<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration Number 333-16219
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 4, 1996)
2,200,000 SHARES
STORAGE TRUST REALTY
COMMON SHARES
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Storage Trust Realty (the "Company") is a self-administered and self-managed
real estate investment trust (a "REIT") engaged in the self-storage business.
The Company, which began operations through a predecessor in 1974, owns,
manages, acquires and develops self-storage facilities primarily in the
Southern, Mid-Atlantic, Midwestern and Western regions of the United States.
At September 30, 1997, the Company owned or operated a geographically diverse
portfolio of 193 self-storage facilities (the "Facilities") located in 16
states and containing an aggregate of approximately 10.1 million net rentable
square feet.
All of the common shares of beneficial interest of the Company, $.01 par
value per share (the "Common Shares"), offered hereby are being offered by the
Company (the "Offering"). The Common Shares are listed on the New York Stock
Exchange (the "NYSE") under the symbol "SEA." On October 15, 1997, the last
reported sale price of the Common Shares on the NYSE was $24 13/16. See "Price
Range of Common Shares and Distribution History."
To ensure that the Company maintains its qualification as a REIT for federal
income tax purposes, it expects to continue to pay regular quarterly
distributions to its shareholders. In addition, the Declaration of Trust of
the Company restricts the ownership of more than 6% of the Common Shares by
any person or affiliated group, with certain exceptions.
The 2,200,000 Common Shares offered hereby will be purchased from the
Company by BancAmerica Robertson Stephens (the "Underwriter") at a price of
$23.70 per share for an aggregate purchase price of $52,140,000. The Company
has granted the Underwriter an option for 30 days to purchase up to 330,000
additional Common Shares at the same price solely to cover over-allotments. If
such option is exercised in full, the total proceeds to the Company will be
$59,961,000, before deducting expenses payable by the Company (estimated at
$150,000).
The Common Shares may be offered by the Underwriter from time to time in one
or more transactions (which may involve block transactions) on the NYSE, in
the over-the-counter market, through negotiated transactions or otherwise at
market prices prevailing at the time of the sale or at prices otherwise
negotiated. See "Underwriting."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The Common Shares are being offered by BancAmerica Robertson Stephens as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
certificates for the Common Shares will be ready for delivery in New York, New
York, on or about October 21, 1997.
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BANCAMERICA ROBERTSON STEPHENS
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The date of this Prospectus Supplement is October 15, 1997.
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NO DEALER, SALESMAN OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER
SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR IN THE
ACCOMPANYING PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT PROSPECTUS
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The Company.......................... S-3
Recent Developments.................. S-7
The Offering......................... S-10
Use of Proceeds...................... S-10
Price Range of Common Shares and
Distribution History................ S-11
Business and Properties.............. S-12
Capitalization....................... S-21
Selected Financial Information....... S-22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... S-24
Management........................... S-26
Recent Legislation................... S-28
Underwriting......................... S-30
Experts.............................. S-31
Legal Matters........................ S-31
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Available Information.............. 2
Incorporation by Reference......... 2
The Company........................ 3
Use of Proceeds.................... 3
Description of Common Shares....... 3
Description of Common Share
Warrants.......................... 6
Description of Shareholder Purchase
Rights............................ 8
Certain Provisions of Maryland Law
and of the Company's Declaration
of Trust and Bylaws............... 9
Federal Income Tax Considerations.. 11
Certain United States Tax
Considerations for Non-U.S.
Shareholders...................... 19
Plan of Distribution............... 22
Experts............................ 23
Legal Matters...................... 23
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CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF COMMON SHARES TO
COVER SHORT POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
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The following discussion is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus Supplement, the
accompanying Prospectus or incorporated therein by reference. Unless indicated
otherwise, the information contained in this Prospectus Supplement (i) assumes
no exercise of the Underwriter's over-allotment option and (ii) except as
otherwise indicated, is presented as of September 30, 1997. All references to
the "Company" in this Prospectus Supplement and the accompanying Prospectus or
incorporated therein by reference shall be deemed to include the Company, its
predecessors, and those entities of which the Company controls or owns a
majority of the economic interests, unless the context indicates otherwise.
THE COMPANY
The Company is a self-administered and self-managed REIT engaged in the
self-storage business. As of September 30, 1997, the Company owned or operated
a geographically diverse portfolio of 193 self-storage Facilities in 16 states
throughout the Southern, Mid-Atlantic, Midwestern and Western regions of the
United States, containing an aggregate of approximately 10.1 million net
rentable square feet. The Facilities offer a broad range of features and
amenities to customers, including uniformed customer-service-oriented facility
managers, door alarms, lighting systems, video cameras, twenty-four hour
computer-controlled access, climate-controlled storage spaces, attractive
buildings and wide drive aisles.
The Company believes that it is one of the largest owners and operators of
self-storage facilities in the United States. The Company wholly owns 181 of
the Facilities and owns an interest in two of the Facilities through joint
ventures. Eleven of the Facilities are managed by Storage Realty Management
Co. (the "Management Company"), including one of the joint venture Facilities.
Since the Company's initial public offering in November 1994 (the "IPO"), the
Company has acquired a total of 128 Facilities and exchanged 18 Facilities,
representing a net total investment (defined as the original purchase price
plus all capitalized costs related to those properties) of approximately $295
million. This represents an increase in the number of Facilities which it owns
and/or operates of 119%, and an increase in net rentable square footage of
153%, since the IPO. From January 1, 1997 to September 30, 1997, the Company
acquired 32 self-storage facilities for a combined purchase price of $84.5
million. In two separate transactions during 1997, the Company exchanged 16
facilities comprising approximately 689,000 net rentable square feet for ten
facilities (included in the acquisition totals above). These acquisitions and
exchanges were strategically chosen to increase the Company's presence in
certain existing markets, to access attractive new markets or to decrease the
Company's presence in markets perceived to have limited opportunity for
growth. The Company intends to continue to grow through acquisitions,
expansions, conversions and developments. The Company believes that the
recently acquired Facilities as well as self-storage facilities which may be
acquired or developed in the future have been and can be efficiently
integrated into its operations due to the Company's centralized operating
procedures and management information systems.
Management believes that the Company's future growth will be determined in
part by certain characteristics of the self-storage industry, including the
(i) low level of consumer sensitivity to rent increases, (ii) lack of
concentrated ownership, (iii) shortage of skilled operators, (iv) economies of
scale and (v) increasing customer base. Based on information published in
Inside Self-Storage (August 1997) , the ten largest operators of self-storage
properties control approximately 3,160 facilities, which the Company believes
constitute approximately 13% of all of the self-storage facilities in the
United States. Of the remaining self-storage facilities in the United States,
most are owned and operated by single-site owners or other small operators.
The Company believes that the fragmented ownership and shortage of skilled
operators in the self-storage industry will continue to lead to significant
opportunities for growth through acquisitions in the near term for those
participants in the self-storage industry who possess sufficient capital
resources and effective operational skills.
The Company intends to increase cash available for distribution per share
and enhance shareholder value by (i) managing the Facilities and expanding
them where economically feasible, (ii) acquiring additional self-storage
facilities, (iii) converting other commercial real estate into self-storage
facilities and (iv) developing new self-storage facilities.
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In November 1994, the Company completed its IPO of 5,859,282 Common Shares,
which resulted in net proceeds of approximately $92.1 million. In June 1995,
the Company completed a second public offering of 2,875,000 Common Shares,
which resulted in net proceeds of approximately $53.6 million. In July 1996,
the Company completed a third public offering of 4,140,000 Common Shares,
which resulted in net proceeds of approximately $78.9 million.
HISTORY OF BHC
Burnam Holding Companies Co. and certain of its affiliates, the Company's
predecessor (collectively, "BHC"), developed one of the first self-storage
facilities in the Midwestern United States in 1974. Between 1974 and the IPO,
the Company's management, through BHC, developed 36 self-storage facilities
and oversaw the acquisition, development and management of more than 6.5
million square feet of self-storage facilities. The Company believes that,
over the last 20 years, BHC has historically been at the leading edge of many
innovations in the self-storage industry such as:
. Developing computer software packages exclusively for self-storage
(1978)--Prior to the mid 1980's there were no nationally established
software vendors for the industry. Driven by the need to manage multiple
facilities from a central office location, BHC developed its own
application software system and has subsequently developed three
successive generations of this software. The Company employs three full-
time employees in its management information systems department to
support the on-site managers.
. Establishing an industry lobby (1978)--Many states did not have statutes
regulating the collection of delinquent accounts for the self-storage
industry. BHC helped form industry trade groups which lobbied for and
passed self-storage legislation in Missouri, Florida and Mississippi.
. Developing standardized manuals and training guides (1981)--As BHC grew
and began to operate in many locations and different states, training
and retaining the proper personnel became increasingly important. In
response, BHC created a comprehensive training manual and training
programs for its facility managers.
. Introducing climate-controlled storage (early 1980's)--As BHC began
development on the Gulf Coast, the need for a low humidity storage
environment became apparent. In the following years, BHC found a growing
demand for this premium product. BHC actively converted existing regular
storage space to climate control and added new climate-controlled
storage space additions to existing facilities.
. Installing computer-controlled access gates (1982)--BHC began
incorporating computer-controlled access gates into its operations in
recognition of customer concerns regarding convenience, safety and
security.
. Conducting facility managers' conventions (1984)--BHC held what it
believes was the first facility managers' convention in the self-storage
industry. In a retreat style format, the managers convention is now held
every 18 months, and, in the Company's opinion, has proven an excellent
tool for training and team building exercises.
. Establishing direct marketing (1990)--BHC developed the "40 Hit List"
marketing program for its facility managers addressing specific
techniques such as effective telephone sales and community marketing.
BHC believes that its management techniques for self-storage facilities,
as well as its conservative approach to the development of new
properties and ability to acquire existing properties, enabled BHC to
continue to grow its business during difficult times.
. Establishing Storage Trust University (1994)--The Company developed a
centralized training academy for storage managers in the self-storage
industry.
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. Installing SiteGard Video Surveillance Systems (1996)--The Company
developed and installed its first property security camera display and
system. By the end of 1998, all of the Facilities sites will be equipped
with SiteGard.
. Partnering with U-Haul Truck Rentals (1996)--The Company became the
world's largest dealer of U-Haul Rental trucks in an exclusive marketing
agreement. This synergistic arrangement has resulted in more units being
rented and additional income from product sales such as boxes and moving
supplies.
. Establishing Site Link (1997)--E-mail network to all Company locations
was established. Site Link provides for the rapid transmission of
selected operational documents, thus providing for more immediate
decision making.
BUSINESS OBJECTIVES AND OPERATING STRATEGIES
Business Objectives
The Company's primary objectives are to increase cash available for
distribution and enhance shareholder value. These objectives are accomplished
by (i) managing the Facilities and expanding them where economically feasible,
(ii) acquiring existing self-storage facilities, (iii) converting other
commercial real estate into self-storage facilities and (iv) developing new
self-storage facilities. The Company's strategies for accomplishing these
objectives are:
Internal Growth Strategies
The Company's internal growth strategy is to increase cash flow at the
Facilities (and any additional facilities hereafter acquired) by (i)
aggressively increasing rents on a regular basis, (ii) containing costs and
improving operating leverage and (iii) selectively expanding the Facilities,
which includes the addition of climate controlled space.
. Increasing Rents--Revenues are increased through the use of sales and
marketing programs that are customized for each location and an
aggressive leasing program. The Company pursues an objective of being a
price leader in its local markets and will attempt to increase rents at
all of the Facilities throughout the year. The Company has a general
policy that, as occupancy of all same-size units at a particular
Facility nears 90%, it will consider increasing rents applicable to
those units. The Company plans to continue this strategy at the
Facilities and to implement it at facilities that may be acquired or
developed in the future.
. Containing Costs and Improving Operating Leverage--The Company seeks to
increase cash flow by containing facility operating expenses and
spreading corporate overhead expense over an increasing number of
facilities. The Company believes that new facilities can be added to the
portfolio with very little additional overhead expense because of the
Company's operating procedures, decentralized management structure and
management information systems. The use of regional managers and
district managers allows the Company to minimize the levels of
management between on-site managers and senior management.
. Expanding the Facilities--Many of the Facilities maintain levels of
occupancy that when combined with local demand may make it economically
feasible to expand existing storage space. Additionally, in several of
the Company's markets, there is increasing demand for climate controlled
space which the Company currently rents for a premium over non-climate
controlled space. The Company constantly explores opportunities to add
new climate controlled space or convert existing space to climate
controlled space.
External Growth Strategies
The Company's external growth strategy focuses on (i) selectively acquiring
additional self-storage facilities, (ii) converting other real estate
properties into self-storage facilities and (iii) developing new facilities.
S-5
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The Company's management consists of experienced acquisition, development,
operations and finance personnel who, when evaluating potential opportunities
for acquisition, development and conversion, analyze employment, population
and income trends, proximity to major transportation arteries, retail centers
and commercial services, visibility and other market data.
. Acquiring Existing Facilities--The Company intends to acquire self-
storage facilities that are (i) in the Company's geographic regions of
operations where the Company can achieve greater market penetration and
economies of scale or in attractive new markets and in new geographic
regions where the Company can acquire sufficient facilities to achieve
economies of scale, (ii) available at attractive prices or currently
underperforming and (iii) capable of enhanced performance through the
application of the Company's management expertise. The Company focuses
on acquisitions of Facilities of sufficient size to provide attractive
operating efficiencies. The Company believes attractive opportunities
exist to acquire self-storage facilities because of the fragmented
ownership throughout the industry and the shortage of skilled operators.
By actively targeting underperforming facilities or facilities where the
Company can apply its proven management techniques, the Company believes
that it will be able to enhance its yields by maximizing cash flows at
such properties. In addition, the Company believes it has the ability to
attract potential sellers of self-storage properties by offering units
("Units") representing ownership interests in Storage Trust Properties,
L.P. (the "Operating Partnership") in exchange for such properties, thus
allowing the sellers to defer taxes which would otherwise be payable
upon a profitable sale of property.
. Converting Other Real Estate into Self-Storage Facilities--The Company
also has the ability to perform complex conversions of other real estate
buildings into self-storage facilities, especially in metropolitan
markets where new development or acquisitions may not be economically
feasible. The Company believes that in certain markets the costs
relating to conversion or redevelopment can be substantially less than
those of acquisition or development. Additionally, the Company believes
that conversions can simultaneously provide rapid in-fill of current
regions of the Company's markets at attractive capitalization rates.
Previously completed conversion projects include an automobile
dealership in St. Louis, Missouri, a hotel in New Orleans, Louisiana,
and a former shoe warehouse in Atlanta, Georgia.
. Developing New Facilities--The Company intends to develop self-storage
facilities in certain of its markets where there are favorable
demographics and where suitable acquisitions may not be available. New
development may be done by the Company or by joint ventures in which the
Company has an interest. This development capability will allow the
Company the opportunity to grow when acquisition opportunities are not
plentiful or economically attractive. In making its decision to develop
a facility, the Company obtains information such as census data for the
relevant market with respect to population density, income levels and
the relative proportions of rental, commercial and residential space. In
addition, the Company weighs the costs of acquisition, as measured by
recent market sales or bids, versus the costs of development, including
construction, land acquisition and site preparation. The Company intends
to develop self-storage facilities where it believes there are strong
barriers to entry, such as a limited number of suitable sites with the
requisite zoning. The Company also intends to focus on development of
facilities of sufficient size to provide attractive operating
efficiencies.
Dispositions and Exchanges
Management constantly reviews the Facilities comprising the Company's
portfolio. The Company has no current intention to dispose of any of the
Facilities, but may do so in the future. Any decision to dispose of a
particular Facility is based on a variety of factors, including, but not
limited to, (i) the strategic fit with the rest of the Company's portfolio,
(ii) the potential to continue to increase cash flow and value in the
particular market, (iii) the current market value and (iv) alternate uses of
capital. The Company may dispose of Facilities for cash or other consideration
or may exchange Facilities with other entities, including other publicly-held
self-storage REITs.
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RECENT DEVELOPMENTS
During 1997, the Company has expanded its portfolio of facilities and its
operating business through the acquisition, expansion and conversion of self-
storage facilities as described below. Additionally, through property
exchanges, the Company has focused on expanding in selected markets where the
Company already has a strong presence while decreasing its presence in markets
perceived to have limited opportunity for growth.
ACQUISITIONS AND EXCHANGES
During the period from January 1, 1997 through September 30, 1997, the
Company continued its acquisition program by adding a total of 32 Facilities
to its portfolio containing an aggregate of approximately 1.7 million net
rentable square feet for an aggregate purchase price of approximately $84.5
million. Twenty-two of these Facilities, containing approximately 1.1 million
net rentable square feet, were purchased for approximately $48.8 million.
These acquisitions were funded by borrowings on the Credit Line (as defined
below). Ten of these Facilities, containing approximately 646,000 net rentable
square feet, were acquired in two separate transactions through the exchange
of 16 Facilities, valued at approximately $23.7 million, and the payment of
approximately $12 million in cash which was funded by borrowings on the Credit
Line. These acquisitions and exchanges allowed the Company to increase its
market share in certain key markets and to create operating efficiencies in
those markets through economies of scale.
CLIMATE-CONTROLLED CONVERSIONS
The Company has completed the conversion of regular storage space to
climate-controlled space at eight facilities during the first nine months of
1997. The aggregate amount expended on these conversions was approximately
$565,000. See "--Planned Acquisitions, Developments, Expansions and
Conversions" below for information concerning additional planned climate-
controlled conversions.
PLANNED ACQUISITIONS, DEVELOPMENTS, EXPANSIONS AND CONVERSIONS
The Company has executed contracts with respect to three self-storage
facilities with an aggregate estimated purchase price of approximately $10.3
million. Such contracts are expected to close no later than October 31, 1997.
Additionally, the Company has executed non-binding letters of intent with
respect to four additional self-storage facilities and one development parcel
with a total expected purchase price of approximately $7.9 million. The
Company expects to enter into contracts with respect to these purchases by
October 31, 1997 and to close no later than November 30, 1997. Further, the
Company is currently negotiating a number of other acquisitions, five of
which, having an aggregate estimated purchase price of approximately $21.5
million, are expected to be under contract by October 31, 1997 and to close no
later than November 30, 1997. The Company is currently conducting due
diligence on all of the above transactions and, therefore, there can be no
assurance that the acquisition of any of these facilities will occur. The
Company intends to continue to grow through acquisitions and believes that
acquired facilities can be effectively integrated into its operations because
of management's experience in operating and acquiring self-storage facilities
and the Company's centralized operating procedures and management information
systems.
In addition, the Company has executed a contract with respect to a
development site near Ft. Lauderdale, Florida. The estimated purchase price
for such site is approximately $1.1 million with estimated construction and
development costs of $3.4 million.
The Company has plans to complete the expansion of five Facilities during
the twelve months following October 1, 1997 at an estimated aggregate cost of
approximately $2.2 million. The expansion of three of these Facilities has
commenced and approximately $135,000 has been expended on expanding these
Facilities through September 30, 1997. Additionally, the Company has a
contract to acquire land located in Jacksonville, Florida for the expansion of
a nearby Facility. The estimated purchase price for the land is approximately
$750,000 and the Company expects to spend an additional $1.5 million in
connection with construction and development of
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this site. Facilities are generally expanded when levels of occupancy combined
with local demand make it economically feasible in management's judgment to
expand existing self-storage space.
The Company also plans to complete climate-controlled conversions at 22
Facilities between October 1, 1997 and September 30, 1998 at an estimated
aggregate cost of approximately $1.1 million. Climate-controlled conversions
have commenced at eight of these Facilities and approximately $140,000 has
been spent on converting these Facilities through September 30, 1997. In
addition, the Company is negotiating the acquisition of a building in the
Miami, Florida area which the Company intends to convert to climate-controlled
self-storage space. The estimated purchase price for this building is
approximately $750,000 and renovation costs should approximate $750,000. In
several of the Company's markets, there is increasing demand for climate-
controlled space which the Company currently rents for a premium over non-
climate-controlled space.
THIRD QUARTER RESULTS
Funds from Operations ("FFO") for the nine months ended September 30, 1997,
were approximately $22.4 million as compared to approximately $15.8 million
for the nine months ended September 30, 1996 which represents a 41.8%
increase. FFO for the three months ended September 30, 1997 were approximately
$7.8 million, which represents an 11.7% increase over the same period in 1996.
Revenues were approximately $43.8 million for the nine months ended
September 30, 1997 and approximately $16.0 million for the three months ended
September 30, 1997, which represent increases of 43.8% and 29.8%,
respectively, over the same periods in 1996. Average rent per occupied square
foot was $7.47 and $7.69 for the nine and three months ended September 30,
1997, respectively, which represent increases of 8.3% and 9.1%, respectively,
over the same periods in 1996. Occupancy was 85% as of September 30, 1997 as
compared to 87% as of September 30, 1996. For the 106 Facilities owned by the
Company during each of the nine months ended September 30, 1997 and 1996,
revenues and net operating income increased 4.8% and 5.7%, respectively. For
the 135 Facilities owned by the Company during each of the three months ended
September 30, 1997 and 1996, revenues and net operating income increased 3.7%
and 5.0%, respectively.
The Board of Trustees announced a dividend increase of 5.7% to $.46 per
Common Share for the fourth quarter of 1997. The dividend will be paid on
December 29, 1997 to shareholders of record as of December 15, 1997.
DEBT FINANCING
Senior Notes
In December 1996, the Company received commitments from various
institutional investors for the private placement of $100 million of unsecured
senior notes (the "Senior Notes"). The Company funded $75 million of the
Senior Notes on January 22, 1997 and $25 million on April 15, 1997. The Senior
Notes were issued in two tranches (i) $44 million of Series A Senior Notes
with a final maturity of seven years, an average maturity of six years and a
fixed interest rate of 7.47% (125 basis points over comparable Treasuries at
the date of pricing) and (ii) $56 million of Series B Senior Notes with a
final maturity of ten years, an average maturity of eight years and a fixed
interest rate of 7.66% (135 basis points over comparable Treasuries at the
date of pricing). The proceeds of the financing were utilized to repay
indebtedness under the Credit Line and to finance the acquisition of
additional self-storage facilities.
Revolving Line of Credit
The Company has an unsecured revolving line of credit with an aggregate
borrowing capacity of $100 million (the "Credit Line") that expires in January
1998. However, the Company is currently negotiating the terms of a new credit
agreement with several banks. The Company expects to have such new facility in
place in
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January 1998, although there can be no assurance that such new facility will
be in place at such time. Amounts borrowed under the Credit Line currently
bear interest at a floating rate of LIBOR plus 137.5 basis points. On
September 30, 1997, the Company had borrowings under the Credit Line of
approximately $23.8 million at a weighted average interest rate of 7.075%.
Debt-to-Total Market Capitalization
As of June 30, 1997, on a pro forma as adjusted basis (as described in
"Capitalization") giving effect to the application of the proceeds of the
Offering as described in "Use of Proceeds," the Company would have had $105.5
million of outstanding Company Debt (as defined below) and the ratio of
Company Debt to Total Market Capitalization (as defined below) would be 20.5%.
This is consistent with the Company's conservative capital strategy and
current policy of limiting the amount of debt as reflected on the Company's
consolidated balance sheet, including debt of joint ventures in which the
Company owns an interest (collectively, "Company Debt"), to less than 50% of
the market value of the issued and outstanding Common Shares (including
securities exchangeable for Common Shares) plus Company Debt (collectively,
"Total Market Capitalization").
DISTRIBUTIONS
The Board of Trustees increased the quarterly distribution rate from $.3875
to $.41 per Common Share in the fourth quarter of 1995, representing a 5.8%
increase, from $.41 to $.435 per Common Share in the fourth quarter of 1996,
representing a 6.1% increase, and from $.435 to $.46 per Common Share in the
fourth quarter of 1997, representing a 5.7% increase. The future quarterly
distribution rate of $.46, if annualized, would equal an annual distribution
rate of $1.84 per Common Share. See "Price Range of Common Shares and
Distribution History."
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THE OFFERING
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Common Shares Offered... 2,200,000
Common Shares
Outstanding After the
Offering(1)............ 15,973,041
Use of Proceeds......... The proceeds of the Offering will be used for
repayment of indebtedness outstanding under the
Credit Line, to fund the acquisition of additional self-
storage facilities and for general corporate purposes.
New York Stock Exchange
Symbol................. "SEA"
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(1) Includes 862,684 Common Shares issuable upon the exchange of Units.
Pursuant to the partnership agreement of the Operating Partnership, each
Unit is exchangeable for one Common Share or cash, at the option of the
Company. Excludes 330,000 Common Shares issuable upon exercise of the
Underwriter's over-allotment option and excludes 1,203,500 Common Shares
issuable upon the exercise of options granted pursuant to the Storage
Trust Realty 1994 Share Incentive Plan, as amended.
USE OF PROCEEDS
The net proceeds from the sale of Common Shares offered hereby, after
deducting estimated expenses of this Offering, are expected to be
approximately $52.0 million (approximately $59.8 million if the Underwriter's
over-allotment option is exercised in full).
The Company expects to use the net proceeds of the Offering to repay
indebtedness incurred pursuant to the Company's $100 million Credit Line
(approximately $23.8 million on September 30, 1997), which indebtedness was
primarily incurred in order to acquire certain of the Facilities. The
outstanding balance on the Credit Line bears interest at a floating rate of
LIBOR plus 137.5 basis points, and the Credit Line matures on January 25,
1998. On September 30, 1997, the Company had borrowings under the Credit Line
of approximately $23.8 million at a weighted average interest rate of 7.075%.
The balance of the net proceeds will be used to fund the future acquisition
activity of the Company. If the Underwriter's over-allotment option to
purchase 330,000 Common Shares is exercised in full, the Company expects to
use the additional net proceeds to fund its future acquisition activity with
any remaining amounts used for general corporate purposes, including working
capital.
Pending application of the net proceeds, the Company will invest such
portion of the net proceeds in interest-bearing accounts and short-term
interest-bearing securities.
S-10
<PAGE>
PRICE RANGE OF COMMON SHARES AND DISTRIBUTION HISTORY
The Common Shares have been traded on the NYSE under the symbol "SEA" since
the IPO. The following table sets forth the quarterly high and low sales
prices per Common Share reported on the NYSE for the periods indicated.
<TABLE>
<CAPTION>
DISTRIBUTIONS
HIGH LOW DECLARED(1)
-------- ------- -------------
<S> <C> <C> <C>
1995
First Quarter.................................... $20 3/4 $17 1/4 $.3875
Second Quarter................................... $21 7/8 $19 1/2 $.3875
Third Quarter.................................... $22 $19 7/8 $.3875
Fourth Quarter................................... $22 3/4 $18 1/2 $.41
1996
First Quarter.................................... $24 $21 1/2 $.41
Second Quarter................................... $22 3/8 $20 $.41
Third Quarter.................................... $22 5/8 $19 7/8 $.41
Fourth Quarter................................... $27 $21 5/8 $.435
1997
First Quarter.................................... $27 7/8 $24 3/4 $.435
Second Quarter................................... $27 $22 3/4 $.435
Third Quarter.................................... $27 $24 1/4 $.435
Fourth Quarter (2)............................... $26 9/16 $24 3/4 $.46 (3)
</TABLE>
- --------
(1) Distributions are shown for the periods during which they were declared.
These distributions actually were or will be paid in the immediately
subsequent period.
(2) For the period from October 1, 1997 through October 15, 1997.
(3) The distribution for the fourth quarter was declared by the Board of
Trustees' on October 13, 1997 payable on December 29, 1997 to shareholders
of record as of December 15, 1997.
On October 15, 1997, the last reported closing sales price of the Common
Shares on the NYSE was $24 13/16 per share. On October 1, 1997, the Company
had approximately 250 shareholders of record.
The Company intends to continue to pay regular distributions to holders of
Common Shares and holders of Units. The Board of Trustees increased the
quarterly distribution rate to $.46 per Common Share from $.435 per Common
Share in the fourth quarter of 1997, representing a 5.7% increase. This
quarterly distribution rate of $.46, if annualized, would equal an annual
distribution rate of $1.84 per Common Share. The distribution for the quarter
ended June 30, 1997 represented approximately 81% of the Company's FFO for
that quarter. Although the Company intends to maintain this distribution rate,
future distributions by the Company will be at the discretion of the Board of
Trustees and will depend on the actual FFO of the Company, its financial
condition, capital requirements, the annual distribution requirements under
the REIT provisions of the Code and such other factors as the Board of
Trustees deems relevant.
S-11
<PAGE>
BUSINESS AND PROPERTIES
GENERAL
The Company owns or operates 193 Facilities in specific markets in 16 states
in the Southern, Mid-Atlantic, Midwestern and Western regions of the United
States containing an aggregate of approximately 10.1 million net rentable
square feet. The Company believes that it is one of the largest operators of
self-storage facilities in the United States.
Since the IPO, the Company has grown principally by acquiring additional
self-storage facilities, as well as by improving the operating performance of
the Facilities. The Company has acquired 128 wholly owned Facilities since the
IPO and has exchanged 18 wholly owned Facilities through September 30, 1997.
The Company intends to continue to grow primarily through acquisitions and
believes that acquired facilities can be effectively integrated into its
operations because of management's experience in operating and acquiring self-
storage facilities and the Company's centralized operating procedures and
management information systems.
As of September 30, 1997, the Operating Partnership managed all of the
Company's wholly-owned Facilities and the Management Company managed 11
Facilities, ten of which are owned by unrelated third parties, located in six
states, containing approximately 593,000 net rentable square feet. One of the
Facilities that is managed by the Management Company is a Facility in which
the Company has an ownership interest through a joint venture. The Company
also has an ownership interest in one other Facility through a joint venture.
The following table sets forth information on the Company's portfolio of 181
wholly owned Facilities as of September 30, 1997:
<TABLE>
<CAPTION>
NET PERCENTAGE
RENTABLE MONTH/YEAR OCCUPANCY
SQUARE ACQUIRED BY AS OF
FACILITIES LOCATION UNITS FOOTAGE STORAGE TRUST 9/30/97
- ------------------------ -------------------- ----- -------- ------------- ----------
<S> <C> <C> <C> <C> <C>
ALABAMA:
MOBILE AREA:
Hillcrest Road Mobile, AL 298 34,670 11/94 93
Azalea Road Mobile, AL 287 31,965 6/95 94
Moffat Road Mobile, AL 441 42,838 12/95 93
Grelot Road Mobile, AL 426 49,150 2/96 98
Government Blvd. Mobile, AL 415 42,275 3/97 88
COLORADO:
COLORADO SPRINGS AREA:
North Powers Blvd. Colorado Springs, CO 501 93,664 9/95 89
Parkmoor Village Drive Colorado Springs, CO 495 59,975 6/95 76
Van Teylingen Drive Colorado Springs, CO 361 76,850 6/95 92
Centennial Blvd. Colorado Springs, CO 439 80,200 9/96 91
Astrozon Court Colorado Springs, CO 574 74,521 6/97 95
DENVER AREA:
South Clinton Street Denver, CO 272 31,660 8/96 96
North Washington
Street Denver, CO 385 56,150 9/96 79
OTHER AREAS:
College Avenue Ft. Collins, CO 577 57,140 3/95 84
Wedgewood Avenue Longmont, CO 431 51,020 3/95 86
Park Avenue Basalt, CO 710 81,887 1/97 91
FLORIDA:
JACKSONVILLE AREA:
Phillips Highway Jacksonville, FL 388 59,155 11/94 77
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE
RENTABLE MONTH/YEAR OCCUPANCY
SQUARE ACQUIRED BY AS OF
FACILITIES LOCATION UNITS FOOTAGE STORAGE TRUST 9/30/97
- ----------------------- --------------------- ----- -------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Roosevelt Blvd. Jacksonville, FL 471 54,280 10/95 86
Ft. Caroline Road Jacksonville, FL 664 67,745 5/96 88
Southside Blvd. Jacksonville, FL 791 90,030 8/96 93
Park Avenue Orange Park, FL 394 52,950 11/94 95
Palm Valley Road Ponte Verde Beach, FL 206 22,975 3/97 99
ORLANDO AREA:
South Orange Blossom
Trail Apopka, FL 462 25,777 5/97 75
Semoran Blvd. Casselberry, FL 637 66,625 5/96 92
Orange Blossom Trail Orlando, FL 750 83,500 6/95 88
McLeod Road Orlando, FL 300 27,618 10/95 89
South Semoran Blvd. Orlando, FL 345 30,200 5/96 91
PENSACOLA AREA:
Brent Lane Pensacola, FL 316 34,346 11/94 84
Creighton Blvd. Pensacola, FL 431 46,277 11/94 81
SOUTH FLORIDA:
U.S. Highway 1 Big Coppitt, FL 227 15,311 9/95 92
S.W. 10th Street Deerfield Beach, FL 835 79,279 5/97 88
Third Street, Stock
Island Key West, FL 324 29,415 11/94 95
N.W. 14th Street Miami, FL 789 62,274 10/95 94
N.W. 7th Avenue Miami, FL 808 22,870 2/97 93
N.W. 153rd Street Miami Lakes, FL 374 13,491 3/97 91
South U.S. Highway 1 Vero Beach, FL 464 37,075 3/97 96
TAMPA BAY AREA:
North Highland Clearwater, FL 422 55,876 4/96 85
Alt. Highway 19 South Tarpon Springs, FL 385 60,491 12/94 90
Highway 19 North Tarpon Springs, FL 740 80,670 5/96 93
OTHER AREAS:
Cleveland Avenue Ft. Myers, FL 552 65,129 5/96 83
GEORGIA:
ATLANTA AREA:
2064 Briarcliff Road Atlanta, GA 225 46,230 5/96 84
2080 Briarcliff Road Atlanta, GA 442 49,172 11/94 84
Spring Street Atlanta, GA 459 47,641 7/95 46
North Decatur Road Decatur, GA 463 53,234 11/94 87
McElroy Road Doraville, GA 637 75,810 4/95 70
Westmoreland Plaza Douglasville, GA 424 45,670 4/95 65
Dura Lee Lane Douglasville, GA 379 42,910 10/95 80
Highway 5 Douglasville, GA 359 50,400 10/95 91
Jonesboro Road Forest Park, GA 505 44,345 10/95 87
Tara Blvd. Jonesboro, GA 387 62,700 11/94 84
Whitlock Place Marietta, GA 566 63,275 12/95 81
Cobb Parkway Marietta, GA 431 47,980 5/96 79
Jones Mill Road Marietta, GA 575 66,360 2/97 72
Alpharetta Highway Roswell, GA 690 113,030 5/96 78
AUGUSTA AREA:
Old Petersburg Road Augusta, GA 354 41,115 11/94 75
Peach Orchard Road Augusta, GA 544 69,238 11/94 80
</TABLE>
S-13
<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE
RENTABLE MONTH/YEAR OCCUPANCY
SQUARE ACQUIRED BY AS OF
FACILITIES LOCATION UNITS FOOTAGE STORAGE TRUST 9/30/97
- ----------------------- ----------------- ----- -------- ------------- ----------
<S> <C> <C> <C> <C> <C>
OTHER AREAS:
Atlanta Highway Bogart, GA 413 43,530 11/95 85
North Columbia Street Milledgeville, GA 400 45,000 10/95 85
ILLINOIS:
CHICAGO AREA:
Phillips Court Carol Stream, IL 424 51,025 12/94 75
North Broadway Chicago, IL 446 19,738 11/94 92
West Jarvis Chicago, IL 298 12,752 11/94 96
Cermak Road Chicago, IL 792 63,644 5/97 94
North Natchez Avenue Chicago, IL 900 91,950 5/97 93
West Lake Street Hanover Park, IL 501 66,875 11/94 91
Palmer Drive Schaumburg, IL 603 80,616 5/97 88
Roselle Road Schaumburg, IL 369 38,630 3/97 95
Brennen Highway Tinley Park, IL 546 59,660 3/97 93
Roosevelt Road Winfield, IL 540 48,050 5/96 87
KANSAS:
KANSAS CITY AREA (SEE KANSAS CITY, MO
BELOW):
State Avenue Kansas City, KS 366 39,560 8/96 93
Long Avenue Lenexa, KS 345 51,415 9/96 71
Santa Fe Trail Lenexa, KS 319 53,760 2/97 71
Foxridge Lane Mission, KS 564 79,075 9/96 89
Hemlock Avenue Overland Park, KS 375 54,375 9/96 97
Hedge Lane Terrace Shawnee, KS 304 57,000 9/96 81
OTHER AREA:
Haskell Avenue Lawrence, KS 447 61,920 9/95 74
KENTUCKY:
LEXINGTON AREA:
Twilight Trail Frankfort, KY 289 37,200 11/94 78
Winchester Road Lexington, KY 451 55,700 5/96 81
LOUISVILLE AREA:
Breckenridge Lane Louisville, KY 324 34,490 5/96 93
4301 Poplar Level Louisville, KY 437 44,305 5/96 77
4324 Poplar Level Louisville, KY 357 37,525 5/96 94
LOUISIANA:
Church Street Lake Charles, LA 356 65,620 3/95 88
Tchoupitoulas Street New Orleans, LA 682 70,227 5/97 79
MISSOURI:
COLUMBIA AREA:
Paris Road Columbia, MO 302 36,924 11/94 75
Rangeline Street Columbia, MO 499 122,300 11/94 89
I-70 Drive SE Columbia, MO 210 29,625 3/95 75
Providence Road Columbia, MO 271 37,550 3/95 89
KANSAS CITY AREA (SEE KANSAS CITY, KS
ABOVE):
South Highway M291 Independence, MO 557 59,192 9/95 92
East 67th Terrace Kansas City, MO 665 77,834 9/95 90
James A. Reed Road Kansas City, MO 456 51,152 9/95 79
47th Street Kansas City, MO 338 46,626 3/96 81
Woodson Road Raytown, MO 431 66,165 9/96 89
</TABLE>
S-14
<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE
RENTABLE MONTH/YEAR OCCUPANCY
SQUARE ACQUIRED BY AS OF
FACILITIES LOCATION UNITS FOOTAGE STORAGE TRUST 9/30/97
- ----------------------- ------------------ ----- -------- ------------- ----------
<S> <C> <C> <C> <C> <C>
ST. LOUIS AREA:
9291 West Florrisant Ferguson, MO 399 38,635 4/96 92
9400 West Florrisant Ferguson, MO 10 13,200 6/97 90
New Halls Ferry Florissant, MO 650 68,044 12/94 87
North Highway 67 Florissant, MO 405 54,061 4/96 87
1550 North Lindbergh St. Louis, MO 670 73,055 11/94 96
2956 North Lindbergh St. Louis, MO 438 75,600 11/94 84
Third Street/Annex St. Louis, MO 698 76,857 3/95,9/95 90
World Parkway Center St. Louis, MO 466 56,195 3/95 84
North Vandeventer St. Louis, MO 527 33,381 4/96 87
OTHER AREAS:
St. Mary's Blvd. Jefferson City, MO 344 34,750 11/94 81
Florida Street Springfield, MO 237 32,814 11/94 79
NORTH CAROLINA:
CHARLOTTE AREA:
East W. T. Harris
Blvd. Charlotte, NC 361 36,790 11/94 96
South Blvd. Charlotte, NC 318 36,074 11/94 82
North Tryon Charlotte, NC 690 69,325 11/94 74
York Road Gastonia, NC 362 38,400 12/95 76
Oregon Street Kannapolis, NC 413 45,900 11/94 71
RALEIGH/DURHAM AREA:
North Duke Street Durham, NC 284 34,000 11/94 89
Kangaroo Drive Durham, NC 669 47,973 5/96 80
East Club Avenue Durham, NC 456 50,450 8/97 84
Maitland Raleigh, NC 333 39,005 11/94 93
OTHER AREA:
O'Henry Blvd. Greensboro, NC 393 37,180 11/94 83
OHIO:
2719 Morse Road Columbus, OH 510 61,900 5/96 81
2715 Morse Road Columbus, OH 701 68,104 9/97 81
SOUTH CAROLINA:
CHARLESTON AREA:
2560 Ashley Phosphate
Road Charleston, SC 292 33,514 11/94 85
2840 Ashley Phosphate
Road Charleston, SC 219 22,722 11/94 60
5715 Dorchester Road Charleston, SC 184 33,010 11/94 94
6654 Dorchester Road Charleston, SC 354 43,274 11/94 68
Sam Rittenburg Blvd. Charleston, SC 251 31,230 11/94 95
Ashley River Road Charleston, SC 624 63,608 5/97 88
COLUMBIA AREA:
2832 Broad River Road Columbia, SC 319 38,088 11/94 79
3034 Broad River Road Columbia, SC 506 58,119 5/97 91
Buckner Road Columbia, SC 499 56,830 11/94 94
Decker Park Road Columbia, SC 263 34,339 11/94 89
Rosewood Drive Columbia, SC 265 31,744 11/94 91
River Drive Columbia, SC 383 51,725 4/96 86
Plumbers Road Columbia, SC 336 30,900 3/95 75
Airport Blvd. West Columbia, SC 280 34,416 11/94 92
Orchard Drive West Columbia, SC 253 24,447 11/94 82
</TABLE>
S-15
<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE
RENTABLE MONTH/YEAR OCCUPANCY
SQUARE ACQUIRED BY AS OF
FACILITIES LOCATION UNITS FOOTAGE STORAGE TRUST 9/30/97
- ----------------------- ---------------- ----- -------- ------------- ----------
<S> <C> <C> <C> <C> <C>
GREENVILLE AREA:
Whitehorse Road Greenville, SC 448 49,700 11/94 81
Wood Lake Road Greenville, SC 280 30,300 11/94 85
Pineknoll Road Greenville, SC 440 50,265 5/96 84
North Main Street Mauldin, SC 329 42,950 11/94 74
Grand View Drive Simpsonville, SC 363 48,375 11/94 63
Chesnee Highway Spartanburg, SC 423 51,865 10/95 80
Wade Hampton Blvd. Taylors, SC 297 37,394 11/94 82
HILTON HEAD AREA:
Office Park Road Hilton Head, SC 420 46,925 11/94 93
Yacht Cove Drive Hilton Head, SC 488 58,925 10/95 78
TENNESSEE:
CHATTANOOGA AREA:
Gadd Road Hixson, TN 322 35,115 11/94 61
Highway 153 Hixson, TN 443 46,450 11/94 81
Harding Road Red Bank, TN 342 37,980 11/94 79
NASHVILLE AREA:
Cane Ridge Road Antioch, TN 256 34,800 3/97 71
Central Court Hermitage, TN 351 47,050 3/97 91
Myatt Drive Madison, TN 300 32,490 11/94 78
Williams Avenue Madison, TN 946 136,399 9/96 76
Lafayette Street Nashville, TN 342 37,775 11/94 83
Metroplex Drive Nashville, TN 404 49,780 11/94 63
Welshwood Drive Nashville, TN 518 60,475 10/95 77
McNally Drive Nashville, TN 608 85,478 9/96 76
TEXAS:
DALLAS/FT. WORTH AREA:
Inwood Road Addison, TX 558 79,192 6/95 86
3006 West Division Arlington, TX 23 46,000 11/94 92
3008 West Division Arlington, TX 301 49,315 11/94 92
West Trinity Mills Carrollton, TX 385 45,816 11/94 82
Inwood Road Dallas, TX 662 71,665 9/97 57
South Cedar Ridge Duncanville, TX 327 36,000 11/94 98
Spaceway/Cedar Ridge Duncanville, TX 482 73,654 6/95,7/95 91
Granbury Road Fort Worth, TX 369 49,175 7/97 71
East Loop 820 Fort Worth, TX 468 47,550 9/97 97
Jackson Drive Garland, TX 598 72,520 5/96 81
East Buckingham Road Garland, TX 318 40,700 5/96 93
Bolen Road Kennedale, TX 290 33,230 11/94 83
East Highway 121 Lewisville, TX 472 47,100 3/97 86
Avenue K Piano, TX 851 87,247 5/96 86
HOUSTON AREA:
Fondren Houston, TX 393 41,538 11/94 88
Wallisville Road Houston, TX 415 44,944 11/94 95
Addicks Satsuma Houston, TX 321 38,726 3/95 88
South Main Houston, TX 604 68,638 12/95 88
Bingle Road Houston, TX 697 63,200 12/95 74
Hayes Road Houston, TX 744 67,475 11/95 88
</TABLE>
S-16
<PAGE>
<TABLE>
<CAPTION>
NET PERCENTAGE
RENTABLE MONTH/YEAR OCCUPANCY
SQUARE ACQUIRED BY AS OF
FACILITIES LOCATION UNITS FOOTAGE STORAGE TRUST 9/30/97
- ---------------------- -------------- ------ --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Mangum Road Houston, TX 466 33,250 12/95 93
6222 S.W. Freeway Houston, TX 1,435 109,783 6/95 78
2510 FM 1960 West Houston, TX 520 50,355 11/96 74
Milwee Street Houston, TX 402 64,750 3/97 92
Loch Katrine Houston, TX 743 61,080 3/97 70
Westheimer Road Houston, TX 540 53,000 6/97 85
4341 S.W. Freeway Houston, TX 738 79,617 7/97 89
Dominion Drive Katy, TX 486 72,975 12/96 88
VIRGINIA:
Western Branch Blvd. Chesapeake, VA 654 75,300 5/96 92
WISCONSIN:
MILWAUKEE AREA:
West Dean Road Milwaukee, WI 1,101 205,190 5/96 76
Foster Court Waukesha, WI 217 49,432 5/96 98
------ --------- ---
TOTAL/WEIGHTED AVERAGE 82,374 9,546,101 85
====== =========
</TABLE>
<TABLE>
<CAPTION>
NET PERCENTAGE
RENTABLE MONTH/YEAR OCCUPANCY
SQUARE ACQUIRED BY AS OF
FACILITIES LOCATION UNITS FOOTAGE STORAGE TRUST 9/30/97
- ---------------------- --------------- ----- -------- ------------- ----------
<S> <C> <C> <C> <C> <C>
FACILITIES OWNED BY JOINT VENTURES (INTEREST OF
COMPANY):
Tulane Avenue (15%) New Orleans, LA 821 153,986 11/94 96
Marian Ridge (25%) Kansas City, MO 489 70,700 10/96 55
----- ------- ---
TOTAL/WEIGHTED AVERAGE 1,310 224,686 83
===== =======
</TABLE>
Characteristics of the Facilities
The Facilities in the Company's portfolio are designed to offer affordable,
accessible storage space for personal and business use. In addition, many
Facilities offer climate-controlled units as well as outside storage pads for
vehicles and boats. Customers rent fully enclosed storage units for their
exclusive use which they may freely enter during business hours, and they can
control access to their units by furnishing their own locks. Facilities are
generally fenced, have locked gates and are lighted at night. All Facilities
currently have managers who reside in an on-site apartment, except in two
instances where the manager lives adjacent to the site.
The Facilities are generally near major business and residential districts
in metropolitan areas, clearly visible from and easily accessible to major
traffic arteries and protected by computer-controlled access gates, security
fencing, lighting and the presence of resident managers. The Facilities are
typically constructed of one-story metal, masonry or tilt-up concrete walls,
with an individual roll-up door for each storage space and with removable
steel interior walls to permit reconfiguration, to protect items from damage
and to separate customers' units. Sites have wide drive aisles to accommodate
most vehicles. The Facilities are designed to be aesthetically pleasing, are
kept clean and in good repair by Company-trained managers, and are open for
service during hours and on days convenient to customers and prospective
customers.
Due to the type of simple structures and durable material used for
Facilities, property maintenance is minimal compared to other types of real
estate investments. Typical capital expenditures include replacing asphalt,
roofs, gates, air conditioning equipment and elevators (as contrasted with
expense items such as repairing asphalt, repairing a door, pointing up masonry
walls, painting trim and facades, repairing a fence, maintaining landscaping,
and repairing damage caused by customer vehicles). Maintenance within a
storage unit between
S-17
<PAGE>
leasing typically consists of sweeping out the unit and changing a light bulb.
Maintenance is the responsibility of the facility manager.
Climate-controlled units are offered in many of the Facilities for storing
files, antiques and other temperature and humidity-sensitive items.
Approximately 384,000 net rentable square feet at 56 of the Facilities offer
climate-controlled space. The Company plans to add this feature by conversion
of existing units as demand dictates. The marginal costs of building climate-
controlled space are approximately 5% higher than non-climate-controlled space
while the marginal costs of operating and maintaining climate-controlled space
are generally minimal. Based on a recent conversion, the Company believes that
it can receive a rent premium of approximately 30% on climate-controlled space
over rent for non-climate-controlled space.
STORAGE REALTY MANAGEMENT CO.
As of September 30, 1997, the Management Company managed 11 Facilities, ten
of which are owned by unrelated third parties. One of the Facilities that is
managed is a Facility in which the Company has an ownership interest through a
joint venture. The managed Facilities contain approximately 593,000 net
rentable square feet and are located in the following six states: Missouri
(3), Florida (2), Kansas (2), Texas (2), Georgia (1) and Virginia (1). While
the Management Company does not intend to actively expand this aspect of its
operations, management of additional facilities in the future may be
considered as a precursor to acquisition by the Operating Partnership or in
order for the Company to become familiar with an attractive new market.
Additionally, the Management Company conducts various other businesses, such
as the sale of locks, boxes and packaging supplies, the processing of customer
property insurance and the rental of trucks, at various Facilities.
BHC owns 95% of the voting common stock of the Management Company, which is
generally entitled to dividends equal to 4.75% of all distributions. The
remaining 5% of the voting common stock, entitled to .25% of all
distributions, is owned by the Operating Partnership. The Operating
Partnership owns 100% of the nonvoting preferred stock of the Management
Company. The nonvoting preferred stock is entitled to dividends equal to 95%
of all distributions of the Management Company. The charter of the Management
Company requires the quarterly distribution as dividends of its net cash flow,
subject to the discretion of the board of directors that there are funds
legally available therefor. Such provision may not be changed without the
consent of the holder of the preferred stock. Accordingly, the Operating
Partnership expects to receive substantially all of the available net cash
flow from the Management Company through ownership of the preferred stock and
thereby will receive substantially all of the economic benefit of the
operations carried on by the Management Company.
THE INDUSTRY
The self-storage industry is an integral part of the commercial and
residential real estate markets, serving the storage needs of businesses and
consumers. Initially developed in the early 1960s in the southwestern United
States, self-storage facilities were built in response to the growing need for
low-cost accessible storage. A number of factors have accelerated the demand
for storage facilities including, among others, a more mobile society, with
individuals moving to new homes and new cities needing short-term storage for
their belongings, the increasing cost of residential housing (resulting in
smaller houses), the increased popularity of apartments and condominiums, more
individuals with growing discretionary income (resulting in the accumulation
of more possessions and the purchase of items such as boats and recreational
vehicles which cannot be stored at residences), the growing number of small
businesses and the escalating cost of other storage alternatives. In addition
to traditional use by consumers, many retail stores and other businesses use
self-storage facilities to store goods received from warehouses or, in some
instances, directly from manufacturers, through just-in-time delivery systems.
Self-storage facilities serve as additional storage capacity for households
acquiring goods or businesses building inventory or producing storable items,
such as new products or records.
In addition to providing affordable, accessible storage space for personal
and business use, many facilities offer climate controlled units as well as
outside storage pads for vehicles and boats. With the advent of resident
managers, storing goods became a far more convenient process for customers
(i.e., tenants renting self-storage
S-18
<PAGE>
space), resulting in increased customer awareness and appreciation. Rental
units are usually secured by customer locks and only the customer has the key,
thus ensuring controlled access. Facilities are generally fenced, have locked
gates and are lighted at night. Computerized access gates for self-storage
have made the overall storage process more convenient for the customer.
The successful development of self-storage facilities is becoming
increasingly sophisticated. Specialized skills in areas such as site
selection, design and unit mix are critical to the development of successful
new self-storage projects on a cost efficient basis. Furthermore, new
development in self-storage has become more difficult due to the lack of
available capital, pressure from zoning boards and municipalities, and
increases in building costs as new facilities are required to meet rigorous
landscaping and other aesthetically oriented standards.
REGULATION
Environmental Matters
The Company is subject to federal, state, and local environmental laws,
ordinances and regulations that apply to the development of real property,
including construction activities, the ownership of real property, and the
operation of self-storage facilities.
In developing properties and constructing facilities, the Company utilizes
environmental consultants to determine whether there are any flood plains or
wetlands or environmentally sensitive areas that are part of the property to
be developed. If flood plains are identified, development and construction are
planned so that flood plain areas are preserved or alternative flood plain
capacity is created in conformance with federal and local flood plain
management requirements.
Storm water discharge from a construction site is evaluated in connection
with the requirements for storm water permits under the Clean Water Act. This
is an evolving program in most states. It is anticipated that general storm
water permits will be applicable to the Company's activities, and individual
permits will not be required for existing or new development.
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real property may become liable for the costs of removal
or remediation of certain hazardous or toxic substances on, under or in such
property. Such laws, ordinances and regulations often impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. The presence of hazardous or
toxic substances, or the failure to properly remediate such substances, when
released, may adversely affect the owner's ability to sell or lease such real
estate or to borrow using such real estate as collateral, and may cause the
property owner to incur substantial remediation costs. In addition to claims
for cleanup costs, the presence of hazardous substances on a property could
result in a claim by a private party for personal injury or a claim by an
adjacent property for property damage.
The Company has not been notified by any governmental authority of any
material noncompliance, claim, or liability in connection with any of the
Facilities. The Company has not been notified of a claim for personal injury
or property damage by a private party in connection with any of the Facilities
in connection with environmental conditions.
A Phase I environmental assessment for each of the Facilities has been
prepared by an independent environmental consultant. The purpose of each such
report was to identify, to the extent reasonably possible and based on
reasonably available information, whether the environmental quality of the
Facility had been affected by hazardous or toxic substances, including
petroleum products and asbestos.
The scope of the Phase I environmental assessment for each such Facility
generally included: (i) a review of reasonably available maps, aerial
photographs and other public information to analyze the past and present uses
of the site; (ii) limited inquiries of federal, state and local agencies
having jurisdiction over certain
S-19
<PAGE>
environmental matters; and (iii) an on-site assessment of the Facility to
inspect for evidence of past or present on-site waste disposal, visible
surface contamination, above-surface and subsurface storage tanks, drums,
barrels and other storage containers, current waste streams and management
practices, ACMs, and PCB transformers. In addition, as part of the Phase I
environmental assessment, abutting properties and nearby sources of potential
contamination were identified and evaluated for potential impact to the
Facility, to the extent reasonably possible.
The environmental assessments, and in certain circumstances further
investigation, have not revealed, nor is the Company aware of, any
environmental condition with respect to the Facilities that is expected to
have a material adverse effect on the Company's financial condition or results
of operations. No assurances can be given, however, that (a) the environmental
assessments and further investigation which have been conducted with respect
to the Facilities or which will be conducted with respect to the facilities
that may be acquired or developed in the future, have revealed, or will
reveal, all potential environmental liabilities, (b) any prior owner or
operator of the real property on which the Facilities are located did not
create any material environmental condition not known to the Company, or (c)
an environmental condition does not otherwise exist as to any one or more of
the Facilities, which liabilities or conditions could have a material adverse
effect upon the financial condition or results of operations of the Company.
Americans with Disability Act
Under the Americans with Disability Act ("ADA"), all public accommodations
are required to meet certain federal requirements related to physical access
and use by disabled persons. While the Company believes that the Facilities
comply in all material respects with these physical requirements (or would be
eligible for applicable exemptions from material requirements because of
adaptive assistance provided), a determination that the Company is not in
compliance with the ADA could result in the imposition of fines, injunctive
relief, damages or attorney's fees. If the Company were required to make
modifications to comply with the ADA, the Company's ability to make expected
distributions to its shareholders could be adversely affected; however,
management believes that such effect would be minimal.
Local Regulations
As with all real property, self-storage facilities must conform to local
zoning ordinances. The Facilities' operations have not been subjected to any
material zoning complaints. Typically, self-storage facilities are not a
permitted use within the commercial and retail areas desired by the Company
for the development of a new facility. Therefore, the Company must generally
obtain a variance to undertake the development of a new facility. The zoning
classifications for self-storage have been narrowed repeatedly so that new
self-storage development within major metropolitan areas is becoming
increasingly difficult. The restrictive zoning regulations may keep the
industry restricted to all but those who have the expertise to show the
benefits of self-storage to a community and have the credentials necessary to
persuade zoning boards to rezone or grant variances.
S-20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 on a historical basis, on a pro forma basis giving effect to certain
acquisitions made during the period from July 1, 1997 through September 30,
1997, and on a pro forma as adjusted basis giving effect to the pro forma
adjustments described above and to the completion of the Offering and the
application of the net proceeds of the Offering as described under the caption
"Use of Proceeds." The information set forth in the following table should be
read in conjunction with the financial statements and notes thereto
incorporated by reference into the accompanying Prospectus and the information
under "Selected Financial Information."
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------
PRO PRO FORMA
HISTORICAL FORMA AS ADJUSTED
---------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Debt (1):
Credit Line................................. $ 13,900 $ 24,865 $ --
Senior Notes................................ 100,000 100,000 100,000
-------- -------- --------
Total Debt................................ 113,900 124,865 100,000
Shareholders' Equity:
Common Shares of Beneficial Interest, $0.01
par value per share, 150,000,000
authorized, 12,909,201 Common Shares issued
and outstanding on a historical and pro
forma basis (15,109,201 Common Shares
issued and outstanding on a pro forma as
adjusted basis) (2)(3)..................... 129 129 151
Additional paid-in capital.................. 220,531 220,531 272,499
Distributions in excess of net income....... (5,955) (5,955) (5,955)
-------- -------- --------
Total capitalization...................... $328,605 $339,570 $366,695
======== ======== ========
</TABLE>
- --------
(1) Does not include $5.5 million of joint venture indebtedness as of June 30,
1997. From June 30, 1997 to September 30, 1997, the Company incurred
approximately $14.4 million of additional debt and paid off approximately
$4.5 million of such indebtedness with cash flow from operations.
(2) Does not include 862,684 Common Shares reserved for issuance upon exchange
of issued Units or 1,203,500 Common Shares reserved for issuance on the
exercise of options. Any number of authorized and unissued Common Shares
may be classified by the Trustees as preferred shares with such
preferences, conversions or other rights as the Trustees may decide.
(3) Assumes the Underwriter's over-allotment option to purchase up to 330,000
Common Shares is not exercised. See "Underwriting."
S-21
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth certain financial information (i) on a pro
forma basis for the Company as of, and for the six-month period, ended June
30, 1997 and (ii) on a historical basis for the Company as of, and for the
six-month periods, ended June 30, 1997 and 1996 and (iii) as of, and for the
years ended, December 31, 1996 and 1995. The following data should be read in
conjunction with the discussion under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and all of the
financial statements and notes thereto incorporated by reference in the
accompanying Prospectus. The results of operations for the interim periods are
not necessarily indicative of results of the Company for a full year. The pro
forma information for the six months ended June 30, 1997 assumes all
facilities acquired in 1997 through September 30, 1997 were acquired on
January 1, 1997 and that the offering of the Senior Notes also occurred on
January 1, 1997. The pro forma information does not reflect the proceeds of
the Offering. The pro forma financial information is not necessarily
indicative of what the actual financial position and results of operations of
the Company would have been as of the date and for the periods indicated, nor
does it purport to represent the financial position and results of operations
for future periods. Per share data is reflected only for pro forma information
and the historical results of the Company as of June 30, 1997 and 1996 and
December 31, 1996 and 1995.
STORAGE TRUST REALTY
(AMOUNTS IN THOUSANDS, EXCEPT FOR SHARE, PER SHARE AND PROPERTY INFORMATION)
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED JUNE 30, DECEMBER 31,
----------------------------------- -----------------------
(UNAUDITED)
PRO
FORMA ACTUAL ACTUAL
----------- ----------------------- -----------------------
1997 1997 1996 1996 1995
----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues
Rental income........... $ 29,437 $ 27,147 $ 17,727 $ 42,499 $ 22,916
Management income....... 112 112 101 168 339
Other income............ 632 589 333 775 584
----------- ----------- ---------- ----------- ----------
Total Revenues........ 30,181 27,848 18,161 43,442 23,839
=========== =========== ========== =========== ==========
Property operating
expenses............... 9,218 8,165 5,743 13,251 6,798
Interest expense........ 4,856 3,400 2,414 4,190 1,334
General and
administrative expense. 1,424 1,424 1,069 2,549 1,573
Depreciation and
amortization........... 4,995 4,630 2,709 6,565 4,106
Income before minority
interest............... 9,536 10,229 6,226 16,887 10,028
Net income(1)........... $ 8,928 $ 9,576 $ 5,827 $ 15,796 $ 9,557
Net income per share.... $ 0.69 $ 0.74 $ 0.67 $ 1.46 $ 1.30
Common shares
outstanding............ 12,897,195 12,897,195 8,734,332 10,803,871 7,324,058
BALANCE SHEET DATA AT
PERIOD END:
Storage facilities,
before depreciation.... 364,063 $ 353,098 $ 269,981 $ 304,114 $ 194,217
Total assets............ 372,974 362,009 274,326 308,725 194,655
Total liabilities....... 142,138 131,173 124,484 76,559 47,779
Shareholders' equity.... 214,705 214,705 137,574 215,696 139,039
OTHER DATA:
Cash flows provided by
operating activities... $ -- $ 18,556 $ 10,457 $ 25,553 $ 14,211
Cash flows used in
investing activities... -- (51,375) (74,404) (106,951) (84,953)
Cash flows provided by
financing activities... -- 36,185 63,970 81,359 69,378
Funds from
operations(2).......... 14,338 14,522 8,804 22,937 13,204
EBITDA(3)............... 19,539 18,259 11,349 27,642 15,468
Number of wholly-owned
facilities............. 181 183 153 165 121
Net rentable square
feet................... 9,532 9,509 7,598 8,491 5,709
Weighted average
occupancy (net rentable
square foot basis)(4).. -- 87% 87% 86% 81%
Average revenue per
occupied square
foot(5)................ -- $ 7.03 $ 6.88 $ 6.99 $ 6.61
</TABLE>
S-22
<PAGE>
- --------
(1) Represents the Company's net income (loss) after minority interest of the
holders of Units and the other shareholder in the Management Company.
(2) FFO is defined by the National Association of Real Estate Investment
Trusts ("NAREIT") as net income (loss) before minority interest (computed
in accordance with generally accepted accounting principles ("GAAP")),
excluding gains or losses from debt restructuring and sales of property,
provision for losses and real estate related depreciation and amortization
(excluding amortization of financing costs). Effective in 1996, the
definition of FFO was modified by NAREIT to exclude the add-back of the
amortization of deferred financing fees and depreciation of non real
estate assets. The Company has adopted this new definition. Amounts for
prior years have been revised to conform to the new definition. The
Company believes that FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flows from
operating activities, investing activities and financing activities, it
provides investors with an understanding of the ability of the Company to
incur and service debt and to make capital expenditures. FFO is not to be
considered as an alternative to net income or any other GAAP measurement
as a measure of operating performance and is not necessarily indicative of
cash available to fund all cash needs. The FFO measure presented by the
Company may not be comparable to similarly titled measures of other REITs.
(3) EBITDA means operating income before minority interest, mortgage and other
interest expense, income taxes, depreciation and amortization. EBITDA does
not represent cash generated from operating activities in accordance with
GAAP, is not to be considered as an alternative to net income or any other
GAAP measurement as a measure of operating performance, and is not
necessarily indicative of cash available to fund all cash needs. The
Company has included EBITDA herein because, along with cash flows from
operating activities, financing activities and investing activities, it
provides operating information relevant to the Company's ability to incur
and service debt and to make capital expenditures.
(4) Determined by dividing net rentable square feet occupied at the end of
such period by total net rentable square feet, excluding Facilities
acquired or opened near the end of the period.
(5) Revenues per square foot are calculated on a weighted average annual
basis. For the six-month periods, the average revenues per square foot are
on an annualized basis.
S-23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following summary discussions should be read in conjunction with the
information under "Selected Financial Information" and the financial
statements and notes thereto incorporated by reference in the accompanying
Prospectus as well as the more complete discussion contained in the reports
incorporated by reference in the accompanying Prospectus.
The following discussion is based on the consolidated financial statements
of Storage Trust Realty.
FUNDS FROM OPERATIONS
The Company believes that FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flows from operating
activities, financing activities and investing activities, it provides
investors with an understanding of the ability of the Company to incur and
service debt and to make capital expenditures. FFO is defined by NAREIT as
income (loss) before minority interest (computed in accordance with GAAP),
excluding gains or losses from debt restructuring and sales of property,
provision for losses, and real estate related depreciation and amortization
(excluding amortization of financing costs). FFO is not to be considered as an
alternative to net income or any other GAAP measurement as a measure of
operating performance and is not necessarily indicative of cash available to
fund all cash needs. The FFO measure presented by the Company may not be
comparable to similarly titled measures of other REITs. Effective in 1996, the
definition of FFO was modified by NAREIT to exclude the add-back of the
amortization of deferred financing fees and depreciation of non real estate
assets. The Company has adopted this new definition. Amounts for prior years
have been revised to conform to the new definition.
FFO is determined as follows (amounts in thousands except for share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net income before minority
interest........................ $ 5,405 $ 3,182 $ 10,229 $ 6,226
Depreciation of revenue-producing
assets.......................... 1,978 1,406 4,285 2,565
Company's share of joint
ventures' depreciation.......... 4 9 8 13
----------- ---------- ----------- ----------
FFO.............................. $ 7,387 $ 4,592 $ 14,522 $ 8,804
=========== ========== =========== ==========
Weighted-average number of Common
Shares
and Units....................... 13,759,469 9,410,104 13,757,607 9,308,409
=========== ========== =========== ==========
</TABLE>
The Company includes Units in these amounts as Units can be exchanged for
Common Shares of the Company on a one-for-one basis or redeemed in cash at the
Company's option.
FFO increased $2,795,000 (60.9%) in the second quarter of 1997 over 1996 due
to the acquisition of Facilities in 1997 and 1996 and the increased results
from those Facilities owned for all of the three months ended June 30, 1997
and 1996. Net operating income, defined as revenues less property operating
expenses and real estate taxes, increased on a same store basis by $224,000
(3.7%). These increases were partially offset by increases in general and
administrative expenses and interest expense.
FFO increased $5,718,000 (64.9%) in the first six months of 1997 over 1996
due to the acquisition of Facilities in 1997 and 1996 and the increased
results from those Facilities owned for all of the six months ended June 30,
1997 and 1996. Net operating income increased on a same store basis by
$633,000 (5.8%). These increases were partially offset by increases in general
and administrative expenses and interest expense.
FFO decreased $184,000 (1.3%) for the pro forma six months ended June 30,
1997 as compared to actual results for this time period due primarily to the
fact that (a) the operations of five Facilities acquired during 1997 were in
their initial lease-up period and (b) one Facility acquired during 1997 was
undergoing a significant expansion that opened in June 1996.
S-24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Mortgages and Notes Payable
The Company had outstanding borrowings of approximately $123.8 million as of
September 30, 1997. This indebtedness consists of (a) $100 million of Senior
Notes and (b) approximately $23.8 million outstanding under the Credit Line.
The Credit Line is used primarily to fund the acquisition, development or
conversion of additional facilities. The Credit Line expires in January 1998,
and bears interest at a floating rate of LIBOR plus 1.375% (7.075% at
September 30, 1997). However, the Company is currently negotiating the terms
of a new credit agreement with several banks which is expected to be effective
in January 1998.
In December 1996, the Company received commitments from various
institutional investors for the private placement of $100 million of Senior
Notes. The Company funded $75 million of the Senior Notes on January 22, 1997
and the remaining $25 million was funded on April 15, 1997. The Senior Notes
were issued in two tranches (i) $44 million of Series A Senior Notes with a
final maturity of seven years, an average maturity of six years and a fixed
interest rate of 7.47% per annum (125 basis points over comparable Treasuries
at the date of pricing) and (ii) $56 million of Series B Senior Notes with a
final maturity of ten years, an average maturity of eight years and a fixed
interest rate of 7.66% per annum (135 basis points over corresponding
Treasuries at the date of pricing). The proceeds of the financing were
utilized to repay indebtedness under the Credit Line and to finance the
acquisition of additional self-storage facilities.
At September 30, 1997, the Company has joint and several liability with
respect to approximately $3.9 million of indebtedness of a joint venture in
New Orleans, Louisiana in which it has a 15% interest. In 1996, the Company
acquired a 25% interest in a joint venture that is operating a self-storage
facility in Kansas City, Missouri that was constructed during 1997. The
Company has guaranteed 25% of the joint venture's construction loan, which is
for a total of approximately $2.1 million. The balance outstanding under this
construction loan as of September 30, 1997 was approximately $1.8 million.
Liquidity
The expansion of existing Facilities, the acquisition, conversion and
development of additional self-storage facilities and the repayment of
indebtedness, including the Senior Notes and any amounts outstanding on the
Credit Line, represent the Company's principal liquidity requirements.
The Company expects to meet its short-term liquidity requirements from (i)
net cash provided by operating activities and (ii) borrowings under the Credit
Line. The Company expects to meet is long-term liquidity requirements by (i)
borrowings under the Credit Line, (ii) the issuance of new debt and (iii) the
sale of Common Shares.
The Company believes that its future net cash flow will be adequate to meet
operating requirements and provide for payment of distributions by the Company
in accordance with tax requirements relating to a REIT in the short-term and
in the long-term. In order to maintain its status as a REIT, the Company will
be required to make distributions to its shareholders of at least 95% of its
taxable income, which is expected to consist primarily of its share of the
income of the Operating Partnership. Differences in timing between the
recognition of taxable income and receipt of cash which would be available for
distribution could require the Company to borrow to meet the 95% distribution
requirement, although the Company does not currently anticipate the need to
borrow as a result of any such differences in timing.
CAPITAL EXPENDITURES
During the three months ended March 31, 1997, the Company spent $187,000 for
expansions of existing Facilities and climate-controlled conversions and
$446,000 on other capital expenditures. During the three months ended June 30,
1997, the Company spent $131,000 for expansions of existing Facilities and
climate-controlled conversions and $832,000 on other capital expenditures. For
the twelve months ending June 30, 1998, the Company expects to spend
$7,800,000 for expansions and climate-controlled conversions at existing
Facilities. For the remaining six months of 1997, the Company expects to spend
$1,350,000 on other capital expenditures. The Company believes that it can
fund any necessary capital expenditures through its operations or from the
Credit Line.
S-25
<PAGE>
MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Trustees and executive officers of the Company. The Company currently has a
seven member Board of Trustees which includes four members of the Board of
Trustees who are not affiliated with any member of Gordon Burnam's family or
officers or employees of the Company (each an "Independent Trustee"). Each of
the individuals named below as an officer of the Company accepted that
position upon formation of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gordon Burnam........... 66 Chairman of the Board of Trustees (term will expire in 2000)
Michael G. Burnam....... 43 Chief Executive Officer and Trustee (term will expire in 1999)
P. Crismon Burnam....... 34 Chief Operating Officer and Trustee (term will expire in 1998)
Stephen M. Dulle........ 49 Chief Financial Officer
Timothy B. Burnam....... 39 Vice President--Construction and Development
Blake Eagle*............ 64 Trustee (term will expire in 1998)
Daniel C. Staton*....... 44 Trustee (term will expire in 1999)
Randall K. Rowe*........ 43 Trustee (term will expire in 2000)
Fredrick W. Petri*...... 50 Trustee (term will expire in 2000)
</TABLE>
- --------
* Each of these individuals is an Independent Trustee.
The following is a biographical summary of the experience of the Trustees
and executive officers of the Company.
Gordon Burnam has been the Chairman of the Board of Trustees of the Company
since its formation. He is the founder and Chairman of the Board of Directors
of BHC, a corporation owned by Gordon Burnam and members of his immediate
family. Since 1974, Gordon Burnam has been involved in the development of over
30 self-storage facilities, of which 14 facilities were for BHC. Gordon Burnam
now oversees its Board of Directors. From 1982 to 1984, Gordon Burnam was the
Chairman of the Board of Directors of the Southwestern Insurance Group. Mr.
Gordon Burnam is currently a director of Union Planters Bank of Columbia, was
a Central Region Board Member of the Self Storage Association and was
president of the National Home Builders Association--Columbia Chapter.
Michael G. Burnam has been the Chief Executive Officer and a Trustee of the
Company since its formation. Michael Burnam previously served as the President
of BHC. He began his career in real estate development, and then moved into
self-storage management in 1977. Mike oversaw operations for BHC from 1983
through 1994. In 1995, Michael Burnam served as President of the Self Storage
Association, a leading industry association. Mike received his B.S. degree in
Agricultural Economics from the University of Missouri in 1975. Michael Burnam
is Gordon Burnam's son.
P. Crismon Burnam has been Chief Operating Officer and a Trustee of the
Company since its formation. Cris Burnam joined BHC in 1987, most recently
serving as its Vice President in charge of Finance and Acquisitions. Cris
Burnam previously served as Vice President--Central Region Board of Directors
of the Self Storage Association. Cris received his B.S. degree in Agricultural
Economics from the University of Missouri in 1985. Cris Burnam is Gordon
Burnam's son.
Stephen M. Dulle has been Chief Financial Officer of the Company since
August 1994. Prior thereto, Mr. Dulle was the chief financial officer of each
of Colonial Storage Centers I, Ltd., Colonial Storage Centers II, Ltd. and
Colonial Storage Centers III, Ltd., respectively. Mr. Dulle was also the
Secretary and Treasurer of Colonial Storage Management 85, Inc. and Colonial
Storage Management 86, Inc. Prior to joining Colonial in 1980, Mr. Dulle was a
Senior Manager with the public accounting firm of KPMG Peat Marwick. Mr. Dulle
S-26
<PAGE>
received his B.S. degree in Business Administration from the University of
Missouri in 1971 and his Masters of Business Administration degree in
Accounting and Finance from Indiana University in 1973.
Timothy B. Burnam has been Vice President--Construction and Development of
the Company since its formation. Tim had previously served as President of
Burnam Construction, Inc., a wholly owned subsidiary of BHC, since 1987. Tim
Burnam is directly responsible for the design, planning and purchasing for all
of the Company's construction and development projects. Since 1987, Burnam
Construction, Inc. has built over 500,000 square feet of self-storage
facilities and 175 apartment units. He attended the University of Missouri and
has over 15 years' experience in the construction and self-storage businesses.
Timothy Burnam is Gordon Burnam's son.
Blake Eagle has been a Trustee of the Company since November 1994. Mr. Eagle
has been, since December 1993, Chairman of the MIT Center for Real Estate, an
academic center which engages in a wide variety of research and special
programs for the real estate industry and operates a master's degree program
in real estate development. From 1985 to 1993, Mr. Eagle was President, Real
Estate Consulting, for the Frank Russell Company, a pension fund consulting
firm. Mr. Eagle is a member of the Urban Land Institute, the National Society
of Real Estate Finance and the American Society of Real Estate Counselors. Mr.
Eagle serves as an advisor to the board of the National Council of Real Estate
Investment Fiduciaries, which he helped establish, and formerly served as a
director of the Institute for Real Estate Research. From 1983 to 1984, Mr.
Eagle served as a member of the board of advisors of the Federal National
Mortgage Association (Fannie Mae). Mr. Eagle received his B.A. degree in
Business Administration from the University of Washington in 1956.
Randall K. Rowe has been a Trustee of the Company since November 1994. Mr.
Rowe is Managing Director and Chief Executive Officer of Transwestern
Investment Company, LLC. From January 1995 until March 1996, he was Managing
Director and Chief Executive Officer of Equity Venture Partners, Inc., a
merchant banking company. From December 1989 until March 1995, he was co-
chairman, chief executive officer of Manufactured Home Communities, Inc.
("MHC") and its predecessor entities. From December 1989 until January 1995,
Mr. Rowe served as Chairman, Chief Executive Officer of Equity Office
Properties, Inc. and President, Chief Executive Officer of Equity Assets
Management, Inc. Mr. Rowe holds an M.B.A. degree from Harvard University
Graduate School of Business, and a J.D. degree from the University of Michigan
Law School. Mr. Rowe is a member of the Urban Land Institute and Chairman of
the Policy Committee of the National Realty Committee.
Daniel C. Staton has been a Trustee of the Company since November 1994. Mr.
Staton is President of Walnut Capital Partners, an investment and venture
capital company. Mr. Staton was the Chief Operating Officer and Executive Vice
President of Duke Realty Investments, Inc. from 1993 to 1997. Mr. Staton has
been a Director of Duke Realty Investments, Inc. since 1993. From 1981 to
1993, Mr. Staton was a principal owner of Duke Associates, the predecessor of
Duke Realty Investments, Inc. Prior to joining Duke Associates in 1981, Mr.
Staton was a partner and general manager of his own moving company, Gateway
Van & Storage, Inc. in St. Louis, Missouri. From 1986 to 1988, he served as
president of the Greater Cincinnati Chapter of the National Association of
Industrial and Office Parks. Mr. Staton received a B.S. degree in Finance from
California Western University in 1982, a B.S. degree in General Business from
Ohio University in 1991 and is currently working on his Ph.D. in
Entrepreneurship at the Union Institute.
Fredrick W. Petri has been a Trustee of the Company since May 1995. Mr.
Petri has been President of Petrone, Petri & Company, a real estate investment
firm since 1993. Prior thereto, Mr. Petri was an Executive Vice President of
Wells Fargo Bank, where for over 18 years he held various positions involving
real estate. Mr. Petri is a director of Simon DeBartolo Group. Additionally,
he is a trustee of the Urban Land Institute and a director of the Real Estate
Center of the University of Wisconsin Business School. He formerly served as a
member of the board of governors and a Vice President of the National
Association of Real Estate Investment Trusts and as a board member and
director of the National Association of Industrial and Office Parks. Mr. Petri
received his B.A. degree in Business and his M.B.A. in Finance from the
University of Wisconsin in 1969 and 1970, respectively.
S-27
<PAGE>
RECENT LEGISLATION
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 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 holder's credit or refund for the tax paid by
the Company. See the accompanying Prospectus under "Federal Income Tax
Considerations-- Taxation of the Company--General" and under "Taxation of the
Company--Annual Distribution Requirements."
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 shares of stock
were held, actually or constructively, by five or fewer individuals, then the
Company will be treated as meeting such requirement. See the accompanying
Prospectus under "Federal Income Tax Considerations--Taxation of the Company--
Share Ownership Tests."
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). See the accompanying Prospectus under "Federal
Income Tax Considerations--Taxation of the Company--The 75% Test."
The 1997 Act repeals the 30% gross income test for REITs for taxable years
beginning after August 5, 1997. See the accompanying Prospectus under "Federal
Income Tax Considerations--Taxation of the Company--The 30% Test."
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. See the accompanying Prospectus under
"Federal Income Tax Considerations--Taxation of the Company--Annual
Distribution Requirements."
The 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
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<PAGE>
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%.
Certain aspects of the new legislation on capital gains are currently
unclear, including how the reduced rates will apply to gains earned by REITs
such as the Company. Until the Internal Revenue Service (the "Service") issues
some guidance, it is unclear whether or how the 20% or 10% rates will apply to
distributions of long-term capital gains by the Company. The 1997 Act gives
the Service authority to apply the 1997 Act's new rules on taxation of capital
gains to sales by pass-thru entities, including REITs. It is possible that the
Service could provide in such regulations that REIT capital gain dividends
must be determined by looking through to the assets sold by the REIT and
treated by REIT stockholders as "long-term capital gain", "mid-term gain" and
"unrecaptured section 1250 gain" to the extent of such respective gain
realized by the REIT. No regulations have yet been issued. Such regulations,
if and when issued, may have a retroactive affect. See the accompanying
Prospectus under "Federal Income Tax Considerations--Taxation of
Shareholders--Taxation of Taxable Domestic Shareholders."
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.
New Treasury Regulations recently have been adopted that revise in certain
respects the rules applicable to Non-U.S. Shareholders (the "New
Regulations"). The New Regulations are generally effective with respect to
payments made after December 31, 1998.
Currently, dividends paid to an address in a foreign country are presumed to
be paid to a resident of that country (unless the payor has knowledge to the
contrary) for purposes of the 30% U.S. withholding tax applicable to certain
Non-U.S. Shareholders (see the discussion in the accompanying Prospectus under
"Certain United States Tax Considerations for Non-U.S. Shareholders--
Distributions from the Company--Ordinary Dividends"), and for purposes of
determining the applicability of a tax treaty rate. Under the New Regulations,
however, a Non-U.S. Shareholder who wishes to claim the benefit of an
applicable treaty rate will be required to provide an Internal Revenue Service
Form W-8 which satisfies applicable certification and other requirements,
including a representation as to the holder's foreign status, the holder's
name and permanent residence address, and the relevant tax treaty. Such
information is subject to being reported to the Internal Revenue Service. A
permanent residence address for this purpose generally is the address in the
country where the person claims to be a resident for purposes 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 county of
incorporation. The New 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 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 Service.
The New Regulations also make certain changes in the new information
reporting and backup withholding rules for payments made after December 31,
1998. Shareholders should consult their tax advisors with respect to such
changes.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to BancAmerica
Robertson Stephens and the Underwriter has agreed to purchase from the Company
2,200,000 Common Shares.
Under the terms and conditions of the Underwriting Agreement, the Underwriter
is committed to take and pay for all of the Common Shares included in the
Offering, if any are taken.
The Underwriter proposes to offer the Common Shares offered hereby from time
to time for sale in one or more transactions on the NYSE, in the over-the-
counter market or otherwise, at market prices prevailing at the time of sale,
at prices related to prevailing market prices, or at negotiated prices, subject
to prior sale when, as and if delivered to and accepted by the Underwriter. In
connection with the sale of the Common Shares included in the Offering, the
Underwriter may be deemed to have received compensation from the Company in the
form of underwriting discounts. The Underwriter may effect such transactions by
selling Common Shares to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
Underwriter and/or the purchasers of such Common Shares for whom they may act
as agents or to whom they may sell as principal.
The Company has granted the Underwriter an option, exercisable within 30 days
of the date of this Prospectus Supplement, to purchase up to 330,000 additional
Common Shares from the Company at the same price per share as the initial
2,200,000 Common Shares to be purchased by the Underwriter. The Underwriter may
exercise such option only to cover over-allotments, if any, incurred in
connection with the Offering.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"), or to contribute to
payments the Underwriter may be required to make in respect thereof.
Subject to certain exceptions, the Company, the Operating Partnership and
certain of the Company's executive officers and directors have agreed that, for
a period of 90 days from the date of this Prospectus Supplement, they will not,
without the prior written consent of the Underwriter, directly or indirectly,
offer, sell, contract to sell or otherwise dispose of any Common Shares or any
security convertible into or exercisable or exchangeable for Common Shares.
In connection with the Offering, the rules of the Securities and Exchange
Commission (the "Commission") permit the Underwriter to engage in certain
transactions that stabilize the price of the Common Shares. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Shares.
If the Underwriter creates a short position in the Common Shares in
connection with the Offering, i.e., if it sells more Common Shares than are set
forth on the cover page of this Prospectus Supplement, the Underwriter may
reduce that short position by purchasing Common Shares in the open market. The
Underwriter may also elect to reduce any short position by exercising all or
part of the over-allotment option described above. In general, purchases of a
security for the purpose of stabilization or to reduce a short position could
cause the price of the security to be higher than it might be in the absence of
such purchases.
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Shares. In addition,
neither the Company nor the Underwriter makes any representation that the
Underwriter will engage in such transactions or that such transactions, once
consummated, will not be discontinued without notice.
The Common Shares are traded on The New York Stock Exchange under the symbol
"SEA."
S-30
<PAGE>
EXPERTS
The consolidated and combined financial statements and related schedule of
Storage Trust Realty (as defined in such financial statements) at December 31,
1996 and 1995, and for each of the three years in the period ended December
31, 1996, incorporated by reference in the accompanying Prospectus and the
Registration Statement of which the accompanying Prospectus is a part, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated by reference in the
accompanying Prospectus. Such financial statements are, and audited financial
statements to be included in subsequently filed documents will be,
incorporated by reference in the accompanying Prospectus in reliance upon the
reports of Ernst & Young LLP pertaining to such financial statements (to the
extent covered by consents filed with the Securities and Exchange Commission)
given upon the authority of such firm as experts in accounting and auditing.
The Historical Summaries of Combined Gross Revenue and Direct Operating
Expenses with respect to the Facilities acquired since December 31, 1996 for
the year ended December 31, 1996, incorporated by reference in the
accompanying Prospectus and Registration Statement of which the accompanying
Prospectus is a part, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated in the accompanying Prospectus by reference.
LEGAL MATTERS
Mayer, Brown & Platt, Chicago, Illinois, has passed upon the validity of the
issuance of the Common Shares offered pursuant to this Prospectus Supplement
and the accompanying Prospectus and on certain tax matters as described under
"Federal Income Tax Considerations" in the accompanying Prospectus. Certain
legal matters relating to the Offering will be passed upon for the Underwriter
by O'Melveny & Myers LLP, San Francisco, California. Mayer, Brown & Platt and
O'Melveny & Myers LLP will rely upon the opinion of Ballard Spahr Andrews &
Ingersoll, Baltimore, Maryland, as to certain matters of Maryland law.
S-31
<PAGE>
PROSPECTUS
STORAGE TRUST REALTY
$150,000,000
COMMON SHARES AND COMMON SHARE WARRANTS
Storage Trust Realty (the "Company") may from time to time offer and sell in
one or more series (i) common shares of beneficial interest, par value $.01
per share (the "Common Shares"), and (ii) warrants to purchase Common Shares
(the "Common Share Warrants"), with an aggregate public offering price of up
to $150,000,000, on terms to be determined by market conditions at the time of
offering. The Common Shares and Common Share Warrants (collectively, the
"Offered Securities") may be offered separately or together, in separate
series, in amounts and at prices and terms to be set forth in an accompanying
supplement to this Prospectus (each, a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable, (i) in the case of Common
Shares, any initial public offering price, and (ii) in the case of Common
Share Warrants, the duration, offering price, exercise price and
detachability, if applicable, along with any other relevant specific terms. In
addition, such specific terms may include limitations on direct or indirect
beneficial ownership and restrictions on transfer of the Offered Securities,
in each case as may be appropriate in the judgment of the Company's Board of
Trustees to preserve the status of the Company as a real estate investment
trust ("REIT") for Federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States Federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered
Securities covered by such Prospectus Supplement.
The Offered Securities may be offered directly by the Company, or through
agents designated from time to time by the Company, or to or through
underwriters or dealers. As set forth under "Description of Shareholder
Purchase Rights" and "Plan of Distribution," the Company may sell the Offered
Securities to investors directly through subscription rights ("Shareholder
Purchase Rights"). If any agents or underwriters are involved in the sale of
any of the Offered Securities, their names, and any applicable purchase price,
fee, commission or discount arrangement between or among them, will be set
forth, or will be calculable from the information set forth, in the applicable
Prospectus Supplement. See "Description of Shareholder Purchase Rights" and
"Plan of Distribution." No Offered Securities may be sold without delivery of
the applicable Prospectus Supplement describing the method and terms of the
offering of such series of Offered Securities.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
----------------
The date of this Prospectus is December 4, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy material and other information
concerning the Company can be inspected and copied at the offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at its
regional offices, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661 and Seven World Trade Center, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In
addition, such material can be obtained from the Commission's Web site at
http://www.sec.gov. The Company's outstanding Common Shares are listed on the
New York Stock Exchange (the "NYSE") under the symbol "SEA", and all such
reports, proxy material and other information filed by the Company with the
NYSE may be inspected at the offices of the NYSE at 20 Broad Street, New York,
New York 10005.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby. This prospectus ("Prospectus"),
which constitutes a part of the Registration Statement, does not contain all
the information set forth in the Registration Statement, certain parts of
which are omitted as permitted by the rules and regulations of the Commission.
Statements made in this Prospectus as to the content of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed or
incorporated by reference as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
INCORPORATION BY REFERENCE
The following documents filed by the Company with the Commission (File No.
1-13462) pursuant to the Exchange Act are incorporated by reference in this
Prospectus:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
(2) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996; and
(3) The Company's Current Reports on Form 8-K dated March 5, 1996 (filed
March 13, 1996), May 24, 1996 (filed June 7, 1996), June 25, 1996 (filed
June 25, 1996) and September 16, 1996 (filed October 29, 1996);
(4) Description of the Common Shares included in the Registration
Statement on Form 8-A dated October 14, 1994 (filed October 14, 1994).
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering made hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein, or in any subsequently filed document which
is or is deemed to be incorporated by reference herein, modifies or supersedes
any such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any of the foregoing documents incorporated
herein by reference (other than the exhibits to such documents unless such
exhibits are specifically incorporated by reference into such documents).
Requests should be directed to Storage Trust Realty, 2407 Rangeline Street,
Columbia, Missouri 65202, Attention: Secretary, telephone (573) 499-4799.
2
<PAGE>
THE COMPANY
The Company and its affiliates constitute a self-administered and self-
managed real estate investment trust (a "REIT") which was organized in
November 1994 to continue and expand the self-storage facility business
conducted by Burnam Holding Companies Co. and certain of its affiliates
(collectively, "BHC" or the "Predecessor Company") since 1974. The Company and
its affiliates own, manage, lease, acquire and develop self-storage
facilities. The Company owns and operates self-storage facilities
("Facilities") in the Southern, Mid-Atlantic, Midwestern and Western regions
of the United States. The Company offers a broad range of features and
amenities to its customers, including uniformed customer service-oriented
facility managers, door alarms, lighting systems, video cameras, twenty-four
hour computer-controlled access, climate-controlled storage spaces, attractive
buildings and wide drive aisles.
The business of the Company is operated through Storage Trust Properties,
L.P. (the "Operating Partnership") and Storage Realty Management Co. (the
"Subsidiary Company"). Substantially all of the Company's assets and interest
in self-storage facilities are held by, and all of its operations are
conducted through, the Operating Partnership. The Company is the sole general
partner of, and thereby controls the operations of, the Operating Partnership,
holding an approximately 93.8% (as of October 31, 1996) ownership interest
therein. The remaining ownership interests in the Operating Partnership (the
"Units") are primarily held by certain owners of the Predecessor Company,
including BHC (collectively, "Original Investors"), and certain former owners
of assets acquired by the Operating Partnership subsequent to the Company's
initial public offering of Common Shares. The Subsidiary Company manages
Facilities owned by unrelated third parties and conducts various other
businesses, such as the sale of locks and the processing of customer property
insurance, at various Facilities. Through its ownership of the preferred stock
of the Subsidiary Company, the Operating Partnership enjoys substantially all
of the economic benefit of the businesses carried on by the Subsidiary
Company.
The Company was formed as a Maryland real estate investment trust on July
12, 1994. The Company's executive offices are located at 2407 Rangeline
Street, Columbia, Missouri 65202 and its telephone number is (573) 499-4799.
USE OF PROCEEDS
Unless otherwise described in the Prospectus Supplement which accompanies
this Prospectus, the Company intends to use the net proceeds from the sale of
the Offered Securities for the acquisition and development of self-storage
facilities as suitable opportunities arise, improvement of the Facilities
owned by the Company, repayment of certain then-outstanding secured or
unsecured indebtedness and for general corporate purposes.
DESCRIPTION OF COMMON SHARES
GENERAL
The Second Amended and Restated Declaration of Trust of the Company (the
"Declaration of Trust") provides that the Company may issue up to 150,000,000
shares of beneficial interest, $.01 par value per share, consisting of common
shares and such other types or classes of securities of the Company as the
Trustees may create and authorize from time to time and designate as
representing a beneficial interest in the Company. No holder of any class of
shares of beneficial interest of the Company has any preemptive right to
subscribe to any securities of the Company except as may be granted by the
Board of Trustees in authorizing the issuance or reclassification of a class
of shares of beneficial interest. For a description of certain provisions that
could have the effect of delaying, deferring or preventing a change in
control, see "Certain Provisions of Maryland Law and of the Company's
Declaration of Trust and Bylaws."
3
<PAGE>
The following description sets forth certain general terms and provisions of
the Common Shares to which any Prospectus Supplement may relate, including a
Prospectus Supplement which provides for Common Shares issuable pursuant to
subscription offerings or rights offerings. The statements below describing
the Common Shares are in all respects subject to and qualified in their
entirety by reference to the applicable provisions of the Declaration of Trust
and the Amended and Restated Bylaws of the Company (the "Bylaws"). For further
information regarding the Common Shares, see "Certain Provisions of Maryland
Law and of the Company's Declaration of Trust and Bylaws."
All the Common Shares covered by the Registration Statement of which this
Prospectus is a part will be, when issued, duly authorized, fully paid and,
except as described under "Shareholder Liability" below, non-assessable.
Subject to the provisions of the Declaration of Trust regarding Excess Shares
(as defined therein), each outstanding Common Share entitles the holder
thereof to one vote on all matters voted on by shareholders, including the
election of Trustees. Holders of Common Shares do not have the right to
cumulate their votes in the election of Trustees, which means that the holders
of a majority of the outstanding Common Shares can elect all of the Trustees
then standing for election. Distributions may be paid to the holders of Common
Shares if and when declared by the Board of Trustees of the Company out of
funds legally available therefor, subject to the provisions of the Declaration
of Trust regarding Excess Shares. The Company currently pays regular quarterly
dividends. Holders of Common Shares have no conversion, redemption, preemptive
or exchange rights to subscribe to any securities of the Company. If the
Company is liquidated, each outstanding Common Share will be entitled to
participate pro rata in the assets remaining after payment of, or adequate
provision for, all known debts and liabilities of the Company and the rights
of holders of any preferred shares of beneficial interest of the Company. The
rights of holders of Common Shares are subject to the rights and preferences
established by the Board of Trustees for any preferred shares of beneficial
interest which may subsequently be issued by the Company.
RESTRICTIONS ON TRANSFER
Ownership Limits. The Declaration of Trust contains certain restrictions on
the number of Common Shares that individual shareholders may own. For the
Company to qualify as a REIT under the Code, no more than 50% in value of its
shares of beneficial interest (after taking into account options to acquire
shares of beneficial interest and shares of beneficial interest issuable on
conversion of convertible securities) may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities
and constructive ownership among specified family members) during the last
half of a taxable year (other than the first taxable year) or during a
proportionate part of a short taxable year. The Common Shares must also be
beneficially owned (other than during the first taxable year) by 100 or more
persons during at least 335 days of a taxable year or during a proportionate
part of a shorter taxable year. Because the Company expects to qualify as a
REIT, the Declaration of Trust contains restrictions on the acquisition of
Common Shares intended to ensure compliance with these requirements.
Subject to certain exceptions specified in the Declaration of Trust, no
holder may own, or be deemed to own by virtue of the attribution provisions of
the Code, more than 6% (the "Ownership Limit") of the number or value of the
issued and outstanding shares of beneficial interest of the Company. The
Company's Board of Trustees, upon receipt of a ruling from the Internal
Revenue Service (the "Service") or an opinion of counsel or other evidence
satisfactory to the Board of Trustees and upon such other conditions as the
Board of Trustees may direct, may also exempt a proposed transferee from the
Ownership Limit. As a condition of such exemption, the proposed transferee
must give written notice to the Company of the proposed transfer no later than
the fifteenth day prior to any transfer which, if consummated, would result in
the intended transferee owning shares in excess of the Ownership Limit. The
Board of Trustees of the Company may require such opinions of counsel,
affidavits, undertakings or agreements as it may deem necessary or advisable
in order to determine or ensure the Company's status as a REIT. Any transfer
of shares that would (i) create a direct or indirect ownership of shares in
excess of the Ownership Limit, (ii) result in the shares being beneficially
owned by fewer than 100 persons (determined without reference to any rules of
attribution) as provided in Section 856(a) of the Code, or (iii) result
4
<PAGE>
in the Company being "closely held" within the meaning of Section 856(h) of
the Code, shall be null and void ab initio, and the intended transferee will
acquire no rights to the shares. The foregoing restrictions on transferability
and ownership will not apply if the Board of Trustees determines, which
determination must be approved by the shareholders, that it is no longer in
the best interests of the Company to attempt to qualify, or to continue to
qualify, as a REIT.
The Company's Board of Trustees has, by resolution, excluded from the
foregoing ownership restriction BHC and Gordon Burnam, Bonnie Burnam, Kimberly
Flower, P. Crismon Burnam, Michael G. Burnam, Timothy B. Burnam, any member of
their respective immediate families and any of their respective affiliates,
heirs, devisees, legal representatives, successors or beneficiaries (the
"Burnam Family"), who collectively may own up to 25% of the outstanding shares
of beneficial interest of the Company as a group. Additionally, the
Declaration of Trust excludes from the foregoing ownership restriction certain
Original Investors (and their transferees) who would exceed the Ownership
Limit as a result of the exchange of Units for Common Shares. In no event will
such persons be entitled to acquire additional shares of beneficial interest
of the Company such that the five largest beneficial owners of shares of
beneficial interest of the Company hold more than 50% of the total outstanding
shares.
Any shares the purported transfer of which would result in a person owning
shares of beneficial interest in excess of the Ownership Limit or cause the
Company to become "closely held" under Section 856(h) of the Code that is not
otherwise permitted as provided above will constitute excess shares ("Excess
Shares"), which will be transferred pursuant to the Declaration of Trust to a
party not affiliated with the Company designated by the Company as the trustee
of a trust for the exclusive benefit of an organization or organizations
described in Sections 170(b)(1)(A) and 170(c) of the Code and identified by
the Board of Trustees as the beneficiary or beneficiaries of the trust (the
"Charitable Beneficiary"), until such time as the Excess Shares are
transferred to a person whose ownership will not violate the restrictions on
ownership. While these Excess Shares are held in trust, they will not be
entitled to share in any distributions which will be paid to the trust for the
benefit of the Charitable Beneficiary and may only be voted by the trustee for
the benefit of the Charitable Beneficiary. Subject to the Ownership Limit, the
Excess Shares shall be transferred by the trustee at the direction of the
Company to any person (if the Excess Shares would not be Excess Shares in the
hands of such person). The purported transferee will receive the lesser of (i)
the price paid by the purported transferee for the Excess Shares (or, if no
consideration was paid, fair market value on the day of the event causing the
Excess Shares to be held in trust) and (ii) the price received from the sale
or other disposition of the Excess Shares held in trust. Any proceeds in
excess of the amount payable to the purported transferee will be paid to the
Charitable Beneficiary. In addition, such Excess Shares held in trust are
subject to purchase by the Company for a 90 day period at a purchase price
equal to the lesser of (i) the price paid for the Excess Shares by the
purported transferee (or, if no consideration was paid, fair market value at
the time of the event causing the shares to be held in trust) and (ii) the
fair market value of the Excess Shares on the date the Company elects to
purchase. Fair market value, for these purposes, means the last reported sales
price reported on the NYSE on the trading day immediately preceding the
relevant date, or if not then traded on the NYSE, the last reported sales
price on the trading day immediately preceding the relevant date as reported
on any exchange or quotation system over or through which the relevant class
of shares of beneficial interest may be traded, or if not then traded over or
through any exchange or quotation system, then the market price on the
relevant date as determined in good faith by the Board of Trustees of the
Company.
From and after the purported transfer to the purported transferee of the
Excess Shares, the purported transferee shall cease to be entitled to
distributions, voting rights and other benefits with respect to the Excess
Shares except the right to payment on the transfer of the Excess Shares as
described above. Any distribution paid to a purported transferee on Excess
Shares prior to the discovery by the Company that such Excess Shares have been
transferred in violation of the provisions of the Declaration of Trust shall
be repaid, upon demand, to the Company, which shall pay any such amounts to
the trust for the benefit of the Charitable Beneficiary. If the foregoing
transfer restrictions are determined to be void, invalid or unenforceable by
any court of competent jurisdiction, then the purported transferee of any
Excess Shares may be deemed, at the option of the Company, to have acted as an
agent on behalf of the Company in acquiring such Excess Shares and to hold
such Excess Shares on behalf of the Company.
All certificates representing shares of beneficial interest will bear a
legend referring to the restrictions described above.
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All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between 1/2 of 1% and 5%, as
provided in the rules and regulations promulgated under the Code) of the
number or value of the outstanding shares of beneficial interest of the
Company must give a written notice containing certain information to the
Company by January 31 of each year. In addition, each shareholder shall upon
demand be required to disclose to the Company in writing such information with
respect to the direct, indirect and constructive ownership of shares of
beneficial interest as the Board of Trustees deems reasonably necessary to
comply with the provisions of the Code applicable to a REIT, to determine the
Company's status as a REIT, to comply with the requirements of any taxing
authority or governmental agency or to determine any such compliance.
These ownership limitations could have the effect of discouraging a takeover
or other transaction in which holders of some, or a majority, of the Common
Shares might receive a premium for their shares over the then prevailing
market price or which such holders might believe to be otherwise in their best
interest.
SHAREHOLDER LIABILITY
Both Maryland statutory law governing real estate investment trusts
organized under the laws of that state and the Declaration of Trust provide
that no shareholder of the Company will be personally liable for any
obligations of the Company (other than the obligation to pay to the Company
the consideration for which shares were or are to be issued) solely by virtue
of his status as a shareholder. The Declaration of Trust further provides that
the Company shall indemnify each shareholder against claims or liabilities to
which the shareholder may become subject by reason of his being or having been
a shareholder, and that the Company shall reimburse each shareholder for all
legal and other expenses reasonably incurred by him in connection with any
such claim or liability, unless such claim or liability arises out of the
shareholder's bad faith, willful misconduct or gross negligence, and provided
that the shareholder gives prompt notice as to any such claims or liabilities
and takes such action as will permit the Company to conduct the defense
thereof. In addition, it is the Company's policy to include a clause in its
contracts which provides that shareholders assume no personal liability for
obligations entered into on behalf of the Company. However, with respect to
tort claims, contractual claims where shareholder liability is not so negated,
claims for taxes and certain statutory liability, a shareholder may, in some
jurisdictions, be personally liable to the extent that such claims are not
satisfied by the Company. Inasmuch as the Company carries public liability
insurance which it considers adequate, any risk of personal liability to
shareholders is limited to situations in which the Company's assets plus its
insurance coverage would be insufficient to satisfy the claims against the
Company and its shareholders.
TRANSFER AGENT AND REGISTRAR
Boatmen's Trust Company (510 Locust Street, St. Louis, Missouri 63178) has
been appointed as transfer agent and registrar for the Common Shares.
DESCRIPTION OF COMMON SHARE WARRANTS
The Company may issue Common Share Warrants for the purchase of Common
Shares. Common Share Warrants may be issued independently or together with any
other Offered Securities offered by any Prospectus Supplement and may be
attached to or separate from such Offered Securities. Each series of Common
Share Warrants will be issued under a separate warrant agreement (each, a
"Warrant Agreement") to be entered into between the Company and a warrant
agent specified in the applicable Prospectus Supplement (the "Warrant Agent").
The Warrant Agent will act solely as an agent of the Company in connection
with the Common Share Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of Common Share Warrants. The following summaries of certain
provisions of the Warrant Agreement and the Common Share Warrants do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Warrant Agreement and the Common
Share Warrant certificates relating to each series of Common Share Warrants,
which will be filed, at or prior to the time of the issuance of such series of
Common Share Warrants, with the Commission as exhibits to a document
incorporated by reference in this Prospectus.
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If Common Share Warrants are offered, the applicable Prospectus Supplement
will describe the terms of such Common Share Warrants, including the following
where applicable: (i) the offering price; (ii) the aggregate number of Common
Shares purchasable upon exercise of such Common Share Warrants and the
exercise price; (iii) whether such Common Share Warrants are being offered
with Common Shares and the number of such Common Share Warrants being offered
with such Common Shares; (iv) the date, if any, on and after which such Common
Share Warrants and the related Common Shares will be transferable separately;
(v) the date on which the right to exercise such Common Share Warrants shall
commence and the date on which such right shall expire (the "Expiration
Date"); (vi) any special United States Federal income tax consequences; and
(vii) any other material terms of such Common Share Warrants.
Common Share Warrant certificates may be exchanged for new Common Share
Warrant certificates of different denominations, may (if in registered form)
be presented for registration of transfer, and may be exercised at the
corporate trust office of the Warrant Agent or any other office indicated in
the applicable Prospectus Supplement. Prior to the exercise of any Common
Share Warrants to purchase Common Shares, holders of such Common Share
Warrants will not have any rights of holders of such Common Shares, including
the right to receive payments of dividends, if any, on such Common Shares, or
to exercise any applicable right to vote.
To protect the Company's status as a REIT, restrictions on ownership of
Common Share Warrants similar to the restrictions on ownership of Common
Shares will be imposed and enforced. See "Description of Common Shares--
Restrictions on Transfer."
EXERCISE OF COMMON SHARE WARRANTS
Each Common Share Warrant will entitle the holder thereof to purchase such
number of Common Shares at such exercise price as shall in each case be set
forth in, or calculable from, the Prospectus Supplement relating to the
offered Common Share Warrants. After the close of business on the Expiration
Date (or such later date to which such Expiration Date may be extended by the
Company), unexercised Common Share Warrants will become void.
Common Share Warrants may be exercised by delivering to the Warrant Agent
payment as provided in the applicable Prospectus Supplement of the amount
required to purchase the Common Shares purchasable upon such exercise together
with certain information set forth on the reverse side of the Common Share
Warrant certificate. Common Share Warrants will be deemed to have been
exercised upon receipt of payment of the exercise price, subject to the
receipt within five (5) business days of the Common Share Warrant certificate
evidencing such Common Share Warrants. Upon receipt of such payment and the
Common Share Warrant certificate properly completed and duly executed at the
corporate trust office of the Warrant Agent or any other office indicated in
the applicable Prospectus Supplement, the Company will, as soon as
practicable, issue and deliver the Common Shares purchasable upon such
exercise. If fewer than all of the Common Share Warrants represented by such
Common Share Warrant certificate are exercised, a new Common Share Warrant
certificate will be issued for the remaining amount of Common Share Warrants.
AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
The Warrant Agreements may be amended or supplemented without the consent of
the holders of the Common Share Warrants issued thereunder to effect changes
that are not inconsistent with the provisions of the Common Share Warrants and
that do not adversely affect the interests of the holders of the Common Share
Warrants.
ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of Common Shares covered by, a Common Share
Warrant are subject to adjustment in certain events, including (i) payment of
a dividend on the Common Shares payable in shares of beneficial interest and
share splits,
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combinations or reclassifications of the Common Shares; (ii) issuance to all
holders of Common Shares of rights or warrants to subscribe for or purchase
Common Shares at less than their current market price (as defined in the
Warrant Agreement for such series of Common Share Warrants); and (iii) certain
distributions of evidences of indebtedness or assets (including securities but
excluding cash distributions paid out of consolidated earnings or retained
earnings or dividends payable in Common Shares) or of subscription rights and
warrants (excluding those referred to above).
No adjustment in the exercise price of, and the number of Common Shares
covered by, a Common Share Warrant will be made for regular quarterly or other
periodic or recurring cash dividends or distributions or for cash dividends or
distributions to the extent paid from consolidated earnings or retained
earnings. No adjustment will be required unless such adjustment would require
a change of at least 1% in the exercise price then in effect. Except as stated
above, the exercise price of, and the number of Common Shares covered by, a
Common Share Warrant will not be adjusted for the issuance of Common Shares or
any securities convertible into or exchangeable for Common Shares, or carrying
the right or option to purchase or otherwise acquire the foregoing, in
exchange for cash, other property or services.
In the event of any (i) consolidation or merger of the Company with or into
any entity (other than a consolidation or a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding Common
Shares); (ii) sale, transfer, lease or conveyance of all or substantially all
of the assets of the Company; or (iii) reclassification, capital
reorganization or change of the Common Shares (other than solely a change in
par value or from par value to no par value), then any holder of a Common
Share Warrant will be entitled, on or after the occurrence of any such event,
to receive on exercise of such Common Share Warrant the kind and amount of
shares of beneficial interest or other securities, cash or other property (or
any combination thereof) that the holder would have received had such holder
exercised such holder's Common Share Warrant immediately prior to the
occurrence of such event. If the consideration to be received upon exercise of
the Common Share Warrant following any such event consists of common shares of
the surviving entity, then from and after the occurrence of such event, the
exercise price of such Common Share Warrant will be subject to the same anti-
dilution and other adjustments described in the second preceding paragraph,
applied as if such common shares were Common Shares.
DESCRIPTION OF SHAREHOLDER PURCHASE RIGHTS
As set forth under "Plan of Distribution" below, the Company may sell the
Offered Securities to investors directly through Shareholder Purchase Rights.
If Offered Securities are to be sold through Shareholder Purchase Rights, such
Shareholder Purchase Rights will be distributed as a dividend to the Company's
shareholders for which shareholders will pay no separate consideration. The
Prospectus Supplement with respect to the offer of Offered Securities pursuant
to Shareholder Purchase Rights will set forth the relevant terms of the
Shareholder Purchase Rights, including (i) whether Common Shares or Common
Share Warrants, or both, will be offered pursuant to the Shareholder Purchase
Rights and the number of Common Shares and Common Share Warrants, as
applicable, which will be offered pursuant to the Shareholder Purchase Rights,
(ii) the period during which and the price at which the Shareholder Purchase
Rights will be exercisable, (iii) the number of Shareholder Purchase Rights
then outstanding, (iv) any provisions for changes to or adjustments in the
exercise price of the Shareholder Purchase Rights and (v) any other material
terms of the Shareholder Purchase Rights. See "Plan of Distribution."
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S DECLARATION OF TRUST AND BYLAWS
The following paragraphs summarize material provisions of Maryland law, the
Declaration of Trust and the Bylaws. The summary does not purport to be
complete and reference is made to Maryland law as well as the Declaration of
Trust and the Bylaws, which are filed as exhibits to the Registration
Statement of which this Prospectus is a part.
BOARD OF TRUSTEES
The Declaration of Trust and the Bylaws provide that the number of Trustees
of the Company may be established by a majority of a quorum of the entire
Board of Trustees but may not be fewer than three nor more than fifteen. The
Declaration of Trust provides that a majority of the Trustees must be persons
who are not affiliated with any member of the Burnam Family or officers or
employees of the Company ("Independent Trustees"). Any vacancy on the Board of
Trustees will be filled, at any regular meeting or at any special meeting
called for that purpose, by a majority of the remaining Trustees (even if less
than a quorum), except that a vacancy resulting from an increase in the number
of Trustees will be filled by a majority of the entire Board of Trustees and,
in the event that a majority of the Board of Trustees are not Independent
Trustees by reason of the resignation or removal of one or more Independent
Trustees or otherwise, the remaining Independent Trustees (or, if there are no
Independent Trustees, the remaining members of the Board of Trustees) shall
promptly elect that number of Independent Trustees necessary to cause the
Board of Trustees to include a majority of Independent Trustees.
Pursuant to the terms of the Declaration of Trust, the Trustees are divided
into three classes, holding office initially for one-year, two-year and three-
year terms, respectively. As these initial terms expire, Trustees in each
class are elected for terms of three years and until their successors are duly
elected and qualified. The Company believes that classification of the Board
of Trustees will help to assure the continuity and stability of the Company's
business strategies and policies as determined by the Board of Trustees.
The classified Trustee provision could have the effect of making the removal
of incumbent Trustees more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its shareholders. At least two annual meetings of
shareholders, instead of one, will generally be required to effect a change in
a majority of the Board of Trustees.
Holders of Common Shares have no right to cumulative voting for the election
of Trustees. Consequently, at each annual meeting of shareholders, the holders
of a majority of Common Shares voting together as a single class will be able
to elect all of the successors of the Trustees whose terms expire at that
meeting. Trustees may be removed at any time by the affirmative vote of the
holders of two-thirds of the Common Shares.
BUSINESS COMBINATIONS
Under the Maryland General Corporation Law, as amended from time to time
(the "MGCL"), as applicable to Maryland real estate investment trusts, certain
"business combinations" (including a merger, consolidation, share exchange,
or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland real estate
investment trust and any person who beneficially owns 10% or more of the
voting power of the shares of the trust or an affiliate of the trust who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting shares of beneficial interest of the trust (an "Interested
Shareholder") or an affiliate thereof are prohibited for five years after the
most recent date on which the Interested Shareholder became an Interested
Shareholder. Thereafter, any such business combination must be (a) recommended
by the Board of Trustees of such trust and (b) approved by the affirmative
vote of at least (i) 80% of the votes entitled to be cast by holders of
outstanding voting shares of the trust and (ii) two-thirds of the votes
entitled to be cast by holders of outstanding voting
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shares (other than voting shares held by the Interested Shareholder with whom
the business combination is to be effected or by an affiliate or associate
thereof), voting together as a single group, unless, among other things, the
company's common shareholders receive a minimum price (as defined in the
statute) for their shares and the consideration is received in cash or in the
same form as previously paid by the Interested Shareholder for his shares.
These provisions of Maryland law do not apply, however, to business
combinations with a particular Interested Shareholder or its existing or
future affiliates that are approved or exempted by the board of trustees of
the trust prior to the time that the Interested Shareholder becomes an
Interested Shareholder or if the original declaration of trust includes a
provision electing not to be governed, in whole or in part, as to business
combinations generally, specifically or generally by types, as to identified
or unidentified existing or future Interested Shareholders or their
affiliates. The Declaration of Trust, in accordance with Maryland law, exempts
the Burnam Family from the foregoing restrictions. As a result, members of the
Burnam Family may be able to enter into business combinations with the
Company, which may not be in the best interests of the shareholders, without
compliance by the Company with the super-majority voting requirements and the
other provisions of the statute.
CONTROL SHARE ACQUISITIONS
The MGCL, as applicable to Maryland real estate investment trusts, imposes
limitations on the voting rights of shares acquired in a "control share
acquisition" relating to a Maryland real estate investment trust. The MGCL
defines a "control share acquisition" as the acquisition of "control shares,"
which is defined as voting shares that would entitle the acquiror to exercise
voting power in electing trustees in excess of the following levels of voting
power: 20%, 33 1/3%, and 50%. The MGCL requires a two-thirds shareholder vote
(excluding shares owned by the acquiring person and certain members of
management) to accord voting rights to shares acquired in a control share
acquisition. The MGCL also requires a Maryland real estate investment trust to
hold a special meeting at the request of an actual or proposed control share
acquiror generally within 50 days after a request is made with the submission
of an "acquiring person statement," but only if the acquiring person (a)
delivers a written undertaking to pay the expenses of such special meeting or,
if required by the Board of Trustees, posts a bond for the cost of the meeting
and (b) submits a definitive financing agreement to the extent that financing
is not provided by the acquiring person. In addition, unless the charter or
bylaws provide otherwise, the MGCL gives a Maryland real estate investment
trust, within certain time limitations, various redemption rights if there is
a shareholder vote on the issue and the grant of voting rights is not
approved, or if an "acquiring person statement" is not delivered to the target
company within 10 days following a control share acquisition. Moreover, unless
the charter or bylaws provide otherwise, the MGCL provides that if, before a
control share acquisition occurs, voting rights are accorded to the control
shares which results in the acquiring person having a majority of voting
power, then minority shareholders are entitled to appraisal rights. The fair
value of the shares as determined for purposes of such appraisal rights may
not be less than the highest price per share paid by the acquiror in the
control share acquisition. The control share acquisition statute does not
apply (a) to shares acquired in a merger, consolidation or share exchange if
the trust is a party to the transaction or (b) to acquisitions approved or
exempted by the declaration of trust or bylaws of the trust. The Declaration
of Trust, in accordance with Maryland law, contains a provision exempting
acquisitions of shares by the Burnam Family from the foregoing provisions.
AMENDMENT TO THE DECLARATION OF TRUST
The Declaration of Trust may be amended only by the affirmative vote or
written consent of the holders of not less than a majority of all of the
shares of beneficial interest entitled to vote on the matter, except that the
Trustees by a two-thirds vote may amend provisions of the Declaration of Trust
from time to time to qualify as a real estate investment trust under the Code
and the Maryland REIT Law.
TERMINATION OF THE COMPANY
The Declaration of Trust permits the termination of the Company and the
discontinuation of the operations of the Company by the affirmative vote or
written consent of the holders of not less than two-thirds of the outstanding
shares of beneficial interest.
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ADVANCE NOTICE OF TRUSTEE NOMINATIONS AND NEW BUSINESS
The Bylaws provide that (a) with respect to an annual meeting of
shareholders, nominations of persons for election to the Board of Trustees and
the proposal of business to be considered by shareholders may be made only (i)
pursuant to the Company's notice of the meeting, (ii) by or at the direction
of the Board of Trustees, or (iii) by a shareholder who is entitled to vote at
the meeting and has complied with the advance notice procedures set forth in
the Bylaws, and (b) with respect to special meetings of shareholders, only the
business specified in the Company's notice of meeting may be brought before
the meeting of shareholders, and, if the Board of Trustees has determined that
Trustees shall be elected at any such meeting, nominations of persons for
election to the Board of Trustees may be made only on terms similar to those
for annual meetings.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
DECLARATION OF TRUST AND BYLAWS
The business combination provisions and the control share acquisition
provisions of the MGCL, the provisions of the Declaration of Trust on
classification of the Board of Trustees and removal of Trustees and the
advance notice provisions of the Bylaws could delay, defer or prevent a
transaction or a change in control of the Company that might involve a premium
price for holders of Common Shares or otherwise be in their best interest.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a description of the material Federal income tax
consequences to the Company and its shareholders of the treatment of the
Company as a REIT. The discussion is general in nature and not exhaustive of
all possible tax considerations, nor does the discussion give a detailed
description of any state, local, or foreign tax considerations. The discussion
does not discuss all aspects of Federal income tax law that may be relevant to
a prospective shareholder in light of his particular circumstances or to
certain types of shareholders (including insurance companies, financial
institutions or broker-dealers, tax exempt organizations, foreign corporations
and persons who are not citizens or residents of the United States) subject to
special treatment under the Federal income tax laws nor does the discussion
address special considerations, if any, which may relate to the purchase of
Common Share Warrants.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING,
AND EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH ITS TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE PURCHASE, OWNERSHIP AND
SALE OF THE SECURITIES OFFERED HEREBY, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE, AND
OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
If certain detailed conditions imposed by the REIT provisions of the Code
are met, entities, such as the Company, that invest primarily in real estate
and that otherwise would be treated for Federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to shareholders. This treatment
substantially eliminates the "double taxation" (i.e., at both the corporate
and shareholder levels) that generally results from the use of corporations.
If the Company fails to qualify as a REIT in any year, however, it will be
subject to Federal income taxation as if it were a domestic corporation, and
its shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In this event, the Company could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its shareholders would be reduced or eliminated.
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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. The Company may also be subject to the corporate
alternative minimum tax, as well as tax in certain situations not presently
contemplated. The Subsidiary Company will be taxed on its income at regular
corporate rates. The Company will use the calendar year both for Federal
income tax purposes and for financial reporting purposes.
In order to qualify as a REIT, the Company must meet, among others, the
following requirements:
Share Ownership Tests. The Company's shares of beneficial interest must be
held by a minimum of 100 persons for at least 335 days in each taxable year
(or a proportional number of days in any short taxable year). In addition, at
all times during the second half of each taxable year, no more than 50% in
value of the outstanding shares of beneficial interest of the Company may be
owned, directly or indirectly and by applying certain constructive ownership
rules, by five or fewer individuals, which for this purpose includes certain
tax-exempt entities. However, for purposes of this test, any shares of
beneficial interest held by a qualified domestic pension or other retirement
trust will be treated as held directly by its beneficiaries in proportion to
their actuarial interest in such trust rather than by such trust. These share
ownership requirements need not be met until the second taxable year of the
Company for which a REIT election is made.
In order to attempt to ensure compliance with the foregoing share ownership
tests, the Company has placed certain restrictions on the transfer of its
shares of beneficial interest to prevent additional concentration of share
ownership. Moreover, to evidence compliance with these requirements, under
Treasury regulations the Company must maintain records which disclose the
actual ownership of its outstanding shares of beneficial interest. In
fulfilling its obligations to maintain records, the Company must and will
demand written statements each year from the record holders of designated
percentages of its shares of beneficial interest disclosing the actual owners
of such shares of beneficial interest (as prescribed by Treasury regulations).
A list of those persons failing or refusing to comply with such demand must be
maintained as a part of the Company's records. A shareholder failing or
refusing to comply with the Company's written demand must submit with his tax
return a similar
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statement disclosing the actual ownership of Company shares of beneficial
interest and certain other information. In addition, the Declaration of Trust
provides restrictions regarding the transfer of its shares of beneficial
interest that are intended to assist the Company in continuing to satisfy the
share ownership requirements. See "Description of Common Shares--Restrictions
on Transfer."
Asset Tests. At the close of each quarter of the Company's taxable year, the
Company must satisfy two tests relating to the nature of its assets (with
"assets" being determined in accordance with generally accepted accounting
principles). First, at least 75% of the value of the Company's total assets
must be represented by interests in real property, interests in mortgages on
real property, shares in other REITs, cash, cash items, government securities
and qualified temporary investments. Second, although the remaining 25% of the
Company's assets generally may be invested without restriction, securities in
this class may not exceed (i) in the case of securities of any one non-
government issuer, 5% of the value of the Company's total assets or (ii) 10%
of the outstanding voting securities of any one such issuer. Where the Company
invests in a partnership (such as the Operating Partnership), it will be
deemed to own a proportionate share of the partnership's assets. See "--Tax
Aspects of the Company's Investments in Partnerships--General." Accordingly,
the Company's investment in the Facilities through its interest in the
Operating Partnership is intended to constitute an investment in qualified
assets for purposes of the 75% asset test.
The Operating Partnership owns 100% of the non-voting preferred stock and 5%
of the voting stock of the Subsidiary Company. See "The Company." By virtue of
its partnership interest in the Operating Partnership, the Company is deemed
to own its pro rata share of the assets of the Operating Partnership,
including the securities of the Subsidiary Company, as described above.
Because the Operating Partnership owns only 5% of the voting securities of the
Subsidiary Company, and the preferred stock's approval right is limited to
certain fundamental corporate actions that could adversely affect the
preferred stock as a class, the 10% limitation on holdings of voting
securities of any one issuer should not be exceeded.
Based upon its analysis of the total estimated value of the Subsidiary
Company stock owned by the Operating Partnership relative to the estimated
value of the total assets owned by the Operating Partnership and the other
assets of the Company, the Company believes that the Company's pro rata share
of the stock of the Subsidiary Company owned by the Operating Partnership does
not exceed, on the date of this Prospectus, 5% of the value of the Company's
total assets. This 5% limitation must be satisfied not only as of the date
that the Company (directly or through the Operating Partnership) acquired
securities of the Subsidiary Company, but also at the end of any quarter in
which the Company increases its interest in the Subsidiary Company or so
acquires other property. In this respect, if the holder of a right to exchange
Units for Common Shares, including BHC or an Original Investor, exercises such
rights, the Company will thereby increase its proportionate (indirect)
ownership interest in the Subsidiary Company, thus requiring the Company to
meet the 5% test in any quarter in which such conversion option is exercised.
A similar result will follow in the case of any exchange of Units by Operating
Partnership or Subsidiary Company employees that they received pursuant to the
option plan established by the Company. Although the Company plans to take
steps to ensure that it satisfies the 5% value test for any quarter with
respect to which retesting is to occur, there can be no assurance that such
steps will always be successful or will not require a reduction in the
Operating Partnership's overall interest in the Subsidiary Company.
Gross Income Tests. There are three separate percentage tests relating to
the sources of the Company's gross income which must be satisfied for each
taxable year. For purposes of these tests, where the Company invests in a
partnership, the Company will be treated as receiving its share of the income
and loss of the partnership, and the gross income of the partnership will
retain the same character in the hands of the Company as it has in the hands
of the partnership. See "--Tax Aspects of the Company's Investments in
Partnerships--General" below. The three tests are as follows:
The 75% Test. At least 75% of the Company's gross income for the taxable
year must be "qualifying income." Qualifying income generally includes (i)
rents from real property (except as modified below); (ii) interest on
obligations secured by mortgages on, or interests in, real property; (iii)
gains from the sale or other
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disposition of interests in real property and real estate mortgages, other
than gain from property held primarily for sale to customers in the ordinary
course of the Company's trade or business ("dealer property"); (iv) dividends
or other distributions on shares in other REITs, as well as gain from the sale
of such shares; (v) abatements and refunds of real property taxes; (vi) income
from the operation, and gain from the sale, of property acquired at or in lieu
of a foreclosure of the mortgage secured by such property ("foreclosure
property"); (vii) commitment fees received for agreeing to make loans secured
by mortgages on real property or to purchase or lease real property; and
(viii) certain qualified temporary investment income attributable to the
investment of new capital received by the Company in exchange for its shares
during the one-year period following the receipt of such capital.
Rents received from a customer will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test described
below) if the Company, or an owner of 10% or more of the Company, directly or
constructively owns 10% or more of such tenant. In addition, if rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
rents from real property. Moreover, an amount received or accrued will not
qualify as rents from real property (or as interest income) for purposes of
the 75% and 95% gross income tests if it is based in whole or in part on the
income or profits of any person, although an amount received or accrued
generally will not be excluded from "rents from real property" solely by
reason of being based on a fixed percentage or percentages of receipts or
sales. Finally, for rents received to qualify as rents from real property for
purposes of the 75% and 95% gross income tests, the Company generally must not
operate or manage the property or furnish or render services to tenants, other
than through an "independent contractor" from whom the Company derives no
income, except that the "independent contractor" requirement does not apply to
the extent that the services provided by the Company are "usually or
customarily rendered" in connection with the rental of space for occupancy
only, or are not otherwise considered "rendered to the occupant for his
convenience."
The Company intends to monitor its operations in the context of these
standards so as to satisfy the 75% and 95% gross income tests. The Operating
Partnership provides certain services at the Facilities it owns and may
provide certain services at any newly acquired self-storage facilities of the
Operating Partnership. The Company believes for purposes of the 75% and 95%
gross income tests, that the services provided at such facilities and any
other services and amenities provided by the Operating Partnership or its
agents with respect to such facilities are and will continue to be of the type
usually or customarily rendered in connection with the rental of space for
occupancy only. The Company intends that services that cannot be provided
directly by the Operating Partnership, the Subsidiary Company or other agents
will be performed by independent contractors.
The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company's gross income for the
taxable year must be derived from the above-described qualifying income, or
from dividends, interest, or gains from the sale or other disposition of stock
or other securities that are not dealer property. Dividends and interest on
any obligations not collateralized by an interest in real property are
included for purposes of the 95% test, but not for purposes of the 75% test.
The Company intends to closely monitor its non-qualifying income and
anticipates that non-qualifying income from its other activities will not
result in the Company failing to satisfy either the 75% or 95% gross income
test. The Operating Partnership owns partnership interests in certain joint
ventures which own certain Facilities. No assurance can be given that such
partnerships will not realize non-qualifying income, in which case the
Operating Partnership's distributive share of such income would be non-
qualifying income.
For purposes of determining whether the Company complies with the 75% and
the 95% gross income tests, gross income does not include income from
prohibited transactions. A "prohibited transaction" is a sale of dealer
property (excluding foreclosure property); however, it does not include a sale
of property if such property is held by the Company for at least four years
and certain other requirements (relating to the number of properties sold in a
year, their tax bases, and the cost of improvements made thereto) are
satisfied. See "--Taxation of the Company--General" and "--Tax Aspects of the
Company's Investments in Partnerships--Sale of the Facilities."
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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 either
the 75% or 95% gross income test, multiplied by a fraction intended to reflect
the Company's profitability.
The 30% Test. The Company must derive less than 30% of its gross income for
each taxable year from the sale or other disposition of (i) real property held
for less than four years (other than foreclosure property and involuntary
conversions); (ii) stock or securities (including an interest rate swap or cap
agreement) held for less than one year; and (iii) property in a prohibited
transaction. The Company does not anticipate that it will have difficulty in
complying with this test. However, if extraordinary circumstances were to
occur that give rise to dispositions of self-storage facilities held for less
than four years (for example, on account of the inability to obtain
refinancing), the 30% test could become an issue.
Annual Distribution Requirements. In order to qualify as a REIT, the Company
is required to distribute dividends (other than capital gain dividends) to its
shareholders each year in an amount at least equal to (A) the sum of (i) 95%
of the Company's REIT taxable income (computed without regard to the dividends
paid deduction and the Company's net capital gain) and (ii) 95% of the net
income (after tax), if any, from foreclosure property, minus (B) the sum of
certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if
declared before the Company timely files its tax return for such year and if
paid on or before the first regular dividend payment after such declaration.
To the extent that the Company does not distribute all of its net capital gain
or distributes at least 95%, but less than 100%, of its REIT taxable income,
as adjusted, it will be subject to tax on the undistributed amount at regular
capital gains or ordinary corporate tax rates, as the case may be.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the first sentence of the
preceding paragraph. In this regard, the Partnership Agreement authorizes the
Company, as general partner, to take such steps as may be necessary to cause
the Operating Partnership to distribute to its partners an amount sufficient
to permit the Company to meet these distribution requirements. It is possible
that the Company may not have sufficient cash or other liquid assets to meet
the 95% distribution requirement, due to timing differences between the actual
receipt of income and actual payment of expenses on the one hand, and the
inclusion of such income and deduction of such expenses in computing the
Company's REIT taxable income on the other hand; due to the Operating
Partnership's inability to control cash distributions with respect to any
properties as to which it does not have decision making control; or for other
reasons. To avoid a problem with the 95% distribution requirement, the Company
will closely monitor the relationship between its REIT taxable income and cash
flow and, if necessary, intends to borrow funds (or cause the Operating
Partnership or other affiliates to borrow funds) in order to satisfy the
distribution requirement. However, there can be no assurance that such
borrowing would be available at such time.
If the Company fails to meet the 95% distribution requirement as a result of
an adjustment to the Company's tax return by the Service, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
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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. See "The Company." In addition, the Operating Partnership owns
partnership interests in several joint venture partnerships which own certain
Facilities. In general, a partnership is a "pass-through" entity which is not
subject to Federal income tax. Rather, partners are allocated their
proportionate shares of the items of income, gain, loss, deduction and credit
of a partnership, and are potentially subject to tax thereon, without regard
to whether the partners receive a distribution from the partnership. The
Company will include its proportionate share of the foregoing partnership
items for purposes of the various REIT gross income tests and in the
computation of its REIT taxable income. See "--Taxation of the Company--
General" and "--Gross Income Tests."
Each partner's share of a partnership's tax attributes is determined in
accordance with the partnership agreement, although the allocations will be
adjusted for tax purposes if they do not comply with the technical provisions
of Code Section 704(b) and the regulations thereunder. The Operating
Partnership's allocations of tax attributes are intended to comply with these
provisions. Notwithstanding these allocation provisions, for purposes of
complying with the gross incomes tests discussed above, the Company will be
deemed to have received a share of the income of the Partnership based on its
capital interest in the Operating Partnership.
Also, any resultant increase in the Company's REIT taxable income from its
interest in the Operating Partnership (whether or not a corresponding cash
distribution is also received from the Operating Partnership) will increase
its distribution requirements (see "--Taxation of the Company--Annual
Distribution Requirements"), but will not be subject to Federal income tax in
the hands of the Company provided that an amount equal to such income is
distributed by the Company to its shareholders. Moreover, for purposes of the
REIT asset tests (see "--Taxation of the Company--Asset Tests"), the Company
will include its proportionate share of assets held by the Operating
Partnership (including the Operating Partnership's share of assets held
through its interests in the joint venture partnerships).
Entity Classification. The Company's interest in the Operating Partnership
involves special tax considerations, including the possibility of a challenge
by the Service of the status of the Operating Partnership as a partnership (as
opposed to an association taxable as a corporation for Federal income tax
purposes). If the Operating Partnership were to be treated as an association,
it would be taxable as a corporation and therefore subject to an entity-level
tax on its income. In such a situation, the character of the Company's assets
and items of gross income would change, which would preclude the Company from
satisfying the REIT asset tests and the REIT gross income tests (see "--
Taxation of the Company--Asset Tests" and "--Gross Income Tests"), which in
turn would prevent the Company from qualifying as a REIT. (See "--Taxation of
the Company--Failure to Qualify" above, for a discussion of the effect of the
Company's failure to meet such tests.) A similar result could occur if any of
the joint venture partnerships in which the Operating Partnership owns a
partnership interest were classified as associations taxable as corporations.
Tax Allocations with Respect to the Facilities. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership (such as certain of the Facilities or interests
therein), must be allocated in a manner such that the contributing partner is
charged with, or benefits from, respectively, the unrealized gain or
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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 for
corporations. Distributions that are designated as capital gain dividends will
be taxed as long-term capital gains (to the extent they do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the shareholder has held its shares of beneficial interest of
the Company. However, corporate shareholders may be required to treat up to
20% of certain capital gain dividends as ordinary income. To the extent that
the Company makes distributions in excess of current and accumulated earnings
and profits, these distributions are treated first as a tax-free return of
capital to the shareholder, reducing the tax basis of a shareholder's Common
Shares by the amount of such excess
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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.
In general, any loss upon a sale or exchange of Common Shares by a
shareholder who has held such Common Shares for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the extent of distributions from the Company required to be treated
by such shareholder as long-term capital gains.
Backup Withholding. The Company will report to its domestic shareholders and
to the Service the amount of dividends paid for each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a shareholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such shareholder (i) is a
corporation or comes within certain other exempt categories and, when
required, demonstrates this fact or (ii) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding
rules. A shareholder that does not provide the Company with its correct
taxpayer identification number may also be subject to penalties imposed by the
Service. Any amount paid as backup withholding is available as a credit
against the shareholder's income tax liability. In addition, the Company may
be required to withhold a portion of capital gain distributions made to any
shareholders who fail to certify their non-foreign status to the Company. See
"Certain United States Tax Considerations for Non-U.S. Shareholders--
Distributions from the Company--Capital Gain Dividends" below.
Taxation of Tax-Exempt Shareholders. The Service has issued a revenue ruling
in which it held that amounts distributed by a REIT to a tax-exempt employees'
pension trust do not constitute unrelated business taxable income ("UBTI").
Subject to the discussion below regarding a "pension-held REIT," based upon
such ruling and the statutory framework of the Code, distributions by the
Company to a shareholder that is a tax-exempt entity should not constitute
UBTI, provided that the tax-exempt entity has not financed the acquisition of
its shares with "acquisition indebtedness" within the meaning of the Code,
that the shares are not otherwise used in an unrelated trade or business of
the tax-exempt entity, and that the Company, consistent with its present
intent, does not hold a residual interest in a REMIC.
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Code ("qualified pension trust") holds more than 10% by
value of the interests in a "pension-held REIT" at any time during a taxable
year, a portion of the dividends paid to the qualified pension trust by such
REIT may constitute UBTI. For these purposes, a "pension-held REIT" is defined
as a REIT if (i) such REIT would not have qualified as a REIT but for the
provisions of the Code which look through such a qualified pension trust in
determining ownership of shares of the REIT and (ii) at least one qualified
pension trust holds more than 25% by value of the interests of such REIT or
one or more qualified pension trusts (each owning more than a 10% interest by
value in the REIT) hold in the aggregate more than 50% by value of the
interests in such REIT. The Company does not expect to be a "pension-held
REIT."
OTHER TAX CONSIDERATIONS
Subsidiary Company. The income of the Subsidiary Company is subject to
Federal and state income tax at full corporate rates, and the Subsidiary
Company cannot claim a deduction for the dividends it pays to its
shareholders, including the Company. To the extent that the Subsidiary Company
pays Federal, state or local taxes, it will have less cash available to
distribute to its shareholders, thereby reducing cash available for
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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 Service and the Treasury Department, resulting
in revisions of regulations and revised interpretations of established
concepts as well as statutory changes. No assurance can be given as to the
form or content (including with respect to effective dates) of any tax
legislation which may be enacted. Revisions in Federal tax laws and
interpretations thereof could adversely affect the tax consequences of
investment in the Company.
In particular, the Treasury Department promulgated regulations on December
29, 1994 that would permit the Service to recharacterize transactions
involving partnerships purporting to create tax advantages inconsistent with
the intent of the partnership provisions of the Code. The intended application
of these regulations is uncertain. Nonetheless, although the matter is not
free from doubt, it is believed that these regulations will not adversely
affect the Company's ability to qualify as a REIT.
State and Local Taxes. The Company and its shareholders may be subject to
state or local taxation, and the Company and the Operating Partnership may be
subject to state or local tax withholding requirements, in various
jurisdictions, including those in which it or they transact business or
reside. The state and local tax treatment of the Company and its shareholders
may not conform to the Federal income tax consequences discussed above.
Consequently, prospective shareholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in Common
Shares.
CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-U.S. SHAREHOLDERS
The following is a discussion of certain anticipated U.S. Federal income and
U.S. Federal estate tax consequences of the ownership and disposition of
shares of beneficial interest applicable to Non-U.S. Shareholders of such
shares. A "Non-U.S. Shareholder" is (i) any individual who is neither a
citizen nor resident of the United States, (ii) any corporation or partnership
other than a corporation or partnership created or organized in the United
States or under the laws of the United States or any state thereof or under
the laws of the District of Columbia, (iii) any estate the income of which,
from sources without the United States which is not effectively connected with
the conduct of a trade or business within the United States, is not includable
in gross income for United States Federal income tax purposes or (iv) any
trust which is not a "United States Trust". A United States Trust is (a) 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, any trust
if, and only if, (i) a court within the United States is able to exercise
primary supervision over the administration of the trust and (ii) one or more
U.S. trustees have the authority to control all substantial decisions of the
trust, and (b) for all other taxable years, any trust whose income is
includable in gross income for United States Federal income tax purposes
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 SHARES OF BENEFICIAL INTEREST.
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DISTRIBUTIONS FROM THE COMPANY
Ordinary Dividends. The portion of dividends received by Non-U.S.
Shareholders payable out of the Company's earnings and profits that are not
attributable to capital gains of the Company and that are not effectively
connected with a U.S. trade or business of the Non-U.S. Shareholder will be
subject to U.S. withholding tax at the rate of 30% (unless reduced by treaty
or the Non-U.S. Shareholder files an Internal Revenue Service Form 4224 with
the Company certifying that the investment to which the distribution relates
is effectively connected to a United States trade or business of such Non-U.S.
Shareholder). Under certain limited circumstances, the amount of tax withheld
may be refundable, in whole or in part, because of the tax status of certain
partners or beneficiaries of Non-U.S. Shareholders that are either foreign
partnerships or foreign estates or trusts. In general, Non-U.S. Shareholders
will not be considered engaged in a U.S. trade or business solely as a result
of their ownership of shares of beneficial interest. In cases where the
dividend income from a Non-U.S. Shareholder's investment in shares of
beneficial interest is (or is treated as) effectively connected with the Non-
U.S. Shareholder's conduct of a U.S. trade or business, the Non-U.S.
Shareholder generally will be subject to U.S. tax at graduated rates, in the
same manner as U.S. shareholders are taxed with respect to such dividends (and
may also be subject to the 30% branch profits tax (unless reduced by treaty)
in the case of a Non-U.S. Shareholder that is a foreign corporation).
Under currently applicable Treasury regulations, withholding agents are
required to determine the applicable withholding rate pursuant to the
appropriate tax treaty, and withhold the appropriate amount. Treasury
regulations proposed in 1996, which have not been adopted, and are, therefore,
not currently effective, would, if and when they become effective, require
Non-U.S. Shareholders to file a form W-8 to obtain the benefit of any
applicable tax treaty providing for a lower rate of withholding tax on
dividends paid after December 31, 1997. Such form would require a
representation by the holder as to foreign status, the holder's name and
permanent residence address, the basis for a reduced withholding rate (e.g.,
the relevant tax treaty) and other pertinent information, to be certified by
such holder under penalties of perjury. Such information is subject to being
reported to the Internal Revenue Service. A permanent resident address for
this purpose generally is the address in the country where the person claims
to be a resident for the purpose of the country's income tax. If the
beneficial holder is a corporation, then the address is where the corporation
maintains its principal office in its country of incorporation.
Capital Gain Dividends. Under the Foreign Investment in Real Property Tax
Act of 1980 ("FIRPTA"), any distribution made by the Company to a Non-U.S.
Shareholder, to the extent attributable to gains from dispositions of United
States Real Property Interests ("USRPIs") by the Company ("USRPI Capital
Gains"), will be considered effectively connected with a U.S. trade or
business of the Non-U.S. Shareholder and subject to U.S. income tax at the
rates applicable to U.S. individuals or corporations, without regard to
whether such distribution is designated as a capital gain dividend. In
addition, the Company will be required to withhold tax equal to 35% of the
amount of such distribution to the extent it constitutes USRPI Capital Gains.
Such distribution may also be subject to the 30% branch profits tax (unless
reduced by treaty) in the case of a Non-U.S. Shareholder that is a foreign
corporation.
Non-Dividend Distributions. Any distributions by the Company that exceed
both current and accumulated earnings and profits of the Company will not be
taxed as either ordinary dividends or capital gain dividends. See "Federal
Income Tax Considerations--Taxation of Shareholders--Taxation of Taxable
Domestic Shareholders." However, if it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current and accumulated earnings and profits, the distribution will be subject
to withholding. Should this occur, the Non-U.S. Shareholder may seek a refund
of overwithholding from the Service once it is subsequently determined that
such distribution was, in fact, in excess of current and accumulated earnings
and profits of the Company.
DISPOSITIONS OF SHARES OF BENEFICIAL INTEREST
Unless the shares of beneficial interest constitute USRPIs, a sale or
exchange of shares of beneficial interest by a Non-U.S. Shareholder generally
will not be subject to U.S. taxation under FIRPTA. The shares of beneficial
interest will not constitute USRPIs if the Company is a "domestically
controlled REIT." A domestically
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controlled REIT is a REIT in which, at all times during a specified testing
period, less than 50% in value of its shares is held directly or indirectly by
Non-U.S. Shareholders. It is currently anticipated that the Company will be a
domestically controlled REIT and, therefore, that the sale of shares of
beneficial interest will not be subject to taxation under FIRPTA. No assurance
can be given that the Company will continue to be a domestically controlled
REIT.
If the Company does not constitute a domestically controlled REIT, a Non-
U.S. Shareholder's sale or exchange of shares of beneficial interest generally
will still not be subject to tax under FIRPTA as a sale of USRPIs provided
that (i) the Company's shares of beneficial interest are "regularly traded"
(as defined by applicable Treasury regulations) on an established securities
market (e.g., the NYSE, on which the Common Shares are listed) and (ii) the
selling Non-U.S. Shareholder held 5% or less of the Company's outstanding
shares of beneficial interest at all times during a specified testing period.
If gain on the sale or exchange of shares of beneficial interest were
subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to
U.S. income tax at the rates applicable to U.S. individuals or corporations,
and the purchaser of shares of beneficial interest could be required to
withhold 10% of the purchase price and remit such amount to the Service. The
branch profits tax would not apply to such sales or exchanges.
Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Shareholder in two cases: (i) if the Non-U.S.
Shareholder's investment in shares of beneficial interest is effectively
connected with a U.S. trade or business conducted by such Non-U.S.
Shareholder, the Non-U.S. Shareholder will be subject to the same treatment as
U.S. shareholders with respect to such gain or (ii) if the Non-U.S.
Shareholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has a "tax home" in
the United States, the nonresident alien individual will be subject to 30% tax
on the individual's capital gain (unless reduced or eliminated by treaty).
FEDERAL ESTATE TAX
Shares of beneficial interest owned or treated as owned by an individual who
is not a citizen or "resident" (as specifically defined for U.S. Federal
estate tax purposes) of the United States at the time of death will be
includable in the individual's gross estate for U.S. Federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise. Such
individual's estate may be subject to U.S. Federal estate tax on the property
includable in the estate for U.S. Federal estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Service and to each Non-U.S.
Shareholder the amount of dividends (including any capital gain dividends)
paid to, and the tax withheld with respect to, each Non-U.S. Shareholder.
These reporting requirements apply regardless of whether withholding was
reduced or eliminated by an applicable tax treaty. Copies of these returns may
also be made available under the provisions of a specific treaty or agreement
with the tax authorities in the country in which the Non-U.S. Shareholder
resides.
U.S. backup withholding (which generally is imposed at the rate of 31% on
certain payments to persons that fail to furnish the information required
under the U.S. information reporting requirements) and information reporting
will generally not apply to dividends (including any capital gain dividends)
paid on shares of beneficial interest to a Non-U.S. Shareholder at an address
outside the United States. The proposed Treasury regulations referred to under
"--Distributions from the Company--Ordinary Dividends," in general, would
similarly require a Non-U.S Shareholder to provide the form W-8 previously
referred to in order for dividends paid after December 31, 1997 to be exempt
from backup withholding and information reporting.
The payment of the proceeds from the disposition of shares of beneficial
interest to or through a U.S. office of a broker will be subject to
information reporting and backup withholding unless the owner, under penalties
of
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perjury, certifies, among other things, its status as a Non-U.S. Shareholder,
or otherwise establishes an exemption. The payment of the proceeds from the
disposition of shares of beneficial interest to or through a non-U.S. office
of a non-U.S. broker generally will not be subject to backup withholding and
information reporting, except as noted below. In the case of a payment of
proceeds from the disposition of shares of beneficial interest to or through a
non-U.S. office of a broker which is (i) a U.S. person, (ii) a "controlled
foreign corporation" for U.S. Federal income tax purposes or (iii) a foreign
person 50% or more of whose gross income for certain periods is derived from a
U.S. trade or business, information reporting (but not backup withholding)
will apply unless the broker has documentary evidence in its files that the
holder is a Non-U.S. Shareholder (and the broker has no actual knowledge to
the contrary) and certain other conditions are met, or the holder otherwise
establishes an exemption. Under proposed Treasury regulations, a payment of
the proceeds from the disposition of shares of beneficial interest to or
through such broker will be subject to backup withholding if such broker has
actual knowledge that the holder is a U.S. person.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-U.S.
Shareholder's U.S. Federal income tax liability, provided that required
information is furnished to the Service.
These backup withholding and information reporting rules are currently under
review by the Treasury Department, and their application to shares of
beneficial interest is subject to change.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to
investors directly or through agents. Direct sales to investors may be
accomplished through subscription offerings or through Shareholder Purchase
Rights distributed to the Company's shareholders. See "Description of
Shareholder Purchase Rights." In connection with subscription offerings or the
distribution of Shareholder Purchase Rights to shareholders, if all of the
underlying Offered Securities are not subscribed for, the Company may sell
such unsubscribed Offered Securities to third parties directly or through
underwriters or agents and, in addition, whether or not all of the underlying
Offered Securities are subscribed for, the Company may concurrently offer
additional Offered Securities to third parties directly or through
underwriters or agents. Any such underwriter or agent involved in the offer
and sale of the Offered Securities will be named in the applicable Prospectus
Supplement.
The distribution of the Offered Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed,
or at prices related to the prevailing market prices at the time of sale or at
negotiated prices (any of which may represent a discount from the prevailing
market prices). The Company also may, from time to time, authorize
underwriters acting as the Company's agents to offer and sell the Offered
Securities upon the terms and conditions as are set forth in the applicable
Prospectus Supplement. In connection with the sale of Offered Securities,
underwriters may be deemed to have received compensation from the Company in
the form of underwriting discounts or commissions and may also receive
commissions from purchasers of Offered Securities for whom they may act as
agent. Underwriters may sell Offered Securities to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters,
dealers and agents participating in the distribution of the Offered Securities
may be deemed to be underwriters, and any discounts and commissions received
by them and any profit realized by them on resale of the Offered Securities
may be deemed to be underwriting discounts and commissions, under the
Securities Act. Underwriters, dealers and agents may be entitled, under
agreements entered into with the Company, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act.
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If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the
date or dates stated in such Prospectus Supplement. Each Contract will be for
an amount not less than, and the aggregate principal amount of Offered
Securities sold pursuant to Contracts shall be not less nor more than, the
respective amounts stated in the applicable Prospectus Supplement.
Institutions with whom Contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases be subject to the approval of the Company. Contracts will
not be subject to any conditions except (i) the purchase by an institution of
the Offered Securities covered by its Contracts shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the United States
to which such institution is subject; and (ii) if the Offered Securities are
being sold to underwriters, the Company shall have sold to such underwriters
the total principal amount of the Offered Securities less the principal amount
thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and its subsidiaries
in the ordinary course of business.
EXPERTS
The consolidated and combined financial statements and related schedule of
Storage Trust Realty and Predecessor Company (as defined in such financial
statements) at December 31, 1995 and 1994, and for each of the three years in
the period ended December 31, 1995, incorporated by reference in this
Prospectus and the Registration Statement of which this Prospectus is a part,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference.
The Historical Summaries of Combined Gross Revenue and Direct Operating
Expenses with respect to two facilities acquired since December 31, 1995 for
the year ended December 31, 1995, included in the Company's Current Report on
Form 8-K dated May 24, 1996 (filed June 7, 1996) and incorporated by reference
in this Prospectus and the Registration Statement of which this Prospectus is
a part, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. The Historical Summaries of Combined Gross Revenue and Direct
Operating Expenses with respect to nine facilities acquired since December 31,
1995 for the year ended December 31, 1995, included in the Company's Current
Report on Form 8-K dated September 16, 1996 (filed October 29, 1996) and
incorporated by reference in this Prospectus and the Registration Statement of
which this Prospectus is a part, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such financial statements are, and
audited financial statements to be included in subsequently filed documents
will be (to the extent covered by consents filed with the Securities and
Exchange Commission), incorporated herein by reference in reliance upon the
reports of Ernst & Young LLP pertaining to such financial statements given
upon the authority of such firm as experts in accounting and auditing. The
historical summary of combined gross revenue and direct operating expenses of
the 25 Facilities acquired on May 24, 1996 from Balcor/Colonial Storage Income
Fund-86 for the year ended December 31, 1995 has been incorporated by
reference in the Registration Statement, of which this Prospectus is a part,
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority
of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters relating to the validity of the Offered Securities
will be passed upon for the Company by Mayer, Brown & Platt. Mayer, Brown &
Platt has in the past represented and is currently representing the Company
and certain of its affiliates.
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STORAGE TRUST REALTY
