PROSPECTUS SUPPLEMENT
(To Prospectus dated December 4, 1996)
613,811 Shares
Storage Trust Realty
Common Shares
Storage Trust Realty (the "Company") is a self-administered and
self-managed real estate investment trust (a "REIT") engaged in the
self-storage business. The Company, which began operations through a
predecessor in 1974, owns, manages, acquires and develops self-storage
facilities primarily in the Southern, Mid-Atlantic, Midwestern and Western
regions of the United States. At March 31, 1998, the Company owned or
operated a geographically diverse portfolio of 227 self-storage facilities
(the "Facilities") located in 16 states and containing an aggregate of
approximately 12.0 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 April 21, 1998,
the last reported sale price of the Common Shares on the NYSE was $24-7/16.
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.
A.G. Edwards & Sons, Inc. (the "Underwriter") has agreed to purchase
the Common Shares from the Company at a price of $23.2175 per share,
resulting in aggregate proceeds to the Company of $14,251,157 before
payment of expenses by the Company estimated at $150,000, subject to the
terms and conditions of an Underwriting Agreement (defined below). The
Underwriter intends to sell the Common Shares to the sponsor of a
newly-formed unit investment trust (the "Trust") at an aggregate purchase
price of $14,401,172, resulting in an aggregate underwriting discount of
$150,015. See "Underwriting." Such sponsor intends to deposit the Common
Shares into the Trust in exchange for units in the Trust. The units of the
Trust will be sold to investors at a price based upon the net asset value
of the securities in the Trust. For purposes of this calculation, the value
of the Common Shares as of the evaluation time for units of the Trust on
April 21, 1998 was $24-7/16 per Common Share.
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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.
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A.G. Edwards & Sons, Inc.
The Common Shares are being offered by A.G. Edwards & Sons, Inc. as
specified herein, subject to receipt and acceptance by A.G. Edwards & Sons,
Inc. 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 April 24, 1998.
The date of this Prospectus Supplement is April 21, 1998
<PAGE>
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
Page Page
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The Company..........................S-3 Available Information..............2
Recent Developments..................S-4 Incorporation by Reference.........2
The Offering.........................S-6 The Company........................3
Use of Proceed.......................S-6 Use of Proceeds....................3
Price Range of Common Shares Description of Common Shares.......3
an Distribution History............S-7 Description of Common Share
Recent Legislation...................S-8 Warrants.........................6
Underwriting........................S-11 Description of Shareholder
Experts.............................S-11 Purchase Rights..................8
Legal Matters.......................S-12 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
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 THE PURCHASE OF COMMON SHARES TO COVER SHORT
POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-2
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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 March 31,
1998. 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 March 31, 1998, the Company owned or
operated a geographically diverse portfolio of 227 self-storage Facilities
in 16 states throughout the Southern, Mid-Atlantic, Midwestern and Western
regions of the United States, containing an aggregate of approximately 12.0
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 213 of the Facilities and owns an interest in two of the
Facilities through joint ventures. Thirteen 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
160 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 $404 million. This
represents an increase in the number of Facilities which it owns and/or
operates of 158%, and an increase in net rentable square footage of 201%,
since the IPO. For the year ended December 31, 1997, the Company acquired
38 self-storage facilities, containing approximately 2,070,000 million
square feet, for a combined purchase price of $105.6 million. For the three
months ended March 31, 1998, the Company acquired 26 self-storage
facilities containing approximately 1,425,000 net rentable square feet for
a combined purchase price of $88.1 million. In two separate transactions
during 1997, the Company exchanged 16 facilities containing 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.
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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.
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. In October and November 1997, the Company completed an
offering of 2,530,000 Common Shares, which resulted in net proceeds of
approximately $59.7 million.
RECENT DEVELOPMENTS
Revolving Line of Credit
On January 25, 1998, the Company entered into a new unsecured
revolving line of credit with an aggregate borrowing capacity of $150
million (the "New Credit Line") that expires on January 25, 2001. Amounts
borrowed under the New Credit Line bear interest at a floating rate of
LIBOR plus 120 basis points. At March 31, 1998, the Company had borrowings
under the New Credit Line of $78,420,000 at a weighted average interest
rate of 6.8875%.
Debt-to-Total Market Capitalization
As of March 31, 1998, 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
$170.1 million of outstanding Company Debt (as defined below) and the ratio
of Company Debt to Total Market Capitalization (as defined below) would be
28.6%. 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").
Acquisitions
During the three months ended March 31, 1998, the Company continued
its acquisition program by adding a total of 26 Facilities to its portfolio
containing an aggregate of approximately 1,425,000 net rentable square feet
for an aggregate purchase price of approximately $88.1 million. The
Facilities were funded by a combination of cash, the assumption of
approximately $34.6 million of mortgages (which were paid off immediately
after the closing) and the issuance of 318,432 Units valued at
approximately $8.1 million. Funds for these acquisitions were obtained from
borrowings on the New Credit Line.
S-4
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Planned Acquisitions, Developments, Expansions and Conversions
As of April 17, 1998, the Company has entered into four contracts with
respect to four self-storage facilities with an aggregate estimated
purchase price of approximately $10.2 million. Such contracts are expected
to close no later than May 31, 1998. Additionally, the Company has entered
into non-binding letters of intent with respect to one additional self-storage
facility and one parcel of land for new development with a total expected
purchase price of approximately $3.4 million. The Company expects to enter
into contracts with respect to these purchases by May 15, 1998 and to close
no later than July 31, 1998. In conjunction with the acquisition of 12
Facilities in the Chicago, Illinois area in March 1998, the Company acquired
options to acquire six additional facilities in the Chicago, Illinois area
(at an estimated purchase price of approximately $25.0 million) that are
currently under construction or going through their initial lease-up period.
These options can be exercised over the next three years. 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 is currently developing a site near Ft.
Lauderdale, Florida. The purchase price for such land was approximately
$1.1 million and estimated construction and development costs are
approximately $3.4 million. The Company is also developing a site in
Austin, Texas. The purchase price for such site was $730,000 and estimated
construction and development costs are approximately $2.5 million.
The Company has plans to complete the expansion of six Facilities
totalling 77,200 net rentable square feet during the year ended December
31, 1998 at an estimated aggregate cost of approximately $2.1 million.
Additionally, the Company has acquired land located in Jacksonville,
Florida for the expansion of a nearby Facility by 36,125 net rentable
square feet. The purchase price of the land was $775,000 and the Company
expects to spend an additional $1.5 million in connection with the
construction and development of 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
39 Facilities totalling 224,250 net rentable square feet during 1998 at an
estimated aggregate cost of approximately $2.0 million. In addition, the
Company has acquired a former moving company warehouse in the Miami,
Florida area that the Company intends to convert to climate-controlled
self-storage space. The purchase price for this building was $750,000 and
conversion costs should approximate $750,000. The Company has also acquired
a former auto dealership in Kansas City, Missouri that the Company intends
to convert to a site with climate-controlled and non climate-controlled
space. The purchase price for this building was $725,000 and conversion
costs should approximate approximately $2.0 million. 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.
S-5
<PAGE>
THE OFFERING
Common Shares Offered.............................. 613,811
Common Shares Outstanding After the Offering(l).... 17,237,120
Use of Proceeds....................................The proceeds of the Offering
will be used for repayment
of indebtedness outstanding
under the New Credit Line,
to fund the acquisition of
additional self-storage
facilities and for general
corporate purposes.
NYSE Symbol...................................... "SEA"
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(1) Includes 1,165,550 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 1,205,650 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 $14.1 million.
The Company expects to use the net proceeds of the Offering to repay
indebtedness incurred pursuant to the New Credit Line, which indebtedness
was primarily incurred in order to acquire certain of the Facilities. The
outstanding balance on the New Credit Line bears interest at a floating
rate of LIBOR plus 120 basis points, and the New Credit Line matures on
January 25, 2001. On March 31, 1998, the Company had borrowings under the
New Credit Line of approximately $78.4 million at a weighted average
interest rate of 6.8875%.
The balance of the net proceeds will be used to fund the future
acquisition activity of the Company and for general corporate purposes.
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-6
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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.
Distributions
High Low Declared (1)
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1996
First Quarter.............................. $24 $21 1/2 $.41
Second Quarter............................. $223/8 $20 $.41
Third Quarter.............................. $225/8 $197/8 $.41
Fourth Quarter............................. $27 $215/8 $.435
1997
First Quarter.............................. $277/8 $24 3/4 $.435
Second Quarter............................. $27 $22 3/4 $.435
Third Quarter.............................. $27 $24 1/4 $.435
Fourth Quarter ............................ $269/16 $235/8 $.46
1998
First Quarter ............................. $26 3/4 $23 3/4 $.46
Second Quarter (2)......................... 25 1/8 23 3/4 (3)
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(1) Distributions are shown for the periods during which they were
declared. Except for the distribution for the fourth quarter of
1997 which was paid during such quarter, these distributions
actually were or will be paid in the immediately subsequent
period.
(2) For the period from April 1, 1998 through April 21, 1998.
(3) The distribution for the second quarter will be declared by the
Board of Trustees at their meeting scheduled for May 11 and
May 12, 1998.
On April 21, 1998, the last reported closing sales price of the Common
Shares on the NYSE was $24-7/16 per share. On April 21, 1998, 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 December 31, 1997 represented
approximately 83.6% 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-7`
<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 July 29, 1997, the maximum tax rate for
individual taxpayers on capital gain is lowered to 20% for most assets 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 the sale after July 28, 1997 of a real property asset
described in Section 1250 of the Code which the taxpayer has held for more
than 18 months, but 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
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for assets held for more than 5 years. However, the 18% rate applies only
to assets acquired after December 31, 2000 unless the taxpayer elects to
treat an asset held prior to such date as sold for fair market value on
January 1, 2001. In the case of individuals whose ordinary income is taxed
at a 15% rate, the 20% rate is reduced to 10% and the 10% rate for assets
held for more than 5 years is reduced to 8%.
The Internal Revenue Service in Notice 97-59, 1997-45 I.R.B. 1, has
indicated that in their view, consistent with pending legislation the new
capital gain provisions generally may be applied by separating long term
capital gains and losses into a (i) 28% tax rate group for gains and losses
on assets held for more than 12 months but not more than 18 months and
disposed of after July 28, 1997 and certain other assets, (ii) 25% tax rate
group for gain which is "unrecaptured Section 1250 gain" and (iii) 20% tax
rate group for gains and losses on most assets held for more than 18 months
and disposed of after July 28, 1997. In general, capital gain in the 28%
tax rate group is reduced by (x) capital losses in that group, (y) net
short term capital losses (i.e. the excess of capital losses over capital
gains from assets held for 12 months or less at the time of their
disposition) and (z) long term loss carryovers. If such losses exceed the
gains in that group the excess first reduces unrecaptured Section 1250 gain
(if any) and any remaining excess next reduces net gain in the 20% group
(if any). A net loss for the 20% group is used first to reduce net gain
from the 28% group, then to reduce gain from the 25% group.
In addition, the Service in Notice 97-64, 1997-47 I.R.B. 1, describes
temporary regulations to be issued concerning the applicability of the new
capital gain rules for REIT capital gain distributions and provides
guidance for REITs and there shareholders which must be used until further
guidance is issued. Notice 97-64 generally provides that if a REIT
designates a dividend as a capital gain dividend for a taxable year ending
on or after May 7, 1997, the REIT may also designate the capital gain
dividend in whole or in part as a 20% rate gain distribution includable by
a non-corporate shareholder as long-term capital gain in the shareholders
20% group, an unrecaptured section 1250 gain distribution includable by the
shareholder in the shareholder's 25% rate group or a 28% rate gain
distribution includable by the shareholder in the shareholder's 28% group,
depending, in general, on the respective portions of net capital gain of
the REIT which are includable by the REIT in each group, determined as
though the REIT was an individual whose income is subject to a marginal tax
rate of at least 28%. If a REIT does not make additional designations of a
capital gain dividend by tax rate group, the capital gain dividend
constitutes a 28% rate gain distribution includable by a non-corporate
shareholders in the shareholder's 28% rate group. See the accompanying
Prospectus under "Federal Income Tax Considerations - Taxation of the
Company - Asset Tests."
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 but the Internal Revenue Service has
announced that the New Regulations will be amended to be effective
generally for payments made after December 31, 1999, subject to certain
transition rules.
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,
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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 country 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. As stated above, the Internal Revenue Service has announced its
intention to amend the New Regulations to extend the effective date to
those payments made after December 31, 1999. In general, the New
Regulations do not significantly alter the substantive backup withholding
and information reporting requirements described in the accompanying
Prospectus under "Federal Income Tax Considerations - Information Reporting
and Backup Withholding." Shareholders should consult their tax advisors
with respect to such changes.
The Clinton Administration's current revenue proposals would amend the
Code to prohibit a REIT from holding stock possessing more than 10% of the
vote or value of all classes of stock of a corporation, in place of the
current rule which just prohibits a REIT from owning more than 10% of the
voting securities of a corporation. The proposal would be effective with
respect to stock acquired on or after the date of first committee action.
In addition, under this proposal, to the extent that a REIT's stock
ownership of a company is grandfathered by virtue of the effective date,
that grandfathered status would terminate if the company subsequently
engaged in a trade or business that it was not engaged in on the date of
first committee action or acquired substantial new assets on or after that
date. Thus, the Company's present ownership of the stock of the Subsidiary
Company would not be affected even if this proposal is enacted in its
current form, unless the Subsidiary Company engages in a trade or business
that it is not engaged in on the date of first committee action or acquires
substantial new assets on or after that date.
S-10
<PAGE>
UNDERWRITING
Pursuant to the terms and subject to the conditions of the Underwriting
Agreement dated as of April 21, 1998 between the Company and the
Underwriter (the "Underwriting Agreement"), the Underwriter has agreed to
purchase from the Company, and the Company has agreed to sell to the
Underwriter, 613,811 Common Shares.
The Underwriter intends to sell the Common Shares to Nike Securities
L.P., which intends to deposit such shares, together with shares of common
stock of other entities also acquired from the Underwriter, into the Trust
registered under the Investment Company Act of 1940, as amended, in
exchange for units in the Trust. The Underwriter is not an affiliate of
Nike Securities L.P. or the Trust. The Underwriter intends to sell the
Common Shares to Nike Securities L.P. at an aggregate purchase price of
$14,401,172. It is anticipated that the Underwriter will also
participate as sole underwriter in the distribution of units of the Trust
and will receive compensation therefor.
Pursuant to the Underwriting Agreement, the Company as agreed to
indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, or to contribute
to payments the Underwriter may be required to make in respect thereof.
Until the distribution of the Common Shares is completed, rules of the
Securities and Exchange Commission ("Commission") may limit the ability of
the Underwriter to bid for and purchase Common Shares. As an exception to
these rules, the Underwriter is permitted 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. It is not currently anticipated that the
Underwriter will engage in any such transactions in connection with the
Offering.
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 shares in the open market.
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 might 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 commenced, will not be discontinued without
notice.
The Common Shares are traded on the NYSE under the symbol "SEA."
In the ordinary course of business, the Underwriter and its affiliates
have engaged, and may in the future engage, in investment banking
transactions with the Company
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<PAGE>
EXPERTS
The consolidated financial statements and related schedule of Storage
Trust Realty (as defined in such financial statements) at December 31, 1997
and 1996, and for each of the three years in the period ended December 31,
1997, 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 incorporated by
reference in the accompanying Prospectus 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
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 Chapman and Cutler, Chicago, Illinois. Mayer,
Brown & Platt and Chapman and Cutler will rely upon the opinion of Ballard
Spahr Andrews & Ingersoll LLP, Baltimore, Maryland, as to certain matters
of Maryland law.
S-12
