in accounting and auditing.
LEGAL MATTERS
Mayer, Brown & Platt, Chicago, Illinois, has passed upon the validity of the
issuance of the Common Shares offered pursuant to this Prospectus Supplement
and the accompanying Prospectus and on certain tax matters as described under
"Federal Income Tax Considerations" in the accompanying Prospectus. Mayer,
Brown & Platt has and will rely upon the opinion of Ballard Spahr Andrews &
Ingersoll, Baltimore, Maryland, as to certain matters of Maryland law,
including the validity of the issuance of the Common Shares. Mayer, Brown &
Platt has in the past represented and is presently representing Merrill Lynch
& Co. in certain other matters. Certain legal matters relating to the Offering
will be passed upon for the Underwriters by Rogers & Wells, New York, New
York.
S-27
<PAGE>
PROSPECTUS
STORAGE TRUST REALTY
$75,000,000
COMMON SHARES AND COMMON SHARE WARRANTS
----------------
Storage Trust Realty (the "Company") may from time to time offer and sell in
one or more series (i) common shares of beneficial interest, par value $.01
per share (the "Common Shares"), and (ii) warrants to purchase Common Shares
(the "Common Share Warrants"), with an aggregate public offering price of up
to $75,000,000, on terms to be determined by market conditions at the time of
offering. The Common Shares and Common Share Warrants (collectively, the
"Offered Securities") may be offered separately or together, in separate
series, in amounts and at prices and terms to be set forth in an accompanying
supplement to this Prospectus (each, a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable, (i) in the case of Common
Shares, any initial public offering price, and (ii) in the case of Common
Share Warrants, the duration, offering price, exercise price and
detachability, if applicable, along with any other relevant specific terms. In
addition, such specific terms may include limitations on direct or indirect
beneficial ownership and restrictions on transfer of the Offered Securities,
in each case as may be appropriate in the judgment of the Company's Board of
Trustees to preserve the status of the Company as a real estate investment
trust ("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered
Securities covered by such Prospectus Supplement.
The Offered Securities may be offered directly by the Company, or through
agents designated from time to time by the Company, or to or through
underwriters or dealers. As set forth under "Description of Shareholder
Purchase Rights" and "Plan of Distribution," the Company may sell the Offered
Securities to investors directly through subscription rights ("Shareholder
Purchase Rights"). If any agents or underwriters are involved in the sale of
any of the Offered Securities, their names, and any applicable purchase price,
fee, commission or discount arrangement between or among them, will be set
forth, or will be calculable from the information set forth, in the applicable
Prospectus Supplement. See "Description of Shareholder Purchase Rights" and
"Plan of Distribution." No Offered Securities may be sold without delivery of
the applicable Prospectus Supplement describing the method and terms of the
offering of such series of Offered Securities.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED
ON OR ENDORSED THE MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
----------------
The date of this Prospectus is April 10, 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy material and other information
concerning the Company can be inspected and copied at the offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at its
regional offices, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661 and Seven World Trade Center, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The
Company's outstanding Common Shares are listed on the New York Stock Exchange
(the "NYSE") under the symbol "SEA", and all such reports, proxy material and
other information filed by the Company with the NYSE may be inspected at the
offices of the NYSE at 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby. This prospectus ("Prospectus"),
which constitutes a part of the Registration Statement, does not contain all
the information set forth in the Registration Statement, certain parts of
which are omitted as permitted by the rules and regulations of the Commission.
Statements made in this Prospectus as to the content of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed or
incorporated by reference as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
INCORPORATION BY REFERENCE
The following documents filed by the Company with the Commission (File No.
1-13462) pursuant to the Exchange Act are incorporated by reference in this
Prospectus:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
(2) The Company's Current Report on Form 8-K dated March 5, 1996;
(3) The Company's Proxy Statement for the annual meeting of shareholders to
be held on May 8, 1996; and
(4) Description of the Common Shares included in the Registration Statement
on Form 8-A dated October 14, 1994.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering made hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein, or in any subsequently filed document which
is or is deemed to be incorporated by reference herein, modifies or supersedes
any such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any of the foregoing documents incorporated
herein by reference (other than the exhibits to such documents unless such
exhibits are specifically incorporated by reference into such documents).
Requests should be directed to Storage Trust Realty, 2407 Rangeline Street,
Columbia, Missouri 65202, Attention: Secretary, telephone (573) 499-4799.
2
<PAGE>
THE COMPANY
The Company and its affiliates constitute a self-administered and self-
managed real estate investment trust (a "REIT") which was organized in
November 1994 to continue and expand the self-storage facility business
conducted by Burnam Holding Companies Co. and certain of its affiliates
(collectively, "BHC" or the "Predecessor Company") since 1974. The Company and
its affiliates own, manage, lease, acquire and develop self-storage
facilities. The Company owns and operates self-storage facilities
("Facilities") in the Southern, Mid-Atlantic, Midwestern and Western regions
of the United States. The Company offers a broad range of features and
amenities to its customers, including uniformed customer service-oriented
facility managers, door alarms, lighting systems, video cameras, twenty-four
hour computer-controlled access, climate-controlled storage spaces, attractive
buildings and wide drive aisles.
The business of the Company is operated through Storage Trust Properties,
L.P. (the "Operating Partnership") and Storage Realty Management Co. (the
"Subsidiary Company"). Substantially all of the Company's assets and interest
in self-storage facilities are held by, and all of its operations are
conducted through, the Operating Partnership. The Company is the sole general
partner of, and thereby controls the operations of, the Operating Partnership,
holding a 92.82% (as of June 6, 1996) ownership interest therein. The
remaining ownership interests in the Operating Partnership (the "Units") are
primarily held by certain owners of the Predecessor Company, including BHC
(collectively, "Original Investors"), and certain former owners of assets
acquired by the Operating Partnership subsequent to the Company's initial
public offering of Common Shares. The Subsidiary Company manages Facilities
owned by unrelated third parties and conducts various other businesses, such
as the sale of locks and customer property insurance, at various Facilities.
Through its ownership of the preferred stock of the Subsidiary Company, the
Operating Partnership enjoys substantially all of the economic benefit of the
businesses carried on by the Subsidiary Company.
The Company was formed as a Maryland real estate investment trust on July
12, 1994. The Company's executive offices are located at 2407 Rangeline
Street, Columbia, Missouri 65202 and its telephone number is (573) 499-4799.
USE OF PROCEEDS
Unless otherwise described in the Prospectus Supplement which accompanies
this Prospectus, the Company intends to use the net proceeds from the sale of
the Offered Securities for the acquisition and development of self-storage
facilities as suitable opportunities arise, improvement of the Facilities
owned by the Company, repayment of certain then-outstanding secured or
unsecured indebtedness and for general corporate purposes.
DESCRIPTION OF COMMON SHARES
GENERAL
The Second Amended and Restated Declaration of Trust of the Company (the
"Declaration of Trust") provides that the Company may issue up to 150,000,000
shares of beneficial interest, $.01 par value per share, consisting of common
shares and such other types or classes of securities of the Company as the
Trustees may create and authorize from time to time and designate as
representing a beneficial interest in the Company. No holder of any class of
shares of beneficial interest of the Company has any preemptive right to
subscribe to any securities of the Company except as may be granted by the
Board of Trustees in authorizing the issuance or reclassification of a class
of shares of beneficial interest. For a description of certain provisions that
could have the effect of delaying, deferring or preventing a change in
control, see "Certain Provisions of Maryland Law and of the Company's
Declaration of Trust and Bylaws."
The following description sets forth certain general terms and provisions of
the Common Shares to which any Prospectus Supplement may relate, including a
Prospectus Supplement which provides for Common Shares
3
<PAGE>
issuable pursuant to subscription offerings or rights offerings. The
statements below describing the Common Shares are in all respects subject to
and qualified in their entirety by reference to the applicable provisions of
the Declaration of Trust and the Amended and Restated Bylaws of the Company
(the "Bylaws"). For further information regarding the Common Shares, see
"Certain Provisions of Maryland Law and of the Company's Declaration of Trust
and Bylaws."
All the Common Shares covered by the Registration Statement of which this
Prospectus is a part will be, when issued, duly authorized, fully paid and,
except as described under "Shareholder Liability" below, non-assessable.
Subject to the provisions of the Declaration of Trust regarding Excess Shares
(as defined therein), each outstanding Common Share entitles the holder
thereof to one vote on all matters voted on by shareholders, including the
election of Trustees. Holders of Common Shares do not have the right to
cumulate their votes in the election of Trustees, which means that the holders
of a majority of the outstanding Common Shares can elect all of the Trustees
then standing for election. Distributions may be paid to the holders of Common
Shares if and when declared by the Board of Trustees of the Company out of
funds legally available therefor, subject to the provisions of the Declaration
of Trust regarding Excess Shares. The Company currently pays regular quarterly
dividends. Holders of Common Shares have no conversion, redemption, preemptive
or exchange rights to subscribe to any securities of the Company. If the
Company is liquidated, each outstanding Common Share will be entitled to
participate pro rata in the assets remaining after payment of, or adequate
provision for, all known debts and liabilities of the Company and the rights
of holders of any preferred shares of beneficial interest of the Company. The
rights of holders of Common Shares are subject to the rights and preferences
established by the Board of Trustees for any preferred shares of beneficial
interest which may subsequently be issued by the Company.
RESTRICTIONS ON TRANSFER
Ownership Limits. The Declaration of Trust contains certain restrictions on
the number of Common Shares that individual shareholders may own. For the
Company to qualify as a REIT under the Code, no more than 50% in value of its
shares of beneficial interest (after taking into account options to acquire
shares of beneficial interest and shares of beneficial interest issuable on
conversion of convertible securities) may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities
and constructive ownership among specified family members) during the last
half of a taxable year (other than the first taxable year) or during a
proportionate part of a short taxable year. The Common Shares must also be
beneficially owned (other than during the first taxable year) by 100 or more
persons during at least 335 days of a taxable year or during a proportionate
part of a shorter taxable year. Because the Company expects to qualify as a
REIT, the Declaration of Trust contains restrictions on the acquisition of
Common Shares intended to ensure compliance with these requirements.
Subject to certain exceptions specified in the Declaration of Trust, no
holder may own, or be deemed to own by virtue of the attribution provisions of
the Code, more than 6% (the "Ownership Limit") of the number or value of the
issued and outstanding shares of beneficial interest of the Company. The
Company's Board of Trustees, upon receipt of a ruling from the Internal
Revenue Service (the "Service") or an opinion of counsel or other evidence
satisfactory to the Board of Trustees and upon such other conditions as the
Board of Trustees may direct, may also exempt a proposed transferee from the
Ownership Limit. As a condition of such exemption, the proposed transferee
must give written notice to the Company of the proposed transfer no later than
the fifteenth day prior to any transfer which, if consummated, would result in
the intended transferee owning shares in excess of the Ownership Limit. The
Board of Trustees of the Company may require such opinions of counsel,
affidavits, undertakings or agreements as it may deem necessary or advisable
in order to determine or ensure the Company's status as a REIT. Any transfer
of shares that would (i) create a direct or indirect ownership of shares in
excess of the Ownership Limit, (ii) result in the shares being beneficially
owned by fewer than 100 persons (determined without reference to any rules of
attribution) as provided in Section 856(a) of the Code, or (iii) result in the
Company being "closely held" within the meaning of Section 856(h) of the Code,
shall be null and void ab initio, and the intended transferee will acquire no
rights to the shares. The foregoing restrictions on
4
<PAGE>
transferability and ownership will not apply if the Board of Trustees
determines, which determination must be approved by the shareholders, that it
is no longer in the best interests of the Company to attempt to qualify, or to
continue to qualify, as a REIT.
The Company's Board of Trustees has, by resolution, excluded from the
foregoing ownership restriction BHC and Gordon Burnam, Bonnie Burnam, Kimberly
Flower, P. Crismon Burnam, Michael G. Burnam, Timothy B. Burnam, any member of
their respective immediate families and any of their respective affiliates,
heirs, devisees, legal representatives, successors or beneficiaries (the
"Burnam Family"), who collectively may own up to 25% of the outstanding shares
of beneficial interest of the Company as a group. Additionally, the
Declaration of Trust excludes from the foregoing ownership restriction certain
Original Investors (and their transferees) who would exceed the Ownership
Limit as a result of the exchange of Units for Common Shares. In no event will
such persons be entitled to acquire additional shares of beneficial interest
of the Company such that the five largest beneficial owners of shares of
beneficial interest of the Company hold more than 50% of the total outstanding
shares.
Any shares the purported transfer of which would result in a person owning
shares of beneficial interest in excess of the Ownership Limit or cause the
Company to become "closely held" under Section 856(h) of the Code that is not
otherwise permitted as provided above will constitute excess shares ("Excess
Shares"), which will be transferred pursuant to the Declaration of Trust to a
party not affiliated with the Company designated by the Company as the trustee
of a trust for the exclusive benefit of an organization or organizations
described in Sections 170(b)(1)(A) and 170(c) of the Code and identified by
the Board of Trustees as the beneficiary or beneficiaries of the trust (the
"Charitable Beneficiary"), until such time as the Excess Shares are
transferred to a person whose ownership will not violate the restrictions on
ownership. While these Excess Shares are held in trust, they will not be
entitled to share in any distributions which will be paid to the trust for the
benefit of the Charitable Beneficiary and may only be voted by the trustee for
the benefit of the Charitable Beneficiary. Subject to the Ownership Limit, the
Excess Shares shall be transferred by the trustee at the direction of the
Company to any person (if the Excess Shares would not be Excess Shares in the
hands of such person). The purported transferee will receive the lesser of (i)
the price paid by the purported transferee for the Excess Shares (or, if no
consideration was paid, fair market value on the day of the event causing the
Excess Shares to be held in trust) and (ii) the price received from the sale
or other disposition of the Excess Shares held in trust. Any proceeds in
excess of the amount payable to the purported transferee will be paid to the
Charitable Beneficiary. In addition, such Excess Shares held in trust are
subject to purchase by the Company for a 90 day period at a purchase price
equal to the lesser of (i) the price paid for the Excess Shares by the
purported transferee (or, if no consideration was paid, fair market value at
the time of the event causing the shares to be held in trust) and (ii) the
fair market value of the Excess Shares on the date the Company elects to
purchase. Fair market value, for these purposes, means the last reported sales
price reported on the NYSE on the trading day immediately preceding the
relevant date, or if not then traded on the NYSE, the last reported sales
price on the trading day immediately preceding the relevant date as reported
on any exchange or quotation system over or through which the relevant class
of shares of beneficial interest may be traded, or if not then traded over or
through any exchange or quotation system, then the market price on the
relevant date as determined in good faith by the Board of Trustees of the
Company.
From and after the purported transfer to the purported transferee of the
Excess Shares, the purported transferee shall cease to be entitled to
distributions, voting rights and other benefits with respect to the Excess
Shares except the right to payment on the transfer of the Excess Shares as
described above. Any distribution paid to a purported transferee on Excess
Shares prior to the discovery by the Company that such Excess Shares have been
transferred in violation of the provisions of the Declaration of Trust shall
be repaid, upon demand, to the Company, which shall pay any such amounts to
the trust for the benefit of the Charitable Beneficiary. If the foregoing
transfer restrictions are determined to be void, invalid or unenforceable by
any court of competent jurisdiction, then the purported transferee of any
Excess Shares may be deemed, at the option of the Company, to have acted as an
agent on behalf of the Company in acquiring such Excess Shares and to hold
such Excess Shares on behalf of the Company.
5
<PAGE>
All certificates representing shares of beneficial interest will bear a
legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between 1/2 of 1% and 5%, as
provided in the rules and regulations promulgated under the Code) of the
number or value of the outstanding shares of beneficial interest of the
Company must give a written notice containing certain information to the
Company by January 31 of each year. In addition, each shareholder shall upon
demand be required to disclose to the Company in writing such information with
respect to the direct, indirect and constructive ownership of shares of
beneficial interest as the Board of Trustees deems reasonably necessary to
comply with the provisions of the Code applicable to a REIT, to determine the
Company's status as a REIT, to comply with the requirements of any taxing
authority or governmental agency or to determine any such compliance.
These ownership limitations could have the effect of discouraging a takeover
or other transaction in which holders of some, or a majority, of the Common
Shares might receive a premium for their shares over the then prevailing
market price or which such holders might believe to be otherwise in their best
interest.
SHAREHOLDER LIABILITY
Both Maryland statutory law governing real estate investment trusts
organized under the laws of that state and the Declaration of Trust provide
that no shareholder of the Company will be personally liable for any
obligations of the Company (other than the obligation to pay to the Company
the consideration for which shares were or are to be issued) solely by virtue
of his status as a shareholder. The Declaration of Trust further provides that
the Company shall indemnify each shareholder against claims or liabilities to
which the shareholder may become subject by reason of his being or having been
a shareholder, and that the Company shall reimburse each shareholder for all
legal and other expenses reasonably incurred by him in connection with any
such claim or liability, unless such claim or liability arises out of the
shareholder's bad faith, willful misconduct or gross negligence, and provided
that the shareholder gives prompt notice as to any such claims or liabilities
and takes such action as will permit the Company to conduct the defense
thereof. In addition, it is the Company's policy to include a clause in its
contracts which provides that shareholders assume no personal liability for
obligations entered into on behalf of the Company. However, with respect to
tort claims, contractual claims where shareholder liability is not so negated,
claims for taxes and certain statutory liability, a shareholder may, in some
jurisdictions, be personally liable to the extent that such claims are not
satisfied by the Company. Inasmuch as the Company carries public liability
insurance which it considers adequate, any risk of personal liability to
shareholders is limited to situations in which the Company's assets plus its
insurance coverage would be insufficient to satisfy the claims against the
Company and its shareholders.
TRANSFER AGENT AND REGISTRAR
Boatmen's Trust Company (510 Locust Street, St. Louis, Missouri 63178) has
been appointed as transfer agent and registrar for the Common Shares.
DESCRIPTION OF COMMON SHARE WARRANTS
The Company may issue Common Share Warrants for the purchase of Common
Shares. Common Share Warrants may be issued independently or together with any
other Offered Securities offered by any Prospectus Supplement and may be
attached to or separate from such Offered Securities. Each series of Common
Share Warrants will be issued under a separate warrant agreement (each, a
"Warrant Agreement") to be entered into between the Company and a warrant
agent specified in the applicable Prospectus Supplement (the "Warrant Agent").
The Warrant Agent will act solely as an agent of the Company in connection
with the Common Share Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of Common Share Warrants. The following summaries of certain
provisions of the
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Warrant Agreement and the Common Share Warrants do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
the provisions of the Warrant Agreement and the Common Share Warrant
certificates relating to each series of Common Share Warrants, which will be
filed, at or prior to the time of the issuance of such series of Common Share
Warrants, with the Commission as exhibits to a document incorporated by
reference in this Prospectus.
If Common Share Warrants are offered, the applicable Prospectus Supplement
will describe the terms of such Common Share Warrants, including the following
where applicable: (i) the offering price; (ii) the aggregate number of Common
Shares purchasable upon exercise of such Common Share Warrants and the
exercise price; (iii) whether such Common Share Warrants are being offered
with Common Shares and the number of such Common Share Warrants being offered
with such Common Shares; (iv) the date, if any, on and after which such Common
Share Warrants and the related Common Shares will be transferable separately;
(v) the date on which the right to exercise such Common Share Warrants shall
commence and the date on which such right shall expire (the "Expiration
Date"); (vi) any special United States federal income tax consequences; and
(vii) any other material terms of such Common Share Warrants.
Common Share Warrant certificates may be exchanged for new Common Share
Warrant certificates of different denominations, may (if in registered form)
be presented for registration of transfer, and may be exercised at the
corporate trust office of the Warrant Agent or any other office indicated in
the applicable Prospectus Supplement. Prior to the exercise of any Common
Share Warrants to purchase Common Shares, holders of such Common Share
Warrants will not have any rights of holders of such Common Shares, including
the right to receive payments of dividends, if any, on such Common Shares, or
to exercise any applicable right to vote.
To protect the Company's status as a REIT, restrictions on ownership of
Common Share Warrants similar to the restrictions on ownership of Common
Shares will be imposed and enforced. See "Description of Common Shares--
Restrictions on Transfer."
EXERCISE OF COMMON SHARE WARRANTS
Each Common Share Warrant will entitle the holder thereof to purchase such
number of Common Shares at such exercise price as shall in each case be set
forth in, or calculable from, the Prospectus Supplement relating to the
offered Common Share Warrants. After the close of business on the Expiration
Date (or such later date to which such Expiration Date may be extended by the
Company), unexercised Common Share Warrants will become void.
Common Share Warrants may be exercised by delivering to the Warrant Agent
payment as provided in the applicable Prospectus Supplement of the amount
required to purchase the Common Shares purchasable upon such exercise together
with certain information set forth on the reverse side of the Common Share
Warrant certificate. Common Share Warrants will be deemed to have been
exercised upon receipt of payment of the exercise price, subject to the
receipt within five (5) business days of the Common Share Warrant certificate
evidencing such Common Share Warrants. Upon receipt of such payment and the
Common Share Warrant certificate properly completed and duly executed at the
corporate trust office of the Warrant Agent or any other office indicated in
the applicable Prospectus Supplement, the Company will, as soon as
practicable, issue and deliver the Common Shares purchasable upon such
exercise. If fewer than all of the Common Share Warrants represented by such
Common Share Warrant certificate are exercised, a new Common Share Warrant
certificate will be issued for the remaining amount of Common Share Warrants.
AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
The Warrant Agreements may be amended or supplemented without the consent of
the holders of the Common Share Warrants issued thereunder to effect changes
that are not inconsistent with the provisions of the
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Common Share Warrants and that do not adversely affect the interests of the
holders of the Common Share Warrants.
ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of Common Shares covered by, Common Share
Warrants are subject to adjustment in certain events, including (i) payment of
a dividend on the Common Shares payable in shares of beneficial interest and
share splits, combinations or reclassifications of the Common Shares; (ii)
issuance to all holders of Common Shares of rights or warrants to subscribe
for or purchase Common Shares at less than their current market price (as
defined in the Warrant Agreement for such series of Common Share Warrants);
and (iii) certain distributions of evidences of indebtedness or assets
(including securities but excluding cash distributions paid out of
consolidated earnings or retained earnings or dividends payable in Common
Shares) or of subscription rights and warrants (excluding those referred to
above).
No adjustment in the exercise price of, and the number of Common Shares
covered by, a Common Share Warrant will be made for regular quarterly or other
periodic or recurring cash dividends or distributions or for cash dividends or
distributions to the extent paid from consolidated earnings or retained
earnings. No adjustment will be required unless such adjustment would require
a change of at least 1% in the exercise price then in effect. Except as stated
above, the exercise price of, and the number of Common Shares covered by, a
Common Share Warrant will not be adjusted for the issuance of Common Shares or
any securities convertible into or exchangeable for Common Shares, or carrying
the right or option to purchase or otherwise acquire the foregoing, in
exchange for cash, other property or services.
In the event of any (i) consolidation or merger of the Company with or into
any entity (other than a consolidation or a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding Common
Shares); (ii) sale, transfer, lease or conveyance of all or substantially all
of the assets of the Company; or (iii) reclassification, capital
reorganization or change of the Common Shares (other than solely a change in
par value or from par value to no par value), then any holder of a Common
Share Warrant will be entitled, on or after the occurrence of any such event,
to receive on exercise of such Common Share Warrant the kind and amount of
shares of beneficial interest or other securities, cash or other property (or
any combination thereof) that the holder would have received had such holder
exercised such holder's Common Share Warrant immediately prior to the
occurrence of such event. If the consideration to be received upon exercise of
the Common Share Warrant following any such event consists of common shares of
the surviving entity, then from and after the occurrence of such event, the
exercise price of such Common Share Warrant will be subject to the same anti-
dilution and other adjustments described in the second preceding paragraph,
applied as if such common shares were Common Shares.
DESCRIPTION OF SHAREHOLDER PURCHASE RIGHTS
As set forth under "Plan of Distribution" below, the Company may sell the
Offered Securities to investors directly through Shareholder Purchase Rights.
If Offered Securities are to be sold through Shareholder Purchase Rights, such
Shareholder Purchase Rights will be distributed as a dividend to the Company's
shareholders for which shareholders will pay no separate consideration. The
Prospectus Supplement with respect to the offer of Offered Securities pursuant
to Shareholder Purchase Rights will set forth the relevant terms of the
Shareholder Purchase Rights, including (i) whether Common Shares or Common
Share Warrants, or both, will be offered pursuant to the Shareholder Purchase
Rights and the number of Common Shares and Common Share Warrants, as
applicable, which will be offered pursuant to the Shareholder Purchase Rights,
(ii) the period during which and the price at which the Shareholder Purchase
Rights will be exercisable, (iii) the number of Shareholder Purchase Rights
then outstanding, (iv) any provisions for changes to or adjustments in the
exercise price of the Shareholder Purchase Rights and (v) any other material
terms of the Shareholder Purchase Rights. See "Plan of Distribution."
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S DECLARATION OF TRUST AND BYLAWS
The following paragraphs summarize material provisions of Maryland law, the
Declaration of Trust and the Bylaws. The summary does not purport to be
complete and reference is made to Maryland law as well as the Declaration of
Trust and the Bylaws, which are filed as exhibits to the Registration
Statement of which this Prospectus is a part.
BOARD OF TRUSTEES
The Declaration of Trust and the Bylaws provide that the number of Trustees
of the Company may be established by a majority of a quorum of the entire
Board of Trustees but may not be fewer than three nor more than fifteen. The
Declaration of Trust provides that a majority of the Trustees must be persons
who are not affiliated with any member of the Burnam Family or officers or
employees of the Company ("Independent Trustees"). Any vacancy on the Board of
Trustees will be filled, at any regular meeting or at any special meeting
called for that purpose, by a majority of the remaining Trustees (even if less
than a quorum), except that a vacancy resulting from an increase in the number
of Trustees will be filled by a majority of the entire Board of Trustees and,
in the event that a majority of the Board of Trustees are not Independent
Trustees by reason of the resignation or removal of one or more Independent
Trustees or otherwise, the remaining Independent Trustees (or, if there are no
Independent Trustees, the remaining members of the Board of Trustees) shall
promptly elect that number of Independent Trustees necessary to cause the
Board of Trustees to include a majority of Independent Trustees.
Pursuant to the terms of the Declaration of Trust, the Trustees are divided
into three classes, holding office initially for one-year, two-year and three-
year terms, respectively. As these initial terms expire, Trustees in each
class are elected for terms of three years and until their successors are duly
elected and qualified. The Company believes that classification of the Board
of Trustees will help to assure the continuity and stability of the Company's
business strategies and policies as determined by the Board of Trustees.
The classified Trustee provision could have the effect of making the removal
of incumbent Trustees more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its shareholders. At least two annual meetings of
shareholders, instead of one, will generally be required to effect a change in
a majority of the Board of Trustees.
Holders of Common Shares have no right to cumulative voting for the election
of Trustees. Consequently, at each annual meeting of shareholders, the holders
of a majority of Common Shares voting together as a single class will be able
to elect all of the successors of the Trustees whose terms expire at that
meeting. Trustees may be removed at any time by the affirmative vote of the
holders of two-thirds of the Common Shares.
BUSINESS COMBINATIONS
Under the Maryland General Corporation Law, as amended from time to time
(the "MGCL"), as applicable to Maryland real estate investment trusts, certain
"business combinations" (including a merger, consolidation, share exchange,
or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland real estate
investment trust and any person who beneficially owns 10% or more of the
voting power of the shares of the trust or an affiliate of the trust who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting shares of beneficial interest of the trust (an "Interested
Shareholder") or an affiliate thereof are prohibited for five years after the
most recent date on which the Interested Shareholder became an Interested
Shareholder. Thereafter, any such business combination must be (a) recommended
by the Board of Trustees of such trust and (b) approved by the affirmative
vote of at least (i) 80% of the votes entitled to be cast by holders of
outstanding voting shares of the trust and (ii) two-thirds of the votes
entitled to be cast by holders of outstanding voting
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shares (other than voting shares held by the Interested Shareholder with whom
the business combination is to be effected or by an affiliate or associate
thereof), voting together as a single group, unless, among other things, the
company's common shareholders receive a minimum price (as defined in the
statute) for their shares and the consideration is received in cash or in the
same form as previously paid by the Interested Shareholder for his shares.
These provisions of Maryland law do not apply, however, to business
combinations with a particular Interested Shareholder or its existing or
future affiliates that are approved or exempted by the board of trustees of
the trust prior to the time that the Interested Shareholder becomes an
Interested Shareholder or if the original declaration of trust includes a
provision electing not to be governed, in whole or in part, as to business
combinations generally, specifically or generally by types, as to identified
or unidentified existing or future Interested Shareholders or their
affiliates. The Declaration of Trust, in accordance with Maryland law, exempts
the Burnam Family from the foregoing restrictions. As a result, members of the
Burnam Family may be able to enter into business combinations with the
Company, which may not be in the best interests of the shareholders, without
compliance by the Company with the super-majority voting requirements and the
other provisions of the statute.
CONTROL SHARE ACQUISITIONS
The MGCL, as applicable to Maryland real estate investment trusts, imposes
limitations on the voting rights of shares acquired in a "control share
acquisition" relating to a Maryland real estate investment trust. The MGCL
defines a "control share acquisition" as the acquisition of "control shares,"
which is defined as voting shares that would entitle the acquiror to exercise
voting power in electing trustees in excess of the following levels of voting
power: 20%, 33 1/3%, and 50%. The MGCL requires a two-thirds shareholder vote
(excluding shares owned by the acquiring person and certain members of
management) to accord voting rights to shares acquired in a control share
acquisition. The MGCL also requires a Maryland real estate investment trust to
hold a special meeting at the request of an actual or proposed control share
acquiror generally within 50 days after a request is made with the submission
of an "acquiring person statement," but only if the acquiring person (a)
delivers a written undertaking to pay the expenses of such special meeting or,
if required by the Board of Trustees, posts a bond for the cost of the meeting
and (b) submits a definitive financing agreement to the extent that financing
is not provided by the acquiring person. In addition, unless the charter or
bylaws provide otherwise, the MGCL gives a Maryland real estate investment
trust, within certain time limitations, various redemption rights if there is
a shareholder vote on the issue and the grant of voting rights is not
approved, or if an "acquiring person statement" is not delivered to the target
company within 10 days following a control share acquisition. Moreover, unless
the charter or bylaws provide otherwise, the MGCL provides that if, before a
control share acquisition occurs, voting rights are accorded to the control
shares which results in the acquiring person having a majority of voting
power, then minority shareholders are entitled to appraisal rights. The fair
value of the shares as determined for purposes of such appraisal rights may
not be less than the highest price per share paid by the acquiror in the
control share acquisition. The control share acquisition statute does not
apply (a) to shares acquired in a merger, consolidation or share exchange if
the trust is a party to the transaction or (b) to acquisitions approved or
exempted by the declaration of trust or bylaws of the trust. The Declaration
of Trust, in accordance with Maryland law, contains a provision exempting
acquisitions of shares by the Burnam Family from the foregoing provisions.
AMENDMENT TO THE DECLARATION OF TRUST
The Declaration of Trust may be amended only by the affirmative vote or
written consent of the holders of not less than a majority of all of the
shares of beneficial interest entitled to vote on the matter, except that the
Trustees by a two-thirds vote may amend provisions of the Declaration of Trust
from time to time to qualify as a real estate investment trust under the Code
and the Maryland REIT Law.
TERMINATION OF THE COMPANY
The Declaration of Trust permits the termination of the Company and the
discontinuation of the operations of the Company by the affirmative vote or
written consent of the holders of not less than two-thirds of the outstanding
shares of beneficial interest.
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ADVANCE NOTICE OF TRUSTEE NOMINATIONS AND NEW BUSINESS
The Bylaws provide that (a) with respect to an annual meeting of
shareholders, nominations of persons for election to the Board of Trustees and
the proposal of business to be considered by shareholders may be made only (i)
pursuant to the Company's notice of the meeting, (ii) by or at the direction
of the Board of Trustees, or (iii) by a shareholder who is entitled to vote at
the meeting and has complied with the advance notice procedures set forth in
the Bylaws, and (b) with respect to special meetings of shareholders, only the
business specified in the Company's notice of meeting may be brought before
the meeting of shareholders, and, if the Board of Trustees has determined that
Trustees shall be elected at any such meeting, nominations of persons for
election to the Board of Trustees may be made only on terms similar to those
for annual meetings.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
DECLARATION OF TRUST AND BYLAWS
The business combination provisions and the control share acquisition
provisions of the MGCL, the provisions of the Declaration of Trust on
classification of the Board of Trustees and removal of Trustees and the
advance notice provisions of the Bylaws could delay, defer or prevent a
transaction or a change in control of the Company that might involve a premium
price for holders of Common Shares or otherwise be in their best interest.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a description of the material Federal income tax
consequences to the Company and its shareholders of the treatment of the
Company as a REIT. The discussion is general in nature and not exhaustive of
all possible tax considerations, nor does the discussion give a detailed
description of any state, local, or foreign tax considerations. The discussion
does not discuss all aspects of Federal income tax law that may be relevant to
a prospective shareholder in light of his particular circumstances or to
certain types of shareholders (including insurance companies, financial
institutions or broker-dealers, tax exempt organizations, foreign corporations
and persons who are not citizens or residents of the United States) subject to
special treatment under the federal income tax laws nor does the discussion
address special considerations, if any, which may relate to the purchase of
Common Share Warrants.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING,
AND EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH ITS TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE PURCHASE, OWNERSHIP AND
SALE OF THE OFFERED SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE, AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
If certain detailed conditions imposed by the REIT provisions of the Code
are met, entities, such as the Company, that invest primarily in real estate
and that otherwise would be treated for Federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to shareholders. This treatment
substantially eliminates the "double taxation" (i.e., at both the corporate
and shareholder levels) that generally results from the use of corporations.
If the Company fails to qualify as a REIT in any year, however, it will be
subject to Federal income taxation as if it were a domestic corporation, and
its shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In this event, the Company could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its shareholders would be reduced or eliminated.
The Company has elected REIT status effective for the taxable year ended
December 31, 1994, and the Board of Trustees of the Company believes that the
Company has operated and expects that the Company will continue to operate in
a manner that has enabled the Company to qualify as a REIT and will permit the
Company to maintain its REIT status in each taxable year thereafter. There can
be no assurance, however, that this belief
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or expectation will be fulfilled, since qualification as a REIT depends on the
Company continuing to satisfy numerous asset, income and distribution tests
described below, which in turn will be dependent in part on the Company's
operating results.
TAXATION OF THE COMPANY
General. In any year in which the Company qualifies as a REIT it will not,
in general, be subject to Federal income tax on that portion of its REIT
taxable income or capital gain which is distributed to shareholders. The
Company may, however, be subject to tax at normal corporate rates upon any
taxable income or capital gain not distributed.
Notwithstanding its qualification as a REIT, the Company may also be subject
to taxation in certain other circumstances. If the Company should fail to
satisfy either the 75% or the 95% gross income test (as discussed below), and
nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the greater of the
amount by which the Company fails either the 75% or the 95% test, multiplied
by a fraction intended to reflect the Company's profitability. The Company
will also be subject to a tax of 100% on net income from any "prohibited
transaction" as described below, and if the Company has (i) net income from
the sale or other disposition of "foreclosure property" which is held
primarily for sale to customers in the ordinary course of business or (ii)
other non-qualifying income from foreclosure property, it will be subject to
tax on such income from foreclosure property at the highest corporate rate. In
addition, if the Company should fail to distribute during each calendar year
at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior years, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. The Company may also be subject to the corporate
alternative minimum tax, as well as tax in certain situations not presently
contemplated. The Subsidiary Company will be taxed on its income at regular
corporate rates. The Company will use the calendar year both for Federal
income tax purposes and for financial reporting purposes.
In order to qualify as a REIT, the Company must meet, among others, the
following requirements:
Share Ownership Tests. The Company's shares of beneficial interest must be
held by a minimum of 100 persons for at least 335 days in each taxable year
(or a proportional number of days in any short taxable year). In addition, at
all times during the second half of each taxable year, no more than 50% in
value of the outstanding shares of beneficial interest of the Company may be
owned, directly or indirectly and by applying certain constructive ownership
rules, by five or fewer individuals, which for this purpose includes certain
tax-exempt entities. However, for purposes of this test, any shares of
beneficial interest held by a qualified domestic pension or other retirement
trust will be treated as held directly by its beneficiaries in proportion to
their actuarial interest in such trust rather than by such trust. These share
ownership requirements need not be met until the second taxable year of the
Company for which a REIT election is made.
In order to attempt to ensure compliance with the foregoing share ownership
tests, the Company has placed certain restrictions on the transfer of its
shares of beneficial interest to prevent additional concentration of share
ownership. Moreover, to evidence compliance with these requirements, under
Treasury regulations the Company must maintain records which disclose the
actual ownership of its outstanding shares of beneficial interest. In
fulfilling its obligations to maintain records, the Company must and will
demand written statements each year from the record holders of designated
percentages of its shares of beneficial interest disclosing the actual owners
of such shares of beneficial interest (as prescribed by Treasury regulations).
A list of those persons failing or refusing to comply with such demand must be
maintained as a part of the Company's records. A shareholder failing or
refusing to comply with the Company's written demand must submit with his tax
return a similar statement disclosing the actual ownership of Company shares
of beneficial interest and certain other information. In addition, the
Declaration of Trust provides restrictions regarding the transfer of its
shares of beneficial interest that are intended to assist the Company in
continuing to satisfy the share ownership requirements. See "Description of
Common Shares--Restrictions on Transfer."
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Asset Tests. At the close of each quarter of the Company's taxable year, the
Company must satisfy two tests relating to the nature of its assets (with
"assets" being determined in accordance with generally accepted accounting
principles). First, at least 75% of the value of the Company's total assets
must be represented by interests in real property, interests in mortgages on
real property, shares in other REITs, cash, cash items, government securities
and qualified temporary investments. Second, although the remaining 25% of the
Company's assets generally may be invested without restriction, securities in
this class may not exceed (i) in the case of securities of any one non-
government issuer, 5% of the value of the Company's total assets or (ii) 10%
of the outstanding voting securities of any one such issuer. Where the Company
invests in a partnership (such as the Operating Partnership), it will be
deemed to own a proportionate share of the partnership's assets. See""--Tax
Aspects of the Company's Investments in Partnerships--General." Accordingly,
the Company's investment in the Facilities through its interest in the
Operating Partnership is intended to constitute an investment in qualified
assets for purposes of the 75% asset test.
The Operating Partnership owns 100% of the non-voting preferred stock and 5%
of the voting stock of the Subsidiary Company. See "The Company." By virtue of
its partnership interest in the Operating Partnership, the Company is deemed
to own its pro rata share of the assets of the Operating Partnership,
including the securities of the Subsidiary Company, as described above.
Because the Operating Partnership owns only 5% of the voting securities of the
Subsidiary Company, and the preferred stock's approval right is limited to
certain fundamental corporate actions that could adversely affect the
preferred stock as a class, the 10% limitation on holdings of voting
securities of any one issuer should not be exceeded.
Based upon its analysis of the total estimated value of the Subsidiary
Company stock owned by the Operating Partnership relative to the estimated
value of the total assets owned by the Operating Partnership and the other
assets of the Company, the Company believes that the Company's pro rata share
of the stock of the Subsidiary Company owned by the Operating Partnership does
not exceed, on the date of this Prospectus, 5% of the value of the Company's
total assets. This 5% limitation must be satisfied not only as of the date
that the Company (directly or through the Operating Partnership) acquired
securities of the Subsidiary Company, but also at the end of any quarter in
which the Company increases its interest in the Subsidiary Company or so
acquires other property. In this respect, if the holder of a right to exchange
Units for Common Shares, including BHC or an Original Investor, exercises such
rights, the Company will thereby increase its proportionate (indirect)
ownership interest in the Subsidiary Company, thus requiring the Company to
meet the 5% test in any quarter in which such conversion option is exercised.
A similar result will follow in the case of any exchange of Units by Operating
Partnership or Subsidiary Company employees that they received pursuant to the
option plan established by the Company. Although the Company plans to take
steps to ensure that it satisfies the 5% value test for any quarter with
respect to which retesting is to occur, there can be no assurance that such
steps will always be successful or will not require a reduction in the
Operating Partnership's overall interest in the Subsidiary Company.
Gross Income Tests. There are three separate percentage tests relating to
the sources of the Company's gross income which must be satisfied for each
taxable year. For purposes of these tests, where the Company invests in a
partnership, the Company will be treated as receiving its share of the income
and loss of the partnership, and the gross income of the partnership will
retain the same character in the hands of the Company as it has in the hands
of the partnership. See "--Tax Aspects of the Company's Investments in
Partnerships--General" below. The three tests are as follows:
The 75% Test. At least 75% of the Company's gross income for the taxable
year must be "qualifying income." Qualifying income generally includes (i)
rents from real property (except as modified below); (ii) interest on
obligations secured by mortgages on, or interests in, real property; (iii)
gains from the sale or other disposition of interests in real property and
real estate mortgages, other than gain from property held primarily for sale
to customers in the ordinary course of the Company's trade or business
("dealer property"); (iv) dividends or other distributions on shares in other
REITs, as well as gain from the sale of such shares; (v) abatements and
refunds of real property taxes; (vi) income from the operation, and gain from
the sale, of property
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acquired at or in lieu of a foreclosure of the mortgage secured by such
property ("foreclosure property"); (vii) commitment fees received for agreeing
to make loans secured by mortgages on real property or to purchase or lease
real property; and (viii) certain qualified temporary investment income
attributable to the investment of new capital received by the Company in
exchange for its shares during the one-year period following the receipt of
such capital.
Rents received from a customer will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test described
below) if the Company, or an owner of 10% or more of the Company, directly or
constructively owns 10% or more of such tenant. In addition, if rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
rents from real property. Moreover, an amount received or accrued will not
qualify as rents from real property (or as interest income) for purposes of
the 75% and 95% gross income tests if it is based in whole or in part on the
income or profits of any person, although an amount received or accrued
generally will not be excluded from "rents from real property" solely by
reason of being based on a fixed percentage or percentages of receipts or
sales. Finally, for rents received to qualify as rents from real property for
purposes of the 75% and 95% gross income tests, the Company generally must not
operate or manage the property or furnish or render services to tenants, other
than through an "independent contractor" from whom the Company derives no
income, except that the "independent contractor" requirement does not apply to
the extent that the services provided by the Company are "usually or
customarily rendered" in connection with the rental of space for occupancy
only, or are not otherwise considered "rendered to the occupant for his
convenience."
The Company intends to monitor its operations in the context of these
standards so as to satisfy the 75% and 95% gross income tests. The Operating
Partnership provides certain services at the Facilities it owns and may
provide certain services at any newly acquired self-storage facilities of the
Operating Partnership. The Company believes for purposes of the 75% and 95%
gross income tests, that the services provided at such facilities and any
other services and amenities provided by the Operating Partnership or its
agents with respect to such facilities are and will continue to be of the type
usually or customarily rendered in connection with the rental of space for
occupancy only. The Company intends that services that cannot be provided
directly by the Operating Partnership, the Subsidiary Company or other agents
will be performed by independent contractors.
The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company's gross income for the
taxable year must be derived from the above-described qualifying income, or
from dividends, interest, or gains from the sale or other disposition of stock
or other securities that are not dealer property. Dividends and interest on
any obligations not collateralized by an interest in real property are
included for purposes of the 95% test, but not for purposes of the 75% test.
The Company intends to closely monitor its non-qualifying income and
anticipates that non-qualifying income from its other activities will not
result in the Company failing to satisfy either the 75% or 95% gross income
test. The Operating Partnership owns partnership interests in certain joint
ventures which own certain Facilities. No assurance can be given that such
partnerships will not realize non-qualifying income, in which case the
Operating Partnership's distributive share of such income would be non-
qualifying income.
For purposes of determining whether the Company complies with the 75% and
the 95% gross income tests, gross income does not include income from
prohibited transactions. A "prohibited transaction" is a sale of dealer
property (excluding foreclosure property); however, it does not include a sale
of property if such property is held by the Company for at least four years
and certain other requirements (relating to the number of properties sold in a
year, their tax bases, and the cost of improvements made thereto) are
satisfied. See "--Taxation of the Company--General" and "--Tax Aspects of the
Company's Investments in Partnerships--Sale of the Facilities."
The Company believes that, for purposes of both the 75% and the 95% gross
income tests, its investment in the Facilities through the Operating
Partnership will in major part give rise to qualifying income in the form of
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rents, and that gains on sales of the Facilities, or of the Company's interest
in the Operating Partnership, generally will also constitute qualifying
income.
Even if the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code. These
relief provisions will generally be available if: (i) the Company's failure to
comply was due to reasonable cause and not to willful neglect; (ii) the
Company reports the nature and amount of each item of its income included in
the tests on a schedule attached to its tax return; and (iii) any incorrect
information on this schedule is not due to fraud with intent to evade tax. If
these relief provisions apply, however, the Company will nonetheless be
subject to a 100% tax on the greater of the amount by which it fails either
the 75% or 95% gross income test, multiplied by a fraction intended to reflect
the Company's profitability.
The 30% Test. The Company must derive less than 30% of its gross income for
each taxable year from the sale or other disposition of (i) real property held
for less than four years (other than foreclosure property and involuntary
conversions); (ii) stock or securities (including an interest rate swap or cap
agreement) held for less than one year; and (iii) property in a prohibited
transaction. The Company does not anticipate that it will have difficulty in
complying with this test. However, if extraordinary circumstances were to
occur that give rise to dispositions of self-storage facilities held for less
than four years (for example, on account of the inability to obtain
refinancing), the 30% test could become an issue.
Annual Distribution Requirements. In order to qualify as a REIT, the Company
is required to distribute dividends (other than capital gain dividends) to its
shareholders each year in an amount at least equal to (A) the sum of (i) 95%
of the Company's REIT taxable income (computed without regard to the dividends
paid deduction and the Company's net capital gain) and (ii) 95% of the net
income (after tax), if any, from foreclosure property, minus (B) the sum of
certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if
declared before the Company timely files its tax return for such year and if
paid on or before the first regular dividend payment after such declaration.
To the extent that the Company does not distribute all of its net capital gain
or distributes at least 95%, but less than 100%, of its REIT taxable income,
as adjusted, it will be subject to tax on the undistributed amount at regular
capital gains or ordinary corporate tax rates, as the case may be.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the first sentence of the
preceding paragraph. In this regard, the Partnership Agreement authorizes the
Company, as general partner, to take such steps as may be necessary to cause
the Operating Partnership to distribute to its partners an amount sufficient
to permit the Company to meet these distribution requirements. It is possible
that the Company may not have sufficient cash or other liquid assets to meet
the 95% distribution requirement, due to timing differences between the actual
receipt of income and actual payment of expenses on the one hand, and the
inclusion of such income and deduction of such expenses in computing the
Company's REIT taxable income on the other hand; due to the Operating
Partnership's inability to control cash distributions with respect to any
properties as to which it does not have decision making control; or for other
reasons. To avoid a problem with the 95% distribution requirement, the Company
will closely monitor the relationship between its REIT taxable income and cash
flow and, if necessary, intends to borrow funds (or cause the Operating
Partnership or other affiliates to borrow funds) in order to satisfy the
distribution requirement. However, there can be no assurance that such
borrowing would be available at such time.
If the Company fails to meet the 95% distribution requirement as a result of
an adjustment to the Company's tax return by the Service, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the Company will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to shareholders in
any year in which the Company fails to qualify as a REIT will not be
deductible by the Company, nor generally will they be required
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to be made under the Code. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company
also will be disqualified from re-electing taxation as a REIT for the four
taxable years following the year during which qualification was lost.
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS
General. The Company holds a partnership interest in the Operating
Partnership. See "The Company." In addition, the Operating Partnership owns
partnership interests in several joint venture partnerships which own certain
Facilities. In general, a partnership is a "pass-through" entity which is not
subject to Federal income tax. Rather, partners are allocated their
proportionate shares of the items of income, gain, loss, deduction and credit
of a partnership, and are potentially subject to tax thereon, without regard
to whether the partners receive a distribution from the partnership. The
Company will include its proportionate share of the foregoing partnership
items for purposes of the various REIT gross income tests and in the
computation of its REIT taxable income. See "--Taxation of the Company--
General" and "--Gross Income Tests."
Each partner's share of a partnership's tax attributes is determined in
accordance with the partnership agreement, although the allocations will be
adjusted for tax purposes if they do not comply with the technical provisions
of Code Section 704(b) and the regulations thereunder. The Operating
Partnership's allocations of tax attributes are intended to comply with these
provisions. Notwithstanding these allocation provisions, for purposes of
complying with the gross incomes tests discussed above, the Company will be
deemed to have received a share of the income of the Partnership based on its
capital interest in the Operating Partnership.
Also, any resultant increase in the Company's REIT taxable income from its
interest in the Operating Partnership (whether or not a corresponding cash
distribution is also received from the Operating Partnership) will increase
its distribution requirements (see "--Taxation of the Company--Annual
Distribution Requirements"), but will not be subject to Federal income tax in
the hands of the Company provided that an amount equal to such income is
distributed by the Company to its shareholders. Moreover, for purposes of the
REIT asset tests (see "--Taxation of the Company--Asset Tests"), the Company
will include its proportionate share of assets held by the Operating
Partnership (including the Operating Partnership's share of assets held
through its interests in the joint venture partnerships).
Entity Classification. The Company's interest in the Operating Partnership
involves special tax considerations, including the possibility of a challenge
by the Service of the status of the Operating Partnership as a partnership (as
opposed to an association taxable as a corporation for Federal income tax
purposes). If the Operating Partnership were to be treated as an association,
it would be taxable as a corporation and therefore subject to an entity-level
tax on its income. In such a situation, the character of the Company's assets
and items of gross income would change, which would preclude the Company from
satisfying the REIT asset tests and the REIT gross income tests (see "--
Taxation of the Company--Asset Tests" and "--Gross Income Tests"), which in
turn would prevent the Company from qualifying as a REIT. (See "--Taxation of
the Company--Failure to Qualify" above, for a discussion of the effect of the
Company's failure to meet such tests.) A similar result could occur if any of
the joint venture partnerships in which the Operating Partnership owns a
partnership interest were classified as associations taxable as corporations.
Tax Allocations with Respect to the Facilities. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership (such as certain of the Facilities or interests
therein), 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 the 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
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accounts or other economic arrangements among the partners. The formation of
the Operating Partnership included contributions of appreciated property
(including certain of the Facilities or interests therein). Consequently, the
Partnership Agreement requires certain allocations to be made in a manner
consistent with Section 704(c) of the Code.
In general, certain contributors of certain of the Facilities or interests
therein will be allocated lower amounts of depreciation deductions for tax
purposes and increased taxable income and gain on sale by the Operating
Partnership on the contributed assets (including certain of such Facilities).
This will tend to eliminate the Book-Tax Difference over the life of the
Operating Partnership. However, the special allocation rules of Section 704(c)
do not always entirely rectify the Book-Tax Difference on an annual basis or
with respect to a specific taxable transaction such as a sale or a deemed
sale, and accordingly variations from normal Section 704(c) principles may
arise, which could result in the allocation of additional taxable income to
the Company in excess of corresponding cash proceeds in certain circumstances.
Treasury regulations issued under Section 704(c) of the Code provide
partnerships with a choice of several methods of accounting for Book-Tax
Differences, including retention of the method under current law. The
Operating Partnership and the Company will use the traditional method for
making allocations under Section 704(c) with respect to the existing
Facilities.
With respect to any property purchased by the Operating Partnership
subsequent to the admission of the Company to the Operating Partnership as
well as certain Facilities acquired in taxable transactions, in general, such
property will initially have a tax basis equal to its fair market value and
Section 704(c) of the Code will not apply.
Sale of the Facilities. The Company's share of any gain realized by the
Operating Partnership on the sale of any dealer property generally will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "Taxation of the Company--General" and "Gross Income Tests--
The 95% Test." Under existing law, whether property is dealer property is a
question of fact that depends on all the facts and circumstances with respect
to the particular transaction. The Operating Partnership intends to hold (and,
to the extent within its control, to have any joint venture in which the
Operating Partnership is a partner so hold) the Facilities for investment with
a view to long-term appreciation, to engage in the business of acquiring,
owning, operating and developing the Facilities and other self-storage
facilities, and to make such occasional sales of the Facilities and other
facilities acquired subsequent to the date hereof as are consistent with the
Company's investment objectives. Based upon the Company's investment
objectives, the Company believes that overall the Facilities should not be
considered dealer property and that the amount of income from prohibited
transactions, if any, will not be material.
TAXATION OF SHAREHOLDERS
Taxation of Taxable Domestic Shareholders. As long as the Company qualifies
as a REIT, distributions made to the Company's taxable domestic shareholders
out of current or accumulated earnings and profits (and not designated as
capital gain dividends) will be taken into account by them as ordinary income
and will not be eligible for the dividends received deduction for
corporations. Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the shareholder has held its shares of beneficial interest of
the Company. However, corporate shareholders may be required to treat up to
20% of certain capital gain dividends as ordinary income. To the extent that
the Company makes distributions in excess of current and accumulated earnings
and profits, these distributions are treated first as a tax-free return of
capital to the shareholder, reducing the tax basis of a shareholder's Common
Shares by the amount of such excess distribution (but not below zero), with
distributions in excess of the shareholder's tax basis being taxed as capital
gains (if the Common Shares are held as a capital asset). In addition, any
dividend declared by the Company in October, November or December of any year
and payable to a shareholder of record on a specific date in any such month
shall be treated as both paid by the Company and received by the shareholder
on December 31 of
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such year, provided that the dividend is actually paid by the Company during
January of the following calendar year. Shareholders may not include in their
individual income tax returns any net operating losses or capital losses of
the Company. Federal income tax rules may also require that certain minimum
tax adjustments and preferences be apportioned to Company shareholders.
In general, any loss upon a sale or exchange of Common Shares by a
shareholder who has held such Common Shares for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the extent of distributions from the Company required to be treated
by such shareholder as long-term capital gains.
Backup Withholding. The Company will report to its domestic shareholders and
to the Service the amount of dividends paid for each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such shareholder (i) is a
corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (ii) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding
rules. A shareholder that does not provide the Company with its correct
taxpayer identification number may also be subject to penalties imposed by the
Service. Any amount paid as backup withholding is available as a credit
against the shareholder's income tax liability. In addition, the Company may
be required to withhold a portion of capital gain distributions made to any
shareholders who fail to certify their non-foreign status to the Company. See
"Certain United States Tax Considerations for Non-U.S. Shareholders--
Distributions from the Company--Capital Gain Dividends" below.
Taxation of Tax-Exempt Shareholders. The Service has issued a revenue ruling
in which it held that amounts distributed by a REIT to a tax-exempt employees'
pension trust do not constitute unrelated business taxable income ("UBTI").
Subject to the discussion below regarding a "pension-held REIT," based upon
such ruling and the statutory framework of the Code, distributions by the
Company to a shareholder that is a tax-exempt entity should not constitute
UBTI, provided that the tax-exempt entity has not financed the acquisition of
its shares with "acquisition indebtedness" within the meaning of the Code,
that the shares are not otherwise used in an unrelated trade or business of
the tax-exempt entity, and that the Company, consistent with its present
intent, does not hold a residual interest in a REMIC.
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Code ("qualified pension trust") holds more than 10% by
value of the interests in a "pension-held REIT" at any time during a taxable
year, a portion of the dividends paid to the qualified pension trust by such
REIT may constitute UBTI. For these purposes, a "pension-held REIT" is defined
as a REIT if (i) such REIT would not have qualified as a REIT but for the
provisions of the Code which look through such a qualified pension trust in
determining ownership of shares of the REIT and (ii) at least one qualified
pension trust holds more than 25% by value of the interests of such REIT or
one or more qualified pension trusts (each owning more than a 10% interest by
value in the REIT) hold in the aggregate more than 50% by value of the
interests in such REIT. The Company does not expect to be a "pension-held
REIT."
OTHER TAX CONSIDERATIONS
Subsidiary Company. The income of the Subsidiary Company is subject to
federal and state income tax at full corporate rates, and the Subsidiary
Company cannot claim a deduction for the dividends it pays to its
shareholders, including the Company. To the extent that the Subsidiary Company
pays federal, state or local taxes, it will have less cash available to
distribute to its shareholders, thereby reducing cash available for
distribution by the Company to its shareholders. The Subsidiary Company will
attempt to minimize the amount of such taxes, but there can be no assurance
whether or the extent to which measures taken to minimize taxes will be
successful.
Possible Legislative or Other Actions Affecting Tax
Consequences. Prospective shareholders should recognize that the present
Federal income tax treatment of investment in the Company may be modified by
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legislative, judicial or administrative action at any time and that any such
action may affect investments and commitments previously made. The rules
dealing with Federal income taxation are constantly under review by persons
involved in the legislative process and by the Service and the Treasury
Department, resulting in revisions of regulations and revised interpretations
of established concepts as well as statutory changes. No assurance can be
given as to the form or content (including with respect to effective dates) of
any tax legislation which may be enacted. Revisions in Federal tax laws and
interpretations thereof could adversely affect the tax consequences of
investment in the Company.
In particular, the Treasury Department promulgated regulations on December
29, 1994 that would permit the Service to recharacterize transactions
involving partnerships purporting to create tax advantages inconsistent with
the intent of the partnership provisions of the Code. The intended application
of these regulations is uncertain. Nonetheless, although the matter is not
free from doubt, it is believed that these regulations will not adversely
affect the Company's ability to qualify as a REIT.
State and Local Taxes. The Company and its shareholders may be subject to
state or local taxation, and the Company and the Operating Partnership may be
subject to state or local tax withholding requirements, in various
jurisdictions, including those in which it or they transact business or
reside. The state and local tax treatment of the Company and its shareholders
may not conform to the Federal income tax consequences discussed above.
Consequently, prospective shareholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in Common
Shares.
CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-U.S. SHAREHOLDERS
The following is a discussion of certain anticipated U.S. Federal income and
U.S. Federal estate tax consequences of the ownership and disposition of
shares of beneficial interest applicable to Non-U.S. Shareholders of such
shares. A "Non-U.S. Shareholder" is (i) any individual who is neither a
citizen nor resident of the United States, (ii) any corporation or partnership
other than a corporation or partnership created or organized in the United
States or under the laws of the United States or any state thereof or under
the laws of the District of Columbia or (iii) any estate or trust that is not
"resident" in the United States. The discussion is based on current law and is
for general information only. The discussion does not address other aspects of
U.S. Federal taxation other than income and estate taxation or all aspects of
U.S. Federal income and estate taxation. The discussion does not consider any
specific facts or circumstances that may apply to a particular Non-U.S.
Shareholder.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME, ESTATE AND OTHER TAX
CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF BENEFICIAL INTEREST.
DISTRIBUTIONS FROM THE COMPANY
Ordinary Dividends. The portion of dividends received by Non-U.S.
Shareholders payable out of the Company's earnings and profits that are not
attributable to capital gains of the Company and that are not effectively
connected with a U.S. trade or business of the Non-U.S. Shareholder will be
subject to U.S. withholding tax at the rate of 30% (unless reduced by treaty
or the Non-U.S. Shareholder files an Internal Revenue Service Form 4224 with
the Company certifying that the investment to which the distribution relates
is effectively connected to a United States trade or business of such Non-U.S.
Shareholder). Under certain limited circumstances, the amount of tax withheld
may be refundable, in whole or in part, because of the tax status of certain
partners or beneficiaries of Non-U.S. Shareholders that are either foreign
partnerships or foreign estates or trusts. In general, Non-U.S. Shareholders
will not be considered engaged in a U.S. trade or business solely as a result
of their ownership of shares of beneficial interest. In cases where the
dividend income from a Non-U.S.
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Shareholder's investment in shares of beneficial interest is (or is treated
as) effectively connected with the Non-U.S. Shareholder's conduct of a U.S.
trade or business, the Non-U.S. Shareholder generally will be subject to U.S.
tax at graduated rates, in the same manner as U.S. shareholders are taxed with
respect to such dividends (and may also be subject to the 30% branch profits
tax (unless reduced by treaty) in the case of a Non-U.S. Shareholder that is a
foreign corporation).
Under currently applicable Treasury regulations, withholding agents are
required to determine the applicable withholding rate pursuant to the
appropriate tax treaty, and withhold the appropriate amount. Treasury
regulations proposed in 1996, which have not been adopted, and are, therefore,
not currently effective, would, if and when they become effective, require
Non-U.S. Shareholders to file a form W-8 to obtain the benefit of any
applicable tax treaty providing for a lower rate of withholding tax on
dividends paid after December 31, 1997. Such form would require a
representation by the holder as to foreign status, the holder's name and
permanent residence address, the basis for a reduced withholding rate (e.g.,
the relevant tax treaty) and other pertinent information, to be certified by
such holder under penalties of perjury. Such information is subject to being
reported to the Internal Revenue Service. A permanent resident address for
this purpose generally is the address in the country where the person claims
to be a resident for the purpose of the country's income tax. If the
beneficial holder is a corporation, then the address is where the corporation
maintains its principal office in its country of incorporation.
Capital Gain Dividends. Under the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"), any distribution made by the Company to a Non-U.S.
Shareholder, to the extent attributable to gains from dispositions of United
States Real Property Interests ("USRPIs") by the Company ("USRPI Capital
Gains"), will be considered effectively connected with a U.S. trade or
business of the Non-U.S. Shareholder and subject to U.S. income tax at the
rates applicable to U.S. individuals or corporations, without regard to
whether such distribution is designated as a capital gain dividend. In
addition, the Company will be required to withhold tax equal to 35% of the
amount of such distribution to the extent it constitutes USRPI Capital Gains.
Such distribution may also be subject to the 30% branch profits tax (unless
reduced by treaty) in the case of a Non-U.S. Shareholder that is a foreign
corporation.
Non-Dividend Distributions. Any distributions by the Company that exceed
both current and accumulated earnings and profits of the Company will not be
taxed as either ordinary dividends or capital gain dividends. See "Federal
Income Tax Considerations--Taxation of Shareholders--Taxation of Taxable
Domestic Shareholders." However, if it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current and accumulated earnings and profits, the distribution will be subject
to withholding. Should this occur, the Non-U.S. Shareholder may seek a refund
of over withholding from the Service once it is subsequently determined that
such distribution was, in fact, in excess of current and accumulated earnings
and profits of the Company.
DISPOSITIONS OF SHARES OF BENEFICIAL INTEREST
Unless the shares of beneficial interest constitute USRPIs, a sale or
exchange of shares of beneficial interest by a Non-U.S. Shareholder generally
will not be subject to U.S. taxation under FIRPTA. The shares of beneficial
interest will not constitute USRPIs if the Company is a "domestically
controlled REIT." A domestically controlled REIT is a REIT in which, at all
times during a specified testing period, less than 50% in value of its shares
is held directly or indirectly by Non-U.S. Shareholders. It is currently
anticipated that the Company will be a domestically controlled REIT and,
therefore, that the sale of shares of beneficial interest will not be subject
to taxation under FIRPTA. No assurance can be given that the Company will
continue to be a domestically controlled REIT.
If the Company does not constitute a domestically controlled REIT, a Non-
U.S. Shareholder's sale or exchange of shares of beneficial interest generally
will still not be subject to tax under FIRPTA as a sale of USRPIs provided
that (i) the Company's shares of beneficial interest are "regularly traded"
(as defined by applicable Treasury regulations) on an established securities
market (e.g., the NYSE, on which the Common Shares are listed) and (ii) the
selling Non-U.S. Shareholder held 5% or less of the Company's outstanding
shares of beneficial interest at all times during a specified testing period.
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If gain on the sale or exchange of shares of beneficial interest were
subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to
U.S. income tax at the rates applicable to U.S. individuals or corporations,
and the purchaser of shares of beneficial interest could be required to
withhold 10% of the purchase price and remit such amount to the Service. The
branch profits tax would not apply to such sales or exchanges.
Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Shareholder in two cases: (i) if the Non-U.S.
Shareholder's investment in shares of beneficial interest is effectively
connected with a U.S. trade or business conducted by such Non-U.S.
Shareholder, the Non-U.S. Shareholder will be subject to the same treatment as
U.S. shareholders with respect to such gain or (ii) if the Non-U.S.
Shareholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has a "tax home" in
the United States, the nonresident alien individual will be subject to 30% tax
on the individual's capital gain (unless reduced or eliminated by treaty).
FEDERAL ESTATE TAX
Shares of beneficial interest owned or treated as owned by an individual who
is not a citizen or "resident" (as specifically defined for U.S. Federal
estate tax purposes) of the United States at the time of death will be
includable in the individual's gross estate for U.S. Federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise. Such
individual's estate may be subject to U.S. Federal estate tax on the property
includable in the estate for U.S. Federal estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Service and to each Non-U.S.
Shareholder the amount of dividends (including any capital gain dividends)
paid to, and the tax withheld with respect to, each Non-U.S. Shareholder.
These reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable tax treaty. Copies of these returns may
also be made available under the provisions of a specific treaty or agreement
with the tax authorities in the country in which the Non-U.S. Shareholder
resides.
U.S. backup withholding (which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish the information required
under the U.S. information reporting requirements) and information reporting
will generally not apply to dividends (including any capital gain dividends)
paid on shares of beneficial interest to a Non-U.S. Shareholder at an address
outside the United States. The proposed Treasury regulations referred to under
"--Distributions from the Company--Ordinary Dividends," in general, would
similarly require a Non-U.S. Shareholder to provide the form W-8 previously
referred to in order for dividends paid after December 31, 1997 to be exempt
from backup withholding and information reporting.
The payment of the proceeds from the disposition of shares of beneficial
interest to or through a U.S. office of a broker will be subject to
information reporting and backup withholding unless the owner, under penalties
of perjury, certifies, among other things, its status as a Non-U.S.
Shareholder, or otherwise establishes an exemption. The payment of the
proceeds from the disposition of shares of beneficial interest to or through a
non-U.S. office of a non-U.S. broker generally will not be subject to backup
withholding and information reporting, except as noted below. In the case of a
payment of proceeds from the disposition of shares of beneficial interest to
or through a non-U.S. office of a broker which is (i) a U.S. person, (ii) a
"controlled foreign corporation" for U.S. Federal income tax purposes or (iii)
a foreign person 50% or more of whose gross income for certain periods is
derived from a U.S. trade or business, information reporting (but not backup
withholding) will apply unless the broker has documentary evidence in its
files that the holder is a Non-U.S. Shareholder (and the broker has no actual
knowledge to the contrary) and certain other conditions are met, or the holder
otherwise establishes an exemption. Under proposed Treasury regulations, a
payment of the proceeds from the disposition of shares of beneficial interest
to or through such broker will be subject to backup withholding if such broker
has actual knowledge that the holder is a U.S. person.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-U.S.
Shareholder's U.S. Federal income tax liability, provided that required
information is furnished to the Service.
These backup withholding and information reporting rules are currently under
review by the Treasury Department, and their application to shares of
beneficial interest is subject to change.
21
<PAGE>
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to
investors directly or through agents. Direct sales to investors may be
accomplished through subscription offerings or through Shareholder Purchase
Rights distributed to the Company's shareholders. See "Description of
Shareholder Purchase Rights." In connection with subscription offerings or the
distribution of Shareholder Purchase Rights to shareholders, if all of the
underlying Offered Securities are not subscribed for, the Company may sell
such unsubscribed Offered Securities to third parties directly or through
underwriters or agents and, in addition, whether or not all of the underlying
Offered Securities are subscribed for, the Company may concurrently offer
additional Offered Securities to third parties directly or through
underwriters or agents. Any such underwriter or agent involved in the offer
and sale of the Offered Securities will be named in the applicable Prospectus
Supplement.
The distribution of the Offered Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed,
or at prices related to the prevailing market prices at the time of sale or at
negotiated prices (any of which may represent a discount from the prevailing
market prices). The Company also may, from time to time, authorize
underwriters acting as the Company's agents to offer and sell the Offered
Securities upon the terms and conditions as are set forth in the applicable
Prospectus Supplement. In connection with the sale of Offered Securities,
underwriters may be deemed to have received compensation from the Company in
the form of underwriting discounts or commissions and may also receive
commissions from purchasers of Offered Securities for whom they may act as
agent. Underwriters may sell Offered Securities to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters,
dealers and agents participating in the distribution of the Offered Securities
may be deemed to be underwriters, and any discounts and commissions received
by them and any profit realized by them on resale of the Offered Securities
may be deemed to be underwriting discounts and commissions, under the
Securities Act. Underwriters, dealers and agents may be entitled, under
agreements entered into with the Company, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the
date or dates stated in such Prospectus Supplement. Each Contract will be for
an amount not less than, and the aggregate principal amount of Offered
Securities sold pursuant to Contracts shall be not less nor more than, the
respective amounts stated in the applicable Prospectus Supplement.
Institutions with whom Contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases be subject to the approval of the Company. Contracts will
not be subject to any conditions except (i) the purchase by an institution of
the Offered Securities covered by its Contracts shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the United States
to which such institution is subject; and (ii) if the Offered Securities are
being sold to underwriters, the Company shall have sold to such underwriters
the total principal amount of the Offered Securities less the principal amount
thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and its subsidiaries
in the ordinary course of business.
22
<PAGE>
EXPERTS
The consolidated and combined financial statements of Storage Trust Realty
and Predecessor Company (as defined in such financial statements) at December
31, 1995 and 1994, and for each of the three years in the period ended
December 31, 1995, incorporated by reference in this Prospectus and the
Registration Statement of which this Prospectus is a part, have been audited
by Ernst & Young LLP (successor to Kenneth Leventhal & Company), independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such financial statements are, and audited
financial statements to be included in subsequently filed documents will be,
incorporated herein by reference in reliance upon the reports of Ernst & Young
LLP pertaining to such financial statements (to the extent covered by consents
filed with the Securities and Exchange Commission) given upon the authority of
such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters relating to the validity of the Offered Securities
will be passed upon for the Company by Mayer, Brown & Platt. Mayer, Brown &
Platt has in the past represented and is currently representing the Company
and certain of its affiliates. Mayer, Brown & Platt will rely upon the opinion
of Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland, as to certain
matters of Maryland law, including the validity of the Offered Securities.
23
<PAGE>
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NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCOR-
PORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN CON-
NECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPEC-
TUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RE-
LIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEI-
THER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PRO-
SPECTUS SUPPLEMENT OR IN THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTI-
TUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SO-
LICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary............................................ S-3
The Company.............................................................. S-6
Use of Proceeds.......................................................... S-8
Price Range of Common Shares and Distribution History.................... S-9
Capitalization........................................................... S-10
Selected Financial Information........................................... S-10
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-13
Properties............................................................... S-16
Management............................................................... S-24
Underwriting............................................................. S-26
Experts.................................................................. S-27
Legal Matters............................................................ S-27
PROSPECTUS
Available Information.................................................... 2
Incorporation by Reference............................................... 2
The Company.............................................................. 3
Use of Proceeds.......................................................... 3
Description of Common Shares............................................. 3
Description of Common Share Warrants..................................... 6
Description of Shareholder Purchase Rights............................... 8
Certain Provisions of Maryland Law and of the Company's Declaration of
Trust and Bylaws........................................................ 9
Federal Income Tax Considerations........................................ 11
Certain United States Tax Considerations for Non-U.S. Shareholders....... 19
Plan of Distribution..................................................... 22
Experts.................................................................. 23
Legal Matters............................................................ 23
</TABLE>
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3,600,000 SHARES
STORAGE TRUST
REALTY
COMMON SHARES
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
EVEREN SECURITIES, INC.
RAYMOND JAMES & ASSOCIATES, INC.
ROBERTSON, STEPHENS & COMPANY
JUNE , 1996
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