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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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STORAGE TRUST REALTY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 43-1689825
(STATE OF ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION
NUMBER)
2407 RANGELINE STREET MICHAEL G. BURNAM
COLUMBIA, MISSOURI 65202 2407 RANGELINE STREET
(573) 499-4799 COLUMBIA, MISSOURI 65202
(ADDRESS, INCLUDING ZIP CODE, AND (573) 499-4799
TELEPHONE NUMBER, INCLUDING AREA (NAME, ADDRESS, INCLUDING ZIP CODE,
CODE, AND TELEPHONE NUMBER, INCLUDING
OF REGISTRANT'S PRINCIPAL EXECUTIVE AREA CODE, OF AGENT FOR SERVICE)
OFFICES)
COPY TO:
EDWARD J. SCHNEIDMAN
MAYER, BROWN & PLATT
190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box: [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this form is a post-effective amendment filed pursuant to Rule 462(e)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT AGGREGATE AGGREGATE AMOUNT OF
SECURITY TO BE TO BE PRICE OFFERING PRICE REGISTRATION
REGISTERED REGISTERED PER SHARE (1) (1) FEE
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<S> <C> <C> <C> <C>
Common Shares of 1,000,000 Shares $24.6875 $24,687,500 $7,282.82
Beneficial Interest, (2)
par value $0.01 per
share................
</TABLE>
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(1) Estimated solely for purposes of determining the registration fee.
(2) There are hereby registered such indeterminate number of Shareholder
Purchase Rights as may be issued as a dividend, for which no separate
consideration will be received, to holders of Common Shares of Beneficial
Interest entitling such holders to subscribe for and purchase Common
Shares of Beneficial Interest registered hereunder.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
PROSPECTUS
STORAGE TRUST REALTY
DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN
COMMON SHARES OF BENEFICIAL INTEREST, $.0L PAR VALUE
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Storage Trust Realty (the "Company") is offering its shareholders and other
investors the opportunity to purchase its Common Shares of Beneficial
Interest, $.0l par value ("Common Shares") pursuant to the Company's Dividend
Reinvestment and Share Purchase Plan (the "Plan"). The Plan allows
shareholders to automatically reinvest all or a portion of cash dividends that
the Company may declare at a 3% discount from current market prices and
without brokerage commissions or other expense. The Plan also provides a
method for all investors to purchase Common Shares directly from the Company
at current market prices without brokerage commissions or other expense.
Participants in the Plan may:
. Automatically reinvest cash dividends on the Common Shares (or preferred
shares, if outstanding) held in their name and on all Common Shares held
for them in the Plan at a 3% discount (subject to change) from current
market prices.
. Make additional investments as often as once a month, at current market
prices, by sending a check or money order to the Plan administrator. These
optional investments must be for at least $100 and no more than $5,000 in
any one month. Optional cash investments in excess of $5,000 may be made
with permission of the Company.
. Make automatic monthly investments by authorizing electronic funds
transfers from participants' banking or checking accounts. Automated funds
transfers may be for as little as $100 per month, but in no case for more
than $5,000 per month.
. Deposit share certificates for safekeeping, withdraw any or all Common
Shares from safekeeping or instruct the Plan agent to sell some or all of
the Common Shares held in a Plan account on their behalf.
Common Shares will be purchased by the Administrator (defined below)
directly from the Company or in open market or privately negotiated
transactions, as determined from time to time by the Company to fulfill
requirements for the Plan. At present, the Company expects that Common Shares
generally will be purchased directly from the Company.
Common Shares purchased directly from the Company pursuant to an optional
cash investment of more than $5,000 (with permission of the Company) may be
priced at a discount from recent market prices (determined in accordance with
the Plan) ranging from 0% to 5%. This discount, if offered, may be adjusted by
the Company in its discretion at any time. In no event will the purchase price
be less than 95% of the Common Shares Market Value (defined below) on the
relevant Investment Date (defined below). No discount will be available for
Common Shares purchased in the open market or in privately negotiated
transactions.
Persons who are not already shareholders may make an initial purchase of
Common Shares directly from the Company, at current market prices, in any
amount between $250 and $5,000. Once a Plan account has been established,
dividends will automatically be reinvested at a 3% discount from current
market prices and optional monthly investments may be made within the
guidelines described above.
Shareholders who have their Common Shares registered in "street-name" may
also participate in the Plan to the extent that their bank, broker or other
custodian has procedures in place that will allow them to do so.
The Chase Manhattan Bank, or such successor administrator as the Company may
designate, is the administrator of the Plan (the "Administrator") and acts as
agent for participants. Certain of the administrative support will be provided
to the Administrator by ChaseMellon Shareholder Services, LLC, a registered
transfer agent.
This Prospectus relates to 1,000,000 Common Shares offered for purchase
under the Plan. It should be retained for future reference. The Company's
Common Shares are presently listed for trading on the New York Stock Exchange
under the symbol SEA. In order to maintain its qualification as a real estate
investment trust for federal income tax purposes, the Company's Declaration of
Trust imposes limitations on the number of Common Shares of capital stock that
may be owned by any single person or affiliated group. See "The Plan--
Restrictions on Ownership of Common Shares."
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 date of this Prospectus is December , 1997.
<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"). Such reports, proxy statements and
other information can be inspected and copied at the Public Reference Section
maintained by the Commission at Room 1024, 450 Fifth Street, NW, Washington,
D.C. 20549; Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and New York Regional Office, 7 World Trade Center,
New York, New York 10048. Such reports, proxy statements and other information
concerning the Company can also be inspected at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005. Such reports, proxy
statements and other information concerning the Company can also be accessed
on the Commission's web site at http://www.sec.gov.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon their written or oral request, a copy of
any or all of the documents incorporated herein by reference (other than
exhibits to such documents). Written requests for such copies should be
addressed to 2407 Rangeline Street, Columbia, MO 65202, Attn: Controller--
External Reports, telephone number (573) 499-4799.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Common Shares offered
hereby. For further information with respect to the Company and the Common
Shares offered hereby, reference is made to the Registration Statement and
exhibits thereto. Statements contained in this Prospectus as to the contents
of any contract or other documents are not necessarily complete, and in each
instance, reference is made to the copy of such contract or documents filed as
an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company under the Exchange Act with the
Commission are incorporated in this Prospectus by reference and are made a
part hereof:
1. The Company's Annual Report on Form 10-K, as amended (File no. 1-13462),
for the year ended December 31, 1996.
2. The Company' Quarterly Reports on Form 10-Q (File no. 1-13462) for the
quarters ended March 31, 1997, June 30, 1997 and September 30, 1997.
3. The Company's Current Reports on Form 8-K (File no. 1-13462) dated April
14, 1997, June 16, 1997 and October 14, 1997 and October 15, 1997.
4. The description of the Common Shares contained in the Company's
registration statement (File no. 33-83016) on Form S-11 dated November
8, 1994.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to termination
of the offering of the Common Shares to which this Prospectus relates shall be
deemed to be incorporated by reference in this Prospectus and shall be part
hereof from the date of filing of such document. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus (in the
case of a statement in a previously filed document incorporated or deemed to
be incorporated by reference herein or in any other subsequently filed
document that is also incorporated or deemed to be incorporated by reference
herein) modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
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<PAGE>
constitute a part of this Prospectus. Subject to the foregoing, all information
appearing in this Prospectus is qualified in its entirety by the information
appearing in the documents incorporated by reference.
THE COMPANY
The Company was formed as a Maryland real estate investment trust ("REIT") on
July 12, 1994 to continue the self-storage business of Burnam Holding Companies
Co. ("BHC") and certain of its affiliates (collectively, the "Predecessor
Company") in owning, operating and managing self-storage facilities. The
Company and its subsidiaries commenced operations effective with the completion
of the Company's initial public offering on November 16, 1994. As of September
30, 1997, the Company owned 181 self-storage facilities in 16 states and was a
partner in two joint ventures that owned two operating self-storage facilities.
The Company's executive offices are located at 2407 Rangeline Street,
Columbia, MO 65202 and its telephone number is (573) 499-4799.
USE OF PROCEEDS
The Company does not know the number of Common Shares that will ultimately be
purchased from the Company pursuant to the Plan, or the prices at which such
Common Shares will be purchased. The proceeds from purchases of Common Shares
from the Company under the Plan will be used to continue the Company's real
estate acquisition, development and investment activities and for general
corporate purposes. Pending such uses, net proceeds may be invested temporarily
in short-term investments consistent with the Company's investment policies and
qualification as a REIT.
THE PLAN
PURPOSE AND FEATURES OF THE PLAN
The purpose of the Plan is to provide Company shareholders and other
investors with a convenient and economical way to purchase Common Shares, to
systematically build their investment through automatic dividend reinvestment
and optional cash investments and to sell some or all of their Common Shares
when they wish to do so, either through the Plan Administrator or through a
broker of their choice.
The Plan also provides a convenient and economical way for the Company to
obtain new equity capital each month to continue its investment opportunities
and for general corporate purposes. The 3% discount from current market prices
that Plan participants will receive upon reinvestment of dividends allows
investors to share the cost savings the Company expects to realize from the
sale of its Common Shares pursuant to the Plan. There is no limit on the amount
of dividends which may be reinvested under the Plan. The Plan also provides the
Company a means of raising additional capital through the direct sale of Common
Shares to shareholders or other investors making optional cash investments.
Common Shares purchased directly from the Company under the Plan pursuant to a
Request for Waiver may, at the option of the Company, be issued at a discount
to the market price without payment of brokerage commissions. Initially,
optional cash investments of less than $5,000 will not be subject to a
discount, but the Company reserves the right to grant a discount in the future.
The maximum amount of any optional cash purchases under the Plan is $5,000 per
month, unless permission is obtained from the Company. In no event will the
purchase price of Common Shares acquired from the Company be less than 95% of
their Market Value on the relevant Investment Date.
Disadvantages of participation in the Plan include the inability of
participants to know the price of Common Shares purchased under the Plan until
the purchase is actually made, the possibility of delays in withdrawals from
the Plan or in execution of sales of Common Shares held through the Plan, the
inability of participants to
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pledge Common Shares held through the Plan, and additional complexity in
keeping records of share transactions for tax purposes. Also, the reinvestment
of dividends does not relieve participants of any income taxes that may be
payable (or required to be withheld) on dividends. See "Federal Income Tax
Considerations Relating to the Plan", "Federal Income Tax Considerations
Relating to the Company's Treatment as a REIT--Taxation of Shareholders" and
"Certain United States Tax Considerations for Non-U.S. Shareholders."
The Plan is intended for the benefit of investors in the Company and not for
individuals or investors who engage in transactions which may cause
aberrations in the price or trading volume of Common Shares. From time to
time, financial intermediaries may engage in positioning transactions, such as
short sales of Common Shares, in order to benefit from the discount from the
market price of the Common Shares acquired through the reinvestment of
dividends under the Plan. Such transactions may cause fluctuations in the
trading volume of the Common Shares. Although the Company believes it is
possible that such transactions may occur, the Company does not currently
expect such transactions to occur to a significant extent. The Company
reserves the right to modify, suspend or terminate participation in the Plan
by otherwise eligible persons in order to eliminate practices which are not
consistent with the purposes of the Plan. The following description
constitutes the Plan.
ADMINISTRATION OF THE PLAN
The Plan will be administered by The Chase Manhattan Bank or such successor
administrator as the Company may designate (the "Administrator"). The
Administrator acts as agent for Participants, keeps records of the accounts of
Participants, sends regular account statements to Participants, and performs
other duties relating to the Plan. Common Shares purchased for each
Participant under the Plan will be held by the Administrator and will be
registered in the name of the Administrator or its nominee on behalf of the
Participants, unless and until a Participant requests that a stock certificate
for all or part of such Common Shares be issued. The Administrator also serves
as dividend disbursement agent, transfer agent, and registrar for the Common
Shares. Correspondence with the Administrator should be sent to:
ChaseMellon Shareholder Services Or if using overnight courier service:
P.O. Box 3338 ChaseMellon Shareholder Services
South Hackensack, NJ 07606-1938 Attn: Investor Services
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
HOW TO ENROLL
Any person or entity, whether or not a holder of record of Common Shares, is
eligible to participate in the Plan, provided that such person or entity
fulfills the prerequisites for participation described below. In addition,
participation in the Plan by persons or entities who are citizens or residents
of a country other than the United States, its territories and possessions
must not violate local laws applicable to the Company or the participant
governing such matters as taxes, currency and exchange controls, stock
registration, foreign investments and related matters.
After being furnished with a copy of this Prospectus, eligible applicants
may join the Plan in the following manner:
. Existing shareholders of record can sign up for the automatic dividend
reinvestment feature (either full or partial reinvestment) of the Plan at
any time by signing and returning a completed Enrollment Form to the
Administrator. The dividend reinvestment feature will take effect
immediately, as long as enrollment forms are received before the dividend
record date (dividend record dates normally occur on approximately the
fifteenth day of March, June, September and December, as established by the
Company's board of trustees). Existing shareholders of record can also use
the Enrollment Form to make optional cash investments in
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Common Shares of any amount between $100 and $5,000. Checks and money
orders should be made payable to The Chase Manhattan Bank and sent directly
to the Administrator.
. The Enrollment Form allows those who are not shareholders of the Company to
make initial cash investments for any amount between $250 and $5,000, by
enclosing a check or money order with the Form. Checks and money orders
should be made payable to The Chase Manhattan Bank and sent directly to the
Administrator.
. Participants may also enroll in the Automatic Cash Investment Program. The
enrollment form for this program must be accompanied by a voided bank check
or deposit slip for the account from which the participant authorizes the
Administrator to draw the funds. Once the form is received and processed
(which normally takes approximately two weeks) funds will automatically be
deducted from the designated account approximately three business days
prior to the 15th day of the month and will be invested on the 15th day of
the month or, if this occurs on a weekend or holiday, the next business
day. Automated funds transfers may be for as little as $100 per month, but
in no case for more than $5,000 per month.
. Optional cash investments in excess of $5,000 may be made with permission
of the Company. (See optional cash investments on page 6.)
Beneficial owners of Common Shares whose Common Shares are registered in
names other than their own (for instance, in the name of a broker, bank,
nominee or other record holder) must either arrange participation with the
broker, bank, nominee or other record holder or have their Common Shares
transferred into their own names. The Company reserves the right to refuse to
permit a broker, bank, nominee or other record holder to participate in the
Plan if the terms of such participation would in the Company's judgment result
in excessive cost or burden to the Company or endanger the Company's status as
a REIT. The Company also reserves the right to exclude from participation in
the Plan persons who utilize the Plan to engage in short-term trading
activities which cause aberrations in the composite trading volume or price of
the Common Shares.
The Company may also permit holders of any series of preferred shares it may
issue to reinvest dividends from such preferred shares in Common Shares
through the Plan on the same terms and conditions as applicable to
reinvestment of Common Share dividends. The Company does not have any
preferred shares outstanding at this time.
Any Participant who returns a properly executed Enrollment Form to the
Administrator without electing a dividend reinvestment option will be enrolled
as having made no dividend reinvestment.
PURCHASE PROCEDURES, PRICES AND CUSTODY OF COMMON SHARES
If Common Shares are being acquired for the Plan directly from the Company,
dividends and optional cash investments will be invested on the payment date
during a month in which a cash dividend is paid and, in any other month, on
the fifteenth calendar day of such month or, if this occurs on a weekend or
holiday, the next business day (both dates are referred to as "Investment
Date") (see Schedule A). Initial and optional cash payments (except those
permitted by the Company exceeding $5,000) must be received at least two
business days prior to the regularly scheduled Investment Date in order to be
invested with that month's investment. Any funds received after the deadline
will be invested with the next monthly investment. No interest will be paid on
any funds held by the Administrator between Investment Dates. Accordingly,
participants are urged to time their investments so that they will be received
by the Administrator shortly before, but not after, the Investment Date or to
enroll in the Automatic Funds Transfer Option which assures the most timely
transfer of funds to the Administrator.
If Common Shares are being acquired for the Plan through open market or
privately negotiated transactions, the Company will pay the dividends to the
Administrator on the subject Investment Date. The Administrator will apply all
such dividends together with all optional cash investments the Administrator
has received from investors relating to the Investment Date to the purchase of
Common Shares pursuant to the Plan as soon as practicable on or after the
Investment Date, but in no event later than 10 trading days after the
Investment Date.
The price of Common Shares acquired through the Plan as a result of the
reinvestment of dividends will be 97% of the average of the high and low
prices reported by the New York Stock Exchange for the Investment Date. The
price of all other Common Shares acquired through the Plan (except those
optional cash payments
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permitted by the Company exceeding $5,000) will be 100% of the average of the
high and low prices reported by the New York Stock Exchange for the Investment
Date. "Market Value" of such Common Shares on such dates is defined as the
average of the high and low price reported by the New York Stock Exchange for
Common Shares acquired on an Investment Date.
Cash payments will not be accepted by the Administrator if a participant
imposes any restrictions with respect to the number of Common Shares to be
purchased (other than electing a partial dividend reinvestment), the price at
which Common Shares are to be purchased, the timing of a purchase or what the
Participant's balance will be following a purchase. In addition, the
Administrator cannot purchase Common Shares for a Participant without advance
payment, nor can it refund any part of a participant's cash payment unless a
written request for a refund is received by the Administrator at least two
business days before the applicable Purchase Date. It is not possible for the
Administrator to tell a participant in advance how much money to send for the
purchase of a full or fractional share because the per share price will not be
known until the Common Shares are purchased.
All or a portion of the dividends paid on Common Shares held in a
Participant's Plan account may be reinvested pursuant to the Plan. If any
dividend or cash payment is not sufficient to purchase a whole Common Share, a
fractional share equivalent will be credited to a participant's account and
will earn a proportionate share of future dividends.
A Participant in the Plan will also be permitted to instruct the
Administrator not to reinvest dividends on the Common Shares in the
Participant's Plan account but rather to forward such dividends to the
Participant by check. Any instructions to stop reinvesting dividends or to
resume reinvesting dividends should be given in the form of a letter to the
Administrator and will only be effective for a particular Common Share dividend
if received by the Administrator on or before the applicable dividend record
date.
No interest will be paid on any funds held by the Administrator in a Plan
account.
A Participant may also deposit Common Shares currently held by the
Participant or by other custodians to a Plan account. This relieves a Plan
Participant of the expense and risk of loss, theft or destruction from holding
share certificates, or of having them in several locations, and can provide
consolidated statements of investment activities and holdings in the Company's
Common Shares. A Participant wishing to deposit Common Shares should send the
applicable certificates, unendorsed, to the Administrator by registered or
certified mail, at the address specified above, together with a cover letter
instructing the Administrator to hold the Common Shares in safekeeping. There
is no charge for this service.
OPTIONAL CASH INVESTMENTS
All registered holders, including brokers, banks and nominees with respect to
Common Shares registered in their name on behalf of beneficial owners that have
submitted signed Enrollment Forms are eligible to make optional cash
investments at any time.
A broker, bank or nominee, as holder on behalf of a beneficial owner, may
utilize an Enrollment Form for optional cash investments unless it holds the
Common Shares in the name of a securities depository. In that event, the
optional cash investment must be accompanied by a Broker and Nominee Form ("B/N
Form").
The B/N Form provides the sole means whereby a broker, bank or other nominees
holding Common Shares on behalf of beneficial owners in the name of a
securities depository may make optional cash investment on behalf of such
beneficial owners. In such case, the broker, bank or other nominee must use a
B/N Form for transmitting optional cash investments on behalf of the beneficial
owners. A B/N Form must be delivered to the Administrator each time that such
broker, bank or the nominee transmits optional cash investments on behalf of
the beneficial owners. B/N forms will be furnished by the Administrator upon
request.
Other interested investors that are not shareholders of the Company, but have
submitted Enrollment Forms, are also eligible to make an initial investment in
Common Shares through an optional cash investment.
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The Common Shares purchased directly from the Company with optional cash
investments permitted by the Company exceeding $5,000 will be acquired at a
price to the Participant of the average of the daily high and low sales prices
computed up to seven decimal places, if necessary, of the Common Shares as
reported on the NYSE for the twelve Trading Days immediately preceding the
applicable Investment Date. Additionally, for optional cash investments the
Company may provide a discount of 0% to 5% from such twelve-day average for
Common Shares purchased directly from the Company. A "Trading Day" means a day
on which trades in Common Shares are reported on the NYSE. The period
encompassing the first twelve Trading Days immediately preceding the next
following Investment Date constitutes the relevant "Pricing Period." In no
event, however, will the price of such Common Shares be less than 95% of their
Market Value on the relevant Investment Date.
The Administrator will apply optional cash investments permitted by the
Company in excess of $5,000 for which good funds are received on or before the
first business day before the Pricing Period to the purchase of Common Shares
on the next following Investment Date, or if Common Shares are acquired on the
open market or in privately negotiated transactions, as soon as practicable on
or after such Investment Date.
No interest will be earned on optional cash investment held pending
investment. The Company suggests therefore that any optional cash investments
a participant wishes to make be sent so as to reach the Administrator as close
as possible to the first business day preceding the Pricing Period for the
next following Investment Date. Any questions regarding these dates should be
directed to the Administrator.
All optional cash investments received by the Administrator after the close
of business on the last business day immediately preceding the first day of
the Pricing Period and before the next succeeding Investment Date will
promptly be returned to the Participant without interest.
Participants should be aware that since investments under the Plan are made
as of specified dates, one may lose any advantage that otherwise might be
available from being able to select the timing of an investment. Neither the
Company nor the Administrator can assure a profit or protect against a loss on
Common Shares purchased under the Plan.
All optional cash investments made by check should be made payable to The
Chase Manhattan Bank and mailed to the Administrator. Other forms of payment,
such as wire transfers, may be made, but only if approved in advance by the
Administrator. Inquiries regarding other forms of payments and all other
inquiries should be directed to the Administrator.
For any Investment Date, optional cash investments made by shareholders of
the Company are subject to a minimum of $100 and a maximum of $5,000 and
optional cash investments made by interested investors who are not then
shareholders of the Company are subject to a minimum initial investment of
$250 and a maximum of $5,000. Optional cash investments of less than the
allowable monthly minimum amount and that portion of any optional cash
investment that exceeds the allowable monthly maximum amount will be returned
promptly to Participants without interest, except as noted below.
Optional cash investments in excess of $5,000 per month may be made only
pursuant to a Request of Waiver accepted by the Company. Participants who wish
to submit an optional cash investment in excess of $5,000 for any Investment
Date must obtain the prior written approval of the Company and a copy of such
written approval must accompany any such optional cash investment. A Request
for Waiver should be directed to the Company via facsimile at (573) 442-5554,
Attn: Chief Financial Officer, telephone number (573) 499-4799. The Company
has sole discretion to grant any approval for optional cash investments in
excess of the allowable maximum amount. In deciding whether to approve a
Request for Waiver, the Company will consider relevant factors including, but
not limited to, whether the Plan is then acquiring newly issued Common Shares
directly from the Company or acquiring Common Shares in the open market or in
privately negotiated transactions from third parties, the Company's need for
additional funds, the attractiveness of obtaining such additional funds
through the sale of Common Shares as compared to other sources of funds, the
purchase price likely to apply to any sale of Common Shares, the Participant
submitting the request, the extent and nature of
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such Participant's prior participation in the Plan, the number of Common
Shares held of record by such Participant and the aggregate amount of optional
cash investments in excess of $5,000 for which amount of optional cash
investments in excess of $5,000 for which Requests for Waiver have been
submitted by all Participants. If Requests for Waiver are submitted for any
Investment Date for an aggregate amount in excess of the amount the Company is
then willing to accept, the Company may honor such requests in order of
receipt, pro rata or by any other method that the Company determines to be
appropriate. With regard to optional cash investments made pursuant to a
Request for Waiver, the Plan does not provide for a predetermined maximum
limit on the amount that a participant may invest or on the number of Common
Shares that may be purchased pursuant.
The Company reserves the right to modify, suspend or terminate participation
in the Plan by otherwise eligible registered holders or beneficial owners of
Commons Shares for any reason whatsoever including elimination of practices
that are not consistent with the purposes of the plan.
The Company may establish for any Pricing Period a minimum price (the
"Threshold Price") applicable to optional cash investments made pursuant to
Requests for Waiver. At least three business days prior to the first day of
the applicable Pricing Period, the Company will determine whether to establish
a Threshold Price, and if a Threshold Price is established, its amount, and
will so notify the Administrator (see Schedule A). This determination will be
made by the Company in its discretion after a review of current market
conditions, the level of participation in the plan, and current and projected
capital needs.
If established for any Pricing Period, the Threshold Price will be stated as
a dollar amount that the average of the high and low sale prices of the Common
Shares on the NYSE for each Trading Day of the relevant Pricing Period must
equal or exceed. In the event that the Threshold Price is not satisfied for a
Trading Day in the Pricing Period, then that Trading Day will be excluded from
the Pricing Period and all trading prices for that day will be excluded from
the determination of the purchase price. A day will also be excluded if no
trades of Common Shares are made on the NYSE for that day. Thus for example,
if the Threshold Price is not satisfied for three of the twelve Trading Days
in a Pricing Period, then the purchase price will be based upon the remaining
nine Trading Days in which the Threshold Price was satisfied.
In addition, a portion of each optional cash investment will be returned for
each Trading Day of a Pricing Period in which the Threshold Price is not
satisfied or for each day in which no trades of Common Shares are reported on
the NYSE. The returned amount will equal one-twelfth of the total amount of
such optional cash investment (not just the amount exceeding $5,000) for each
Trading Day that the Threshold Price is not satisfied. Thus, for example, if
the Threshold Price is not satisfied or no such sales are reported for three
of the twelve Trading Days in a Pricing Period, 3/12 (i.e., 25%) of such
optional cash investment will be returned to the Participant without interest.
The establishment of the Threshold Price and the possible return of a
portion of the investment applies only to optional cash investments made
pursuant to a Request for Waiver. Setting a Threshold Price for a Pricing
Period shall not affect the setting of a Threshold Price for any subsequent
Pricing Period. For any particular month, the Company may waive its right to
set a Threshold Price. Neither the Company nor the Administrator shall be
required to provide any written notice to Participants as to the Threshold
Price for any Pricing Period. Participants may, however, ascertain whether a
Threshold Price has been set or waived for any given Pricing Period by
telephoning the Controller, External Reports at (573) 499-4799. Each month, at
least three business days prior to the first day of the applicable Pricing
Period, the Company may establish a discount from the market price applicable
to optional cash investments made pursuant to a Request for Waiver. Such
discount (the "Waiver Discount") may be between 0% and 5% of the purchase
price and may vary each month, but once established will apply uniformly to
all optional cash investments made pursuant to a Request for Waiver for that
month. The Waiver Discount will be established in the Company's sole
discretion after a review of current market conditions, the level of
participation in the Plan, and current and projected capital needs.
Participants may obtain the Waiver Discount applicable to the next Pricing
Period by telephoning the Controller, External Reports at (573) 499-4799.
Setting a Waiver Discount for a particular month shall not affect the setting
of a Waiver discount for any subsequent month. The Waiver Discount will apply
to the entire optional cash investment and not just the portion
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of such investment that exceeds $5,000. The Waiver Discount will apply only to
optional cash investments of $5,000 or more, but the Company reserves the
right to establish, in the future, a discount from the market price for
optional cash investments of $5,000 or less.
SALES OF COMMON SHARES THROUGH THE PLAN
Participants may instruct the Administrator to sell some or all of their
Common Shares by notifying the Administrator in writing or by using the form
included with account statements.
The Administrator will sell Common Shares through a registered broker dealer
within five business days after receipt of a proper written notice and will
remit a check for the proceeds of such sale, less applicable brokerage
commissions, service charges and any taxes. Common Shares to be sold may be
commingled with those of other participants requesting sale of their Common
Shares, and the proceeds to each participant will be based on the average
price for all Common Shares sold during the day of sale. Participants should
understand that the price of the Common Shares may go down as well as up
between the date a request to sell is received and the date the sale is
executed. The Plan does not offer the ability for participants to specify
either the dates or the prices at which Common Shares are to be sold through
the Administrator.
If a request to sell Common Shares is received on or after the record date
for a dividend, any cash dividend paid on such Common Shares will be
reinvested. The request to sell Common Shares will then be processed as soon
as practicable after the dividend is reinvested and the additional Common
Shares are credited to the participant's account.
WITHDRAWALS AND TRANSFERS OF COMMON SHARES FROM THE PLAN
Participants may instruct the Administrator in writing to issue share
certificates for some or all of the Common Shares they have in the Plan,
either by letter or by using the form provided with account statements.
Participants may also instruct the Administrator in the same manner to
transfer Common Shares to one or more persons. All transfers must be for one
full share or more and will be subject to the same legal requirements as the
transfer of share certificates, including a requirement for signature
guarantees. There is no charge for these services.
Participants who wish to stop reinvesting their dividends through the Plan
but leave their Common Shares in the custody of the Administrator for
convenience, or to avoid the risk of loss, theft or destruction of their
certificates, may stop reinvesting dividends without withdrawing from the Plan
by sending a letter instructing the Administrator to stop reinvesting
dividends. See "Purchase Procedures, Prices and Custody of Common Shares"
above.
If a request to withdraw or transfer Common Shares is received on or after
the record date for a dividend, any cash dividend paid on such Common Shares
will be reinvested. The request to withdraw or transfer Common Shares will
then be processed as soon as practicable after the dividend is reinvested and
the additional Common Shares are credited to the participant's account.
VOTING OF COMMON SHARES
Plan participants will receive proxy materials covering the Common Shares in
the Plan and any Common Shares they may hold in certificate form. Common
Shares will be voted only as participants or their duly authorized
representatives instruct.
SHARE DIVIDENDS, SPLITS AND SUBSCRIPTION RIGHTS
Any share dividend or share split that may be declared by the Company will
be automatically credited to a participant's Plan account. In the event that
the Company makes subscription rights to purchase additional
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Common Shares or other securities available to the holders of its Common
Shares, the Administrator will sell the rights accruing to all Common Shares
held by the Administrator for Plan participants and will apply the net proceeds
of such sale to the purchase of Common Shares prior to or with the next monthly
Common Share investment. The Company will, however, inform participants in
advance of any subscription offer so that a participant who does not want the
Administrator to sell such rights and invest the proceeds can transfer all
Common Shares held under the Plan to the participant's own name by a given
date. This will permit the participant to personally exercise, transfer or sell
the rights on such Common Shares. Any such request must be received by the
Administrator at least three business days before the record date for
distribution of the rights.
TERMINATION OF REINVESTMENT OF DIVIDENDS
A participant may terminate reinvestment of dividends through the Plan by
writing to the Administrator. A participant may request (1) that the
Administrator send all dividends to the participant by check and continue to
hold the participant's Common Shares in the Plan account, (2) that the
Administrator discontinue any automatic withdrawals of funds and purchase of
Common Shares, (3) that a certificate be issued for all full Common Shares held
for such participant's account and a check be issued for the proceeds from the
sale of any fractional share equivalent, or (4) that all full Common Shares and
any fractional share equivalent held for such participant's account be sold and
a check issued for the net proceeds, less any applicable transfer tax. If such
a request is received on or after the record date for a dividend, any cash
dividend paid on that account will be reinvested for the account. The request
will then be processed as soon as practicable after the dividend is reinvested
and the additional Common Shares are credited to the participant's account.
There will be no cost to a participant with respect to termination of a
participant's reinvestment of dividends through the Plan other than the
brokerage costs described above under "Sales of Common Shares Through the Plan"
with respect to any Common Shares sold.
If a participant in the Plan does not own at least one whole share registered
in the Participant's name or held through the Plan, the Participant's
participation in the Plan may be terminated. The Company may also terminate the
Plan or any Participant's participation in the Plan after written notice in
advance mailed to such Participant at the address appearing on the
Administrator's records. Participants whose participation in the Plan has been
terminated will receive certificates for whole Common Shares held in their
accounts and a check for the cash value of any fractional share held in any
Plan account so terminated.
RESPONSIBILITIES OF THE COMPANY AND THE ADMINISTRATOR UNDER THE PLAN
Neither the Company nor the Administrator will be liable for any good faith
act or for any good faith failure to act, including any claim or liability
arising from failure to terminate a Participant's account upon such
participant's death, for the prices at which Common Shares are purchased for a
Participant's account or for fluctuations in the market value of the Common
Shares. Neither the Administrator, the Company nor any agent for either shall
have any duties, responsibilities or liabilities except such as are expressly
set forth in the Plan. Since the Company has delegated responsibility for
administering the Plan to the Administrator, the Company specifically disclaims
any responsibility for any of the Administrator's actions or inactions in
connection with the administration of the Plan. None of the trustees, officers
or shareholders of the Company shall have any personal liability under the
Plan. Any such limited liability provisions do not extend to violations of the
federal securities laws.
The Company's obligation to offer, issue or sell Common Shares under the Plan
is subject to the Company's obtaining any necessary approval, authorization and
consent from any regulatory authorities having jurisdiction over the issuance
and sale of the Common Shares. The Company may elect not to offer or sell
Common Shares under the Plan to persons residing in any jurisdiction where, in
the sole discretion of the Company, the burden or expense of compliance with
applicable blue sky or securities laws make that offer or sale impracticable or
inadvisable.
The Company reserves the right to modify, suspend or terminate the Plan at
any time. The Company established the discount from current market value for
dividend reinvestment after a review of market conditions,
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the desired level of participation in the Plan, requirements of the federal tax
laws in connection with the Company's continued status as a REIT, the terms of
similar plans maintained by other companies in the REIT industry, and the
Company's current and projected capital needs. The Company may increase or
decrease the discount from current market value for dividend reinvestment or
establish such a discount for optional cash purchases, without any requirement
of shareholder or participant approval, based on the same factors. Participants
in the Plan will be notified of any suspension, termination or significant
modification of the Plan. The Administrator may terminate the participation of
any account by written notice to the participant and to the Company. The
Company reserves the right to terminate any person's participation in the Plan
at any time and to establish additional requirements with respect to
participation in the Plan by brokers, banks and others acting in a
representative capacity on behalf of owners or prospective owners of Common
Shares. The Company reserves the right to interpret and regulate the Plan at
its discretion.
The risk to participants is the same as with any other investment in Common
Shares of the Company. Participants must recognize that neither the Company nor
the Administrator can in any way assure a profit or protect against a loss to a
participant on Common Shares purchased under the Plan.
The Company takes no position on whether current shareholders or other
investors should participate in the Plan.
RESTRICTIONS ON OWNERSHIP OF COMMON SHARES
For the Company to qualify as a REIT for federal income tax purposes, no more
than 50% in value of its outstanding capital Common Shares may be owned,
directly or indirectly, by five or fewer individuals (as defined in the law to
include certain entities) during the last half of a taxable year or during a
proportionate part of a shorter taxable year, and the Common Shares must also
be beneficially owned 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 continue to qualify as a REIT, the Amended and Restated
Declaration of Trust of the Company contains a restriction intended to ensure
compliance with these requirements which authorizes, but does not require, the
board of trustees to refuse to give effect to a transfer of Common Shares
which, in its opinion, might jeopardize the status of the Company as a REIT.
This provision also renders null and void any purported acquisition of Common
Shares which would result in the disqualification of the Company as a REIT. The
provision also gives the board of trustees the authority to take such actions
as it deems advisable to enforce the provision. Such actions might include, but
are not limited to, refusing to give effect to, or seeking to enjoin, a
transfer which might jeopardize the Company's status as a REIT. The provision
also requires any shareholder to provide the Company such information regarding
his direct and indirect ownership of Common Shares as the Company may
reasonably require.
FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE PLAN
Participants are encouraged to consult their personal tax advisors with
specific reference to their own tax situations and potential changes in the
applicable law as to all federal, state, local, foreign and other tax matters
in connection with the reinvestment of distributions and purchase of Common
Shares acquired under the Plan and character, amount and tax treatment of any
gain or loss realized on the disposition of Common Shares. The following is a
brief summary of the material federal income tax considerations applicable to
the Plan, is for general information only, and is not tax advice.
In the case of Common Shares purchased by the Administrator from the Company
pursuant to reinvestment of distributions, a Participant will be treated for
federal income tax purpose as having received a distribution equal to the fair
market value, as of the Investment Date, of the Common Shares purchased with
reinvested distributions. The 3% or other discount will be treated as being
part of the distribution received. With respect to Common Shares purchased by
the Administrator out of distributions from the Company in open market
transactions or in negotiated transactions with third parties, the Internal
Revenue Service has indicated in
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somewhat similar situations that the amount of distribution received by a
Participant would include the fair market value of the Common Shares purchased
with reinvested distributions and a pro-rata share of any brokerage
commissions or other related charges ("Commissions") paid by the Company in
connection with the Administrator's purchase of the Common Shares on behalf of
the participant. The Internal Revenue Service also has indicated in somewhat
similar situations that a Participant who makes an optional cash purchase of
Common Shares under the Plan will be treated as having received a distribution
equal to the excess of the fair market value on the Investment Date of such
Common Shares over the amount of the optional cash payment made by the
participant. Also, if the Common Shares are acquired by the Administrator in
an open market transaction or in a negotiated transaction with third parties,
then the Internal Revenue Service may assert that a Participant will be
treated as receiving a distribution equal to the pro-rata share of any
Commissions paid by the Company on behalf of the Participant. While the matter
is not free from doubt, the Company intends to take the position that
administrative expenses of the Plan paid by the Company are not constructive
distributions to Participants. The amount to be invested for a Participant
with reinvested cash distributions will be reduced by any amount the Company
is required to withhold for federal income tax purposes. For more information
concerning taxation of the distributions described above, see "Federal Income
Tax Considerations Relating to the Company's Treatment as a REIT--Taxation of
Shareholders" and "Certain United States Tax Considerations for Non-U.S.
Shareholders," below.
A Participant's tax basis in his or her Common Shares acquired under the
Plan will generally include the total amount of distributions a Participant is
treated as receiving (as described above). A Participant's holding period in
such Common Shares generally begins on the day following the date on which
such Common Shares are credited to the Participant's Plan account.
A gain or loss may also be recognized upon a Participant's disposition of
Common Shares received from the Plan. The amount of any such gain or loss will
be the difference between the amount realized (generally the amount of cash
received) for the whole or fractional Common Shares and the tax basis of such
Common Shares. Generally, gain or loss recognized on the disposition of Common
Shares acquired under the Plan will be treated for federal income tax purposes
as a capital gain or loss.
FEDERAL INCOME TAX CONSIDERATIONS
RELATING TO THE COMPANY'S TREATMENT AS A REIT
The Company and its affiliates constitute a self-administered and self-
managed REIT engaged in the self-storage business. The Company and its
affiliates own, manage, lease, acquire and develop self-storage facilities
("Facilities"). 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.
The remaining ownership interests in the Operating Partnership (the "Units")
are primarily held by certain owners of the predecessor company,
(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 packaging supplies, the processing of customer
property insurance and the rental of trucks at various Facilities.
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.
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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
Internal Revenue Code of 1986, as amended (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 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. For taxable years beginning after August 5, 1997, the Taxpayer
Relief Act of 1997 (the "1997 Act") permits a REIT, with respect to
undistributed net capital gains it received during the taxable year, to
designate in a notice mailed to shareholders within 60 days of the end of the
taxable year (or in a notice mailed with its annual report for the taxable
year) such amount of such gains which its shareholders are to include in their
taxable income as long-term capital gains. Thus, if the Company made this
designation, the shareholders of the Company would include in their income as
long-term capital gains their proportionate share of the undistributed net
capital gains as designated by the Company, and the Company would have to pay
the tax on
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such gains within 30 days after the close of its taxable year. Each
shareholder of the Company would be deemed to have paid such shareholders
share of the tax paid by the Company on such gains, which tax would be
credited or refunded to the shareholder. A shareholder would increase his tax
basis in his Company stock by the difference between the amount of gain to the
holder resulting from the designation less the holders credit or refund for
the tax paid by the Company. 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 Common Shares 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
Common Shares 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 Common 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 the actuarial interest in such trust rather
than by such trust. Under the 1997 Act, for taxable years beginning after
August 5, 1997, if the Company complies with the Treasury Regulations for
ascertaining its actual ownership and did not know, or exercising reasonable
diligence would not have reason to know, that more than 50% in value of its
outstanding Common Shares of stock were held, actually or constructively, by
five or fewer individuals, then the Company will be treated as meeting such
requirement. 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
Common Shares 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 Common Shares. In fulfilling its obligations to maintain
record, the Company must and will demand written statements each year from the
record holders of designated percentages of its Common Shares disclosing the
actual owners of such Common Shares (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 Common
Shares of beneficial interest and certain other information. In addition, the
Declaration of Trust provides restrictions regarding the transfer of its
Common Shares of beneficial interest that are intended to assist the Company
in continuing to satisfy the share ownership requirements.
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, Common 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 partnerships 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. By virtue of its partnership
interest in the Operating Partnership, the Company is deemed
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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 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 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 Partnerships overall interest in the
Subsidiary Company.
Gross Income Tests. There are currently 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 table 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 Common Shares in other REFITS, as
well as gain from the sale of such Common Shares; (v) abatements and refunds
of real property taxes; (vi) income from the operation, and gain from the
sale, of property 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 Common 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 receipt or
sales. Finally, for rents received to qualify as rents from real property for
purposes of the 75% and 95% gross income tests, the
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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." For taxable years beginning after August 5,
1997, a REIT is permitted to render a de minimis amount of impermissible
services to tenants, or in connection with the management of property, and
still treat amounts received with respect to that property as rent from real
property. The amount received or accrued by the REIT during a taxable year for
impermissible services with respect to a property may not exceed one percent
of all amounts received or accrued by the REIT directly or indirectly from the
property during the taxable year. The amount received for any service (or
management operation) for this purpose shall be deemed to be not less than
150% of the direct cost of the REIT in furnishing or rendering the service (or
providing the management or operation).
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 partnerships 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
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 whether
the 75% or 95% gross income test, multiplied by a fraction intended to reflect
the Company's profitability.
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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. The 30% gross income test
has been repealed by the 1997 Act for taxable years beginning after August 5,
1997.
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. For taxable years beginning after August 5,
1997, the 1997 Act (i) expands the class of non-cash income that is excluded
from the distribution requirement to include income from the cancellation of
indebtedness and (ii) extends the treatment of original issue discount ("OID")
(over cash and the fair market value of property received on the instrument)
as such non-cash income to OID instruments generally and for REITs, like the
Company, that use an accrual method of accounting. 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. For taxable years beginning after August 5, 1997, the 1997 Act permits
a REIT, with respect to undistributed net capital gains it received during the
taxable year to designate in a notice mailed to shareholders within 60 days of
the end of the taxable year (or in a notice mailed with its annual report for
the taxable year) such amount of such gains which its shareholders are to
include in their taxable income as long-term capital gains. Thus, if the
Company made this designation, the shareholders of the Company would include
in their income as long-term capital gains their proportionate share of the
undistributed net capital gains as designated by the Company, and the Company
would have to pay the tax on such gains within 30 days after the close of its
taxable year. Each shareholder of the Company would be deemed to have paid
such shareholder's share of the tax paid by the Company on such gains, which
tax would be credited or refunded to the shareholder. A shareholder would
increase his tax basis in his Company stock by the difference between the
amount of gain to the holder resulting from the designation less the holders
credit or refund for the tax paid by the Company.
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 of the
Operating Partnership (the "Partnership Agreement") authorizes the Company, as
a 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 Internal Revenue Service, the
Company may retroactively cure the failure by paying a deficiency dividend
(plus applicable penalties and interest) within a specified period.
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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 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. 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 Common
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
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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 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 of corporations.
Distributions (and for tax years beginning after August 5, 1997, undistributed
amounts) 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 Common 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
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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 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.
The recently enacted 1997 Act made certain changes to the Code with respect
to taxation of long-term capital gains earned by taxpayers other than a
corporation. In general, for sales made after May 6, 1997, the maximum tax
rate for individual taxpayers on net long-term capital gains (i.e., the excess
of net long-term capital gain over net short-term capital loss) is lowered to
20% for most assets. This 20% rate applies to sales on or after July 29, 1997
only if the asset was held for more than 18 months at the time of disposition.
Capital gains on the disposition of assets on or after July 29, 1997 held for
more than one year and up to 18 months at the time of disposition will be
taxed as "mid-term gain" at a maximum rate of 28%. Also, so called
"unrecaptured section 1250 gain" is subject to a maximum federal income tax
rate of 25%. "Unrecaptured section 1250 gain" generally includes the long-term
capital gain realized on (i) the sale after May 6, 1997 of a real property
asset described in section 1250 of the Code or (ii) the sale after July 28,
1997 of a real property asset described in Section 1250 of the Code which the
taxpayer has held for more than 18 months, but in each case not in excess of
the amount of depreciation (less the gain, if any, treated as ordinary income
under Code Section 1250) taken on such asset. A rate of 18% instead of 20%
will apply after December 31, 2000 for assets held for more than 5 years.
However, the 18% rate applies only to assets acquired after December 31, 2000
unless the taxpayer elects to treat an asset held prior to such date as sold
for fair market value on January 1, 2001. In the case of individuals whose
ordinary income is taxed at a 15% rate, the 20% rate is reduced to 10% and the
10% rate for assets held for more than 5 years is reduced to 8%.
The Internal Revenue Service in Notice 97-59, 1997-45 I.R.B. 1, recently
indicated that in their view, consistent with pending legislation (see H.R.
2645, 105th Cong. Section 5 (d)(1997)), the new capital gain provisions of the
1997 Act generally may be applied by separating long-term capital gains and
losses into a (i) 28% tax rate group for gains and losses on (a) assets held
for more than 12 months and disposed of prior to May 7, 1997, (b) assets held
for more than 12 months but not more than 18 months and disposed of after July
28, 1997, and (c) certain other assets, (ii) 25% tax rate group for gain which
is "unrecaptured section 1250 gain", i.e., long-term capital gain, not
otherwise recaptured as ordinary income, attributable to depreciation of real
property which has been held for more than 18 months if disposed of after July
28, 1997 (or more than 12 months if disposed of after May 6, 1997 and before
July 29, 1997) and (iii) 20% tax rate group for gains and losses on most
assets held for more than 18 months and disposed of after July 28, 1997 (or
more than 12 months if disposed of after May 6, 1997 and before July 29,
1997). In general, capital gain in the 28% tax rate group is reduced by (x)
capital losses in that group, (y) net short-term capital losses (i.e. the
excess of capital losses over capital gains from assets held for 12 months or
less at the time of their disposition) and (z) long-term loss carryovers. If
such losses exceed the gains in that group the excess first reduces
unrecaptured Section 1250 gain (if any) and any remaining excess next reduces
net gain in the 20% group (if any). A net loss for the 20% group is used first
to reduce net gain from the 28% group, then to reduce gain from the 25% group.
In addition, the Internal Revenue Service in Notice 97-64, 1997-47 I.R.B. 1,
describes temporary regulations to be issued concerning the applicability of
the new capital gain rules for REIT capital gain distributions and provides
guidance for REITs and their shareholders which must be used until further
guidance is issued. Notice 97-64 generally provides that if a REIT designates
a dividend as a capital gain dividend for a taxable year ending on or after
May 7, 1997, the REIT may also designate the capital gain dividend in whole or
in part as a 20% rate gain distribution includable by a non-corporate
shareholder as long-term capital gain in the shareholder's 20% group, an
unrecaptured section 1250 gain distribution includable by the shareholder in
the shareholder's 25%
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rate group or a 28% rate gain distribution includable by the shareholder in the
shareholder's 28% group, depending, in general, on the respective portions of
net capital gain of the REIT which are includable by the REIT in each group,
determined as though the REIT was an individual whose income is subject to a
marginal tax rate of at least 28%. If a REIT does not make additional
designations of a capital gain dividend by tax rate group, the capital gain
dividend constitutes a 28% rate gain distribution includable by a non-corporate
shareholder in a shareholder's 28% rate group.
Shareholders of the Company should consult their tax advisor with regard to
(i) the application of the changes made by the 1997 Act with respect to
taxation of capital gains and capital gain dividends and (ii) to state, local
and foreign taxes on capital gains.
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, including any designated undistributed
amounts for tax years beginning after August 5, 1997 (see "Taxation of the
Company--Annual Distribution Requirements"), 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 Internal
Revenue 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 Internal Revenue 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 Common Shares with acquisition indebtedness
within the meaning of the Code, that the Common 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 Common 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
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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 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 Internal Revenue 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 Internal Revenue 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
Common Shares of beneficial interest applicable to Non-U.S. Shareholders of
such Common 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 unless in the case of a
partnership, Treasury Regulations provide otherwise, (iii) an estate whose
non-U.S. source income which is not effectively connected to a U.S. trade or
business is not includable in U.S. federal gross income or (iv) a trust that
is not a "U.S. Trust." A U.S. Trust is (i) for taxable years beginning after
December 31, 1996, or if the trustee of a trust elects to apply the following
definition to an earlier taxable year ending after August 20, 1996, a trust
if, and only if, (a) a court within the United States is able to exercise
primary supervision over the administration of the trust and (b) one or more
U.S. persons has the authority to control all substantial decisions of the
trust and (ii) for all other taxable years, any trust the income of which is
subject to U.S. federal income taxation regardless of its source. 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 COMMON SHARES OF BENEFICIAL INTEREST.
22
<PAGE>
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. 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 partnership or foreign estate 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 Common Shares
of beneficial interest. In cases where the dividend income from a Non-U.S.
Shareholders investment in Common Shares of beneficial interest is (or is
treated as) effectively connected with the Non-U.S. Shareholders 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. New Treasury
Regulations (the "New Treasury Regulations"), which have recently been
adopted, and are generally effective with respect to payments made after
December 31, 1998, will 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, 1998. Such form will
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. The New Treasury Regulations also provide special rules to
determine whether, for purposes of determining the applicability of a tax
treaty and for purposes of the 30% withholding tax described above, dividends
paid to a Non-U.S. Shareholder that is an entity should be treated as paid to
the entity or those holding an interest in that entity. In particular, in the
case of a foreign partnership, the certification requirement will generally be
applied to the partners of the partnership. In addition, the New Treasury
Regulations will also require the partnership to provide certain information,
including a United States taxpayer identification number, and will provide
look-through rules for tiered partnerships. A Non-U.S. Shareholder that is
eligible for a reduced rate of U.S. withholding tax pursuant to an income tax
treaty may obtain a refund of any excess amount withheld by filing an
appropriate claim for refund with the Internal Revenue Service.
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.
23
<PAGE>
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 COMMON SHARES
Unless the Common Shares constitute USRPIs, a sale or exchange of Common
Shares of beneficial interest by a Non-U.S. Shareholder generally will not be
subject to U.S. taxation under FIRPTA. The Common Shares 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 Common 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 Common Shares 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 Common Shares generally will still not
be subject to tax under FIRPTA as a sale of USRPIs provided that (i) the
Company's Common Shares 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 Common Shares at all times during
a specified testing period.
If gain on the sale or exchange of Common Shares 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
Common Shares 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.
Shareholders investment in Common Shares 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
Common Shares 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 Internal Revenue 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-
US. Shareholder resides.
24
<PAGE>
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
Common Shares of beneficial interest to a Non-U.S. Shareholder at an address
outside the United States. The New 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, 1998 to be exempt
from backup withholding and information reporting.
The payment of the proceeds from the disposition of Common Shares 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
Common Shares to or through a non-U.S. office of 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 the
New Treasury Regulations, a payment of the proceeds from the disposition of
Common Shares 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 Internal Revenue Service.
These backup withholding and information reporting rules are currently under
review by the Treasury Department, and their application to Common Shares of
beneficial interest is subject to change.
UNDERWRITERS
From time to time, financial intermediaries, including brokers and dealers,
may engage in positioning transactions in order to benefit from the discount
from the market price of the Common Shares acquired through the reinvestment of
dividends under the Plan. Such transactions may cause fluctuations in the
trading volume of the Common Shares. Persons who acquire Common Shares through
the Plan and resell them shortly before or after acquiring them (including
coverage of short positions), under certain circumstances, may be participating
in a distribution of securities that would require compliance with Regulation M
under the Exchange Act, as amended, and may be considered to be underwriters
within the meaning of the Securities Act . The difference between the price
such persons pay to the Company for Common Shares acquired under the Plan and
the price at which such Common Shares are resold may be deemed to constitute
underwriting commissions received by such persons in connection with such
transactions. The Plan is intended for the benefit of investors in the Company
and not for individuals or investors who engage in transactions which may cause
aberrations in the price or trading volume of the Common Shares. The Company
has no arrangements or understandings, formal or informal, with any person
relating to the distribution of Common Shares to be received pursuant to the
Plan. The Company will not extend to any financial intermediary participating
in the Plan any rights or privileges other than those to which such person
would be entitled as a participant or prospective participant in the Plan, nor
will the Company enter into any agreement with any such person regarding such
person's purchase of Common Shares or any resale or distribution thereof.
25
<PAGE>
LEGAL OPINIONS
The legality of the securities offered hereby is being passed upon for the
Company by Mayer, Brown & Platt, Chicago, Illinois.
EXPERTS
The consolidated financial statements of Storage Trust Realty appearing in
Storage Trust Realty's Annual Report (Form 10-K) for the year ended December
31, 1996; the Historical Summaries of Combined Gross Revenue and Direct
Operating Expenses for the year ended December 31, 1996 on Form 8-K, dated
April 14, 1997; the Historical Summaries of Combined Gross Revenue and Direct
Operating Expenses for the year ended December 31, 1996 on Form 8-K, dated
June 16, 1997; the Historical Summaries of Combined Gross Revenue and Direct
Operating Expenses for the year ended December 31, 1996 on Form 8-K, dated
October 14, 1997 all have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
26
<PAGE>
SCHEDULE A
DIVIDEND REINVESTMENTS (1):
<TABLE>
<CAPTION>
RECORD DATE INVESTMENT DATE
----------- ---------------
<S> <C>
February 16, 1998 March 16, 1998
May 15, 1998 June 15, 1998
August 17, 1998 September 15, 1998
December 15, 1998 December 29, 1998
</TABLE>
OPTIONAL CASH PAYMENTS PERMITTED BY THE COMPANY EXCEEDING $5,000:
<TABLE>
<CAPTION>
THRESHOLD PRICE
AND WAIVER
DISCOUNT SET OPTIONAL CASH PRICING PERIOD
DATE PAYMENT DUE DATE COMMENCEMENT DATE INVESTMENT DATE
--------------- ---------------- ----------------- ---------------
<S> <C> <C> <C>
January 26,
1998 January 28, 1998 January 29, 1998 February 17,1998
February 23,
1998 February 25, 1998 February 26, 1998 March 16, 1998
March 24, 1998 March 26, 1998 March 27, 1998 April 15, 1998
April 24, 1998 April 28, 1998 April 29, 1998 May 15, 1998
May 22, 1998 May 27, 1998 May 28, 1998 June 15, 1998
June 23, 1998 June 25, 1998 June 26, 1998 July 15, 1998
July 27, 1998 July 29, 1998 July 30, 1998 August 17, 1998
August 24, 1998 August 26, 1998 August 27, 1998 September 15, 1998
September 24,
1998 September 28, 1998 September 29, 1998 October 15, 1998
October 26,
1998 October 28, 1998 October 29, 1998 November 16, 1998
November 23,
1998 November 25, 1998 November 27, 1998 December 15, 1998
December 24,
1998 December 28, 1998 December 29, 1998 January 15, 1999
</TABLE>
- --------
(1) The dates indicated are those expected to be applicable under the Plan
with respect to future dividends, if and when declared by the Board of
Trustees. The actual record and payment dates will be determined by the
Board of Trustees.
27
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 IN CONNECTION WITH THE OFFERING MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCE, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SO-
LICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
The Company............................................................... 3
Use of Proceeds........................................................... 3
The Plan.................................................................. 3
Purpose and Features of the Plan......................................... 3
Administration of the Plan............................................... 4
How to Enroll............................................................ 4
Purchase Procedures, Prices and Custody Of Common Shares................. 5
Optional Cash Investments................................................ 6
Sales of Common Shares Through the Plan.................................. 9
Withdrawals and Transfers of Common Shares From the Plan................. 9
Voting of Common Shares.................................................. 9
Share Dividends, Splits and Subscription Rights.......................... 9
Termination of Reinvestment of Dividends................................. 10
Responsibilities of the Company and the Administrator Under the Plan..... 10
Restrictions on Ownership of Common Shares............................... 11
Federal Income Tax Considerations Relating to the Plan.................... 11
Federal Income Tax Considerations Relating to the Company's Treatment as a
REIT..................................................................... 12
Taxation of the Company.................................................. 13
Tax Aspects of the Company's Investments in Partnerships................. 18
Taxation of Shareholders................................................. 19
Other Tax Considerations................................................. 21
Certain United States Tax Considerations for Non-U.S. Shareholders........ 22
Distributions from the Company........................................... 23
Dispositions of Common Shares............................................ 24
Federal Estate Tax....................................................... 24
Information Reporting and Backup Withholding............................. 24
Underwriters.............................................................. 25
Legal Opinions............................................................ 26
Experts................................................................... 26
Schedule A................................................................ 27
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DIVIDEND REINVESTMENT
AND
SHARE PURCHASE PLAN
----------------
PROSPECTUS
----------------
1,000,000 COMMON SHARES
OF BENEFICIAL INTEREST
STORAGE TRUST REALTY
DECEMBER , 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities registered hereby, all of which
will be paid by the Registrant:
<TABLE>
<S> <C>
SEC registration fee............................................. $ 7,300
Printing and duplicating expenses................................ 10,000
Legal fees and expenses.......................................... 15,000
Blue Sky fees and expenses....................................... 5,000
Accounting fees and expenses..................................... 10,000
NYSE fees........................................................ 3,500
Miscellaneous expenses........................................... 2,000
-------
Total........................................................ $52,800
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
As permitted by Maryland law, the Declaration of Trust provides that a
Trustee or officer of the Company shall not be liable for monetary damages to
the Company or its shareholders for any act or omission in the performance of
his duties, except to the extent that (1) the person actually received an
improper benefit or profit in money, property or services or (2) the person's
action or failure to act was the result of active and deliberate dishonesty
and was material to the cause of action adjudicated.
The Registrant's officers and Trustees will be indemnified under the
Declaration of Trust and Bylaws of the Registrant, certain indemnification
agreements with the Registrant, and the Partnership Agreement of the Operating
Partnership against certain liabilities. The Declaration of Trust and Bylaws
require the Registrant to indemnify its Trustees and officers, among others,
against claims and liabilities and reasonable expenses actually incurred by
them in connection with any claim or liability to which they become subject by
reason of their services in those or other capacities unless it is established
that the act or omission of the Trustee or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the result
of active and deliberate dishonesty or the Trustee or officer actually
received an improper personal benefit or, in the case of any criminal
proceeding, the Trustee or officer had reasonable cause to believe that the
act or omission was unlawful. The indemnification agreements offer
substantially the same scope of coverage afforded by provisions in the
Declaration of Trust and the Bylaws.
The Partnership Agreement of the Operating Partnership also provides for
indemnification of the Registrant and its officers and Trustees to the same
extent indemnification is provided to officers and Trustees of the Registrant
in its Declaration of Trust, and limits the liability of the Registrant and
its officers and Trustees to the Operating Partnership and its partners to the
same extent the liability of the officers and Trustees of the Registrant to
the Registrant and its shareholders is limited under the Registrant's
Declaration of Trust.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See the Exhibit Index included herewith which is hereby incorporated herein
by reference.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i)To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-1
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
Provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the provisions set forth or described in Item 15 of
this Registration Statement, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-2
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH OF STORAGE TRUST REALTY, A
MARYLAND REAL ESTATE INVESTMENT TRUST, AND EACH OF THE UNDERSIGNED TRUSTEES
AND OFFICERS OF STORAGE TRUST REALTY, HEREBY CONSTITUTES AND APPOINTS GORDON
BURNAM, MICHAEL G. BURNAM, P. CRISMON BURNAM AND STEPHEN M. DULLE ITS, HIS OR
HER TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, FOR IT, HIM OR HER AND IN
ITS, HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES, WITH FULL
POWER TO ACT ALONE, TO SIGN ANY AND ALL AMENDMENTS TO THIS REGISTRATION
STATEMENT, AND TO FILE EACH SUCH AMENDMENT TO THIS REGISTRATION STATEMENT WITH
ALL EXHIBITS THERETO, AND ANY AND ALL DOCUMENTS IN CONNECTION THEREWITH, WITH
THE SECURITIES AND EXCHANGE COMMISSION, HEREBY GRANTING UNTO SAID ATTORNEYS-
IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND
PERFORM ANY AND ALL ACTS AND THINGS REQUISITE AND NECESSARY TO BE DONE, AS
FULLY AND TO ALL INTENTS AND PURPOSES AS IT, HE OR SHE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS, OR ANY OF THEM, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Columbia, State of Missouri on the 11th day of
December, 1997.
STORAGE TRUST REALTY
/s/ Michael G. Burnam
By___________________________________
Michael B. Burnam
Its: Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THE 11TH DAY OF DECEMBER, 1997.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ Michael G. Burnam Chief Executive Officer and Trustee
___________________________________________ (Principal Executive Officer)
Michael G. Burnam
/s/ Stephen M. Dulle Chief Financial Officer (Principal
___________________________________________ Financial and Accounting Officer)
Stephen M. Dulle
Chairman of the Board of Trustees
___________________________________________
Gordon Burnam
/s/ P. Crismon Burnam Chief Operating Officer and Trustee
___________________________________________
P. Crismon Burnam
Trustee
___________________________________________
Blake Eagle
/s/ Randall K. Rowe Trustee
___________________________________________
Randall K. Rowe
/s/ Daniel C. Staton Trustee
___________________________________________
Daniel C. Staton
/s/ Fredrick W. Petri Trustee
___________________________________________
Fredrick W. Petri
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
4.1 Second Amended and Restated Declaration of Trust of the
Registrant (Incorporated by reference to exhibit 3.5 to
Registration Statement No. 33-83016).
4.2 Amended and Restated Bylaws of the Registrant (Incorporated by
reference to exhibit 3.4 to Registration Statement No. 33-83016).
4.3 Amended and Restated Agreement of Limited Partnership of
Storage Trust Properties, L.P., as amended by the First
Amendment thereto (Incorporated by reference to exhibit 10.1 to
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994, and exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996.)
4.4 Form of Common Share Certificate (Incorporated by reference to
exhibit 4.1 to Registration Statement No. 33-83016).
5.1 Opinion of Mayer, Brown & Platt.
8.1 Tax Opinion of Mayer, Brown & Platt.
23.1 Consent of Ernst & Young, LLP.
23.2 Consent of Mayer, Brown & Platt (Included in the opinions filed
as Exhibits 5.1 and 8.1 to this Registration Statement).
24.1 Power of Attorney (Included on page II-3 of this Registration
Statement).
</TABLE>
II-4
<PAGE>
Exhibit 5.1
[MAYER, BROWN & PLATT LETTERHEAD]
December 10, 1997
The Board of Trustees
Storage Trust Realty
2407 Rangeline Street
Columbia, Missouri 65202
Gentlemen:
We have acted as special counsel to Storage Trust Realty, a Maryland real
estate investment trust (the "Company"), in connection with the registration of
1,000,000 of the Company's common shares of beneficial interest, $.01 par value
per share (the "Common Shares"). The Common Shares may be offered and sold by
the Company pursuant to its Direct Share Purchase and Dividend Reinvestment Plan
from time to time as set forth in the prospectus (the "Prospectus") which forms
a part of the Registration Statement on Form S-3, to which this opinion is filed
as an exhibit (the "Registration Statement"), under the Securities Act of 1933,
as amended (the "Act"), and as may be set forth in one or more supplements to
the Prospectus (each a "Prospectus Supplement"). Capitalized terms used but not
defined herein shall have the respective meanings assigned to them in the
Registration Statement.
The issuance of the Common Shares to be issued by the Company pursuant to
the Direct Share Purchase and Dividend Reinvestment Plan from time to time have
been or will be approved by the Board of Trustees of the Company as part of the
trust action taken or to be taken in connection with the authorization of the
issuance of the Common Shares (the "Trust Proceedings").
As special counsel to the Company, we have examined originals or copies
certified or otherwise identified to our satisfaction of the Company's Second
Amended and Restated Declaration of Trust and Amended and Restated Bylaws,
resolutions of the Company's Board of Trustees, and such other Company records,
instruments, certificates and documents and such questions of law as we
considered necessary to enable us to express this opinion. As to certain facts
material to our opinion, we have relied, to the extent we deem such reliance
proper, upon certificates of public officials and officers of the Company. In
rendering this opinion, we have
<PAGE>
The Board of Trustees
Storage Trust Realty
December 10, 1997
Page 2
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity to authentic original documents
of all documents submitted to us as copies.
Based upon and subject to the foregoing and to the assumptions, limitations
and conditions set forth herein, we are of the opinion that when the
Registration Statement has become effective under the Act, and upon the
completion of all Trust Proceedings relating to the Common Shares and the due
execution, countersignature and delivery of certificates representing the Common
Shares, the Common Shares, when paid for and issued in accordance with the
resolutions of the Board of Trustees of the Company authorizing their issuance
(and assuming that any shares of beneficial interest, $.01 par value per share,
of the Company issued between the date hereof and the date on which the Common
Shares are actually issued (not including any of the Common Shares), when
aggregated with all shares of beneficial interest issued as of the date hereof
and the Common Shares, will not exceed the total number of shares of beneficial
interest that the Company is authorized to issue), will be duly authorized,
validly issued, fully paid and, except as described below, nonassessable.
Our opinion above with respect to nonassessability of the Common Shares
does not pertain to the potential liability of shareholders of a real estate
investment trust for debts and liabilities of the Company. Section 5-350 of the
Courts and Judicial Proceedings Article of the Annotated Code of Maryland
provides that a shareholder of a real estate investment trust is not personally
liable for the obligations of the real estate investment trust. The Company's
Second Amended and Restated Declaration of Trust provides that the shareholders
shall not be personally or individually liable in any manner whatsoever for any
debt, act, omission or obligation incurred by the Company or the trustees, that
the shareholders shall not be liable to assessment and that the trustees shall
have no power to bind the shareholders personally. The Second Amended and
Restated Declaration of Trust further provides that the Company shall, with
certain limited exceptions, indemnify and hold harmless shareholders against all
claims and liabilities and related reasonable expenses to which they become
subject by virtue of their status as current or former shareholders. In
addition, we have been advised that the Company has a policy of inserting a
clause in its business, management and other contracts that provides that
shareholders shall not be personally liable thereunder. Accordingly, no personal
liability should attach to the Company's shareholders for contract claims under
any contract containing such a clause where adequate notice is given. However,
with respect to tort claims, contract claims where shareholder liability is not
so negated, claims for taxes and certain statutory liability, the shareholders
may, in some jurisdictions, be personally liable for such claims and
liabilities.
<PAGE>
The Board of Trustees
Storage Trust Realty
December 10, 1997
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "LEGAL
OPINIONS".
Very truly yours,
MAYER, BROWN & PLATT
<PAGE>
Exhibit 8.1
[Mayer, Brown & Platt letterhead]
December 11, 1997
Storage Trust Realty
2407 Rangeline Street
Columbia, Missouri 65202
Re: Partnership Classification; Status as a Real Estate Investment Trust
("REIT"); Information in the Registration Statement under "FEDERAL
INCOME TAX CONSIDERATIONS RELATING TO THE PLAN", "FEDERAL INCOME TAX
CONSIDERATIONS RELATING TO THE COMPANY'S TREATMENT AS A REIT" and
"CERTAIN UNITED STATES TAX CONSIDERATIONS FOR NON-U.S. SHAREHOLDERS"
--------------------------------------------------------------------
Gentlemen:
We have acted as special counsel to Storage Trust Realty, a Maryland real
estate investment trust ("the Company"), in connection with the registration of
1,000,000 of the Company's common shares of beneficial interest, $.01 par value
per share (the "Common Shares"). The Common Shares may be offered and sold by
the Company pursuant to its Direct Share Purchase and Dividend Reinvestment Plan
from time to time as set forth in the prospectus (the "Prospectus") which forms
a part of the Registration Statement on Form S-3 filed with the Securities and
Exchange Commission on December 11, 1997, (the "Registration Statement") and as
may be set forth in one or more supplements to the Prospectus. Unless otherwise
specifically defined herein, all capitalized terms have the meanings assigned to
them in the Registration Statement.
In connection with the registration of the Common Shares, you have
requested our opinions concerning (i) the treatment of the Operating Partnership
as a partnership for Federal income tax purposes, and not as an association
taxable as a corporation; (ii) the qualification and taxation for Federal income
tax purposes of the Company as a REIT; and (iii) the information in the
Registration Statement under the headings "FEDERAL INCOME TAX CONSIDERATIONS
RELATING TO THE PLAN", "FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE
COMPANY'S TREATMENT AS A REIT" and
<PAGE>
Storage Trust Realty
December 11, 1997
Page 2
"CERTAIN UNITED STATES TAX CONSIDERATIONS FOR NON-U.S. SHAREHOLDERS."
In formulating our opinions, we have reviewed and relied upon the
partnership agreement of the Operating Partnership, the Registration Statement,
other documents and information provided by you, and such applicable provisions
of law and other documents as we have considered necessary or desirable for
purposes of the opinions expressed herein.
In addition, we have relied upon the Company's certificate (the "Officer's
Certificate"), executed by a duly appointed officer of the Company, setting
forth certain representations relating to the organization and actual and
proposed operation of the Company, the Operating Partnership, the Subsidiary
Company and each of the partnerships in which the Operating Partnership does or
will directly or indirectly hold an interest and which actually owns an interest
in real property (the "Property Partnerships"). For purposes of our opinions,
we have not made an independent investigation of the facts set forth in such
documents, the Officer's Certificate, the partnership agreements for the
Operating Partnership or the Property Partnerships, or the Registration
Statement. We have, consequently, relied upon your representations that the
information presented in such documents or otherwise furnished to us accurately
and completely describes all material facts. No facts have come to our
attention, however, that would cause us to question the accuracy or completeness
of such facts or documents in a material way.
In rendering these opinions, we have assumed that the transactions
contemplated by the foregoing documents will be consummated in accordance with
the operative documents, and that such documents accurately reflect the material
facts of such transactions. The opinion set forth in the subparagraph numbered
one in the next succeeding paragraph is subject to the condition that the
Operating Partnership is not and does not become a "publicly traded
partnership." In addition, the opinions set forth below are based on the
correctness of the following specific assumptions: (i) the Company, the
Operating Partnership, the Subsidiary Company and the Property Partnerships have
been and will each be operated in the manner described in the applicable
partnership agreement or other organizational documents and in the Registration
Statement, and all terms and provisions of such agreements and documents have
been and will continue to be complied with by all parties thereto; (ii) each
partner in the Operating Partnership has been motivated in acquiring its
partnership interest by its anticipation of economic rewards apart from tax
considerations; and (iii) there has been no change in the applicable laws of the
State of Maryland or Delaware, the Code, the regulations promulgated thereunder
by the Treasury Department, and the interpretations of the Code and such
regulations by the courts and the Internal Revenue Service, all as they are in
effect and exist at the date of this letter. With respect to the last
assumption, it should be noted that statutes, regulations, judicial decisions,
and administrative interpretations are subject to change
<PAGE>
Storage Trust Realty
December 11, 1997
Page 3
at any time and, in some circumstances, with retroactive effect. A material
change that is made after the date hereof in any of the foregoing bases for our
opinions, could affect our conclusions.
Based upon and subject to the foregoing, it is our opinion that:
1. The Operating Partnership will be treated, for Federal income tax
purposes, as a partnership, and not as an association taxable as a corporation.
2. Beginning with the Company's taxable year ending December 31, 1994, the
Company has been organized in conformity with the requirements for qualification
as a REIT under the Code, and the Company's actual and proposed method of
operation, as described in the Registration Statement and as represented in the
Officer's Certificate, has enabled it and will continue to enable it to satisfy
the requirements for qualification as a REIT.
3. The information in the Registration Statement under the headings
"FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE PLAN", "FEDERAL INCOME TAX
CONSIDERATIONS RELATING TO THE COMPANY'S TREATMENT AS A REIT" and "CERTAIN
UNITED STATES TAX CONSIDERATIONS FOR NON-U.S. SHAREHOLDERS," to the extent that
it constitutes matters of law or legal conclusions, has been reviewed by us and
is correct in all material respects.
Other than as expressly stated above, we express no opinion on any issue
relating to the Company, the Operating Partnership, any Property Partnership or
to any investment therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
MAYER, BROWN & PLATT
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "EXPERTS" in the
Registration Statement (Form S-3) of Storage Trust Realty for the registration
of 1,000,000 of its common shares of beneficial interest and to the
incorporation by reference therein of (1) our report dated January 22, 1997,
except for Note 9 as to which the date is January 31, 1997, with respect to the
consolidated and combined financial statements of Storage Trust Realty
incorporated by reference in its Annual Report (Form 10-K) for the year ended
December 31, 1996 and the related financial statement schedule included therein,
(2) our report dated March 31, 1997, with respect to the Historical Summaries of
Combined Gross Revenue and Direct Operating Expenses included in the Current
Report on Form 8-K of Storage Trust Realty dated April 14, 1997, (3) our report
dated May 30, 1997, with respect to the Historical Summaries of Combined Gross
Revenue and Direct Operating Expenses included in the Current Report on Form 8-K
of Storage Trust Realty dated June 16, 1997 and (4) our report dated September
30, 1997, with respect to the Historical Summaries of Combined Gross Revenue and
Direct Operating Expenses included in the Current Report on Form 8-K of Storage
Trust Realty dated October 14, 1997, all filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Chicago, Illinois
December 8, 1997
