UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

            (X)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                  For the fiscal year ended December 31, 1997

          ( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

               For the transition period from ________to________
                        Commission file number 001-12910

                               Storage USA, Inc.
             (Exact name of registrant as specified in its charter)

                Tennessee                                 62-1251239
      State or other jurisdiction of        (I.R.S. Employer Identification No.)
      incorporation or organization
     165 Madison Avenue, Suite 1300                         38103
               Memphis, TN                                (Zip Code)
 (Address of principal executive offices)

       Registrant's telephone number, including area code: (901) 252-2000

          Securities registered pursuant to Section 12(b) of the Act:

             Title of each class       Name of each exchange on which registered
         Common Stock $.01 par value              New York Stock Exchange

        Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No____

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of this registrant's knowledge, in a
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. ( )

The aggregate market value of the voting and non-voting stock held by
non-affiliates of the registrant was approximately $598,783,720 as of March 20,
1998, based on 15,578,113 shares held by non-affiliates of the registrant. (For
this computation, the registrant has excluded the market value of all shares of
its Common Stock reported as beneficially owned by executive officers and
directors of the registrant and certain other stockholders; such an exclusion
shall not be deemed to constitute an admission that any such person is an
"affiliate" of the registrant.)

                                   27,700,428
                                ---------------
                      (Number of shares outstanding of the
                registrant's Common Stock, as of March 20, 1998)

                      DOCUMENTS INCORPORATED BY REFERENCE

Part II and Part III incorporate certain information by reference from the
registrant's 1997 Annual Report to Shareholders and from the registrant's
definitive proxy statement to be filed with respect to the 1998 Annual Meeting
of Shareholders.


<PAGE>


                                     PART I

Item 1.    Business

General

Storage USA, Inc. (the "Company") a Tennessee Corporation, was formed in 1985 to
acquire, develop, construct, franchise, and own and operate self-storage
facilities throughout the United States. The Company is the second largest owner
and operator of self-storage space in the United States. At December 31, 1997,
the Company owned 360 facilities containing 23.5 million net rentable square
feet and managed for others 34 (including 5 franchises) facilities containing an
additional 2.1 million net rentable square feet in 31 states and the District of
Columbia. The Company is structured as an umbrella partnership real estate
investment trust ("UPREIT") in which substantially all of the Company's business
is conducted through SUSA Partnership, L.P. (the "Partnership"). Under
this structure, the Company is able to acquire self-storage facilities in
exchange for units of limited partnership interest in the Partnership
("Units"), permitting the sellers to at least partially defer taxation of
capital gains. At December 31, 1997 and 1996, respectively, the Company had an
approximately 90.7% and 92.9% partnership interest in the Partnership.

The Partnership formed SUSA Management, Inc. ("SUSA Management") to
provide self-storage management to third parties and to engage in the retail
sale of locks, boxes and other move-related merchandise.

In 1996, the Company formed Storage USA Franchise Corp ("Franchise"), a
Tennessee corporation. The Partnership owns 100% of the non-voting
common stock of Franchise. The Partnership accounts for Franchise
under the equity method and includes its share of the profit or loss of
Franchise in Other Income and has a 97.5% economic interest in Franchise.
Effective January 1, 1997, SUSA Management transferred its management contracts
and its retail sales business to Franchise. As a result, SUSA Management had
immaterial revenue and expense in 1997.

The Company's primary business objective is to maximize shareholder value. The
Company plans to achieve this objective through a four-part strategy:

o     internal growth through continued improvement in operating results at
      owned properties,
o     external growth through acquisitions,
o     current investment for enhanced long-term returns through development, and
o     the franchising of the Company's self-storage concept.

The Company believes that it is distinguishable from most of its competitors by:

o     its balanced approach to increasing its profitability through a
      combination of internal growth, acquisitions, and development,
o     its emphasis on the hiring and training of skilled personnel as active
      managers of its self-storage facilities,
o     its management information systems, and
o     its ability to attract senior management who will enhance the Company's
      ability to define and execute its business plan.

Business Strategy

         Internal Growth

The Company's internal growth strategy is to pursue an active leasing policy,
which includes aggressively marketing available space and renewing existing
leases at higher rents per square foot while controlling expense growth. The
Company's ability to implement its internal growth strategy may be evaluated by
examining the "year over year" results of the Company's same-store facilities
during 1997 and 1996. The same-store facilities include all properties that were
owned by the Company for the entire period of both comparison years. As such,
the same-store pool changes from quarter to quarter and year to year.
Development properties and expansions are removed from these groups to avoid
skewing the results. During 1997, the Company achieved same-store revenue and
net operating income ("NOI") growth of 5.7% and 8.7%, respectively, over 1996.
In 1996, as compared to 1995, the Company grew revenue and NOI 7.7% and 9.7%
respectively. The higher percentage increase in NOI over revenue growth reflects
the Company's controlled expense growth and use of positive operating leverage,
as expenses average 27.9% of rental revenues at the property level.

o    Aggressive Leasing - The Company seeks to increase its revenues by
     increasing the occupancy in its facilities through the use of sales and
     marketing programs that are customized for each location by facility and
     district managers who have substantial authority and effective incentives.
     The Company develops a written marketing plan for each facility. The
     Company utilizes yellow page advertising, site signage and location as the
     primary means to advertise its services. The facility managers are trained
     to market both phone-in and walk-in prospective tenants, with primary
     emphasis placed on training managers to act as salespeople and to convert
     prospective tenants into actual tenants. Emphasis is placed on conversion
     from the initial telephone call to an on-site visit, and from the on-site
     visit to a rental.

o    Regularly Scheduled Rent Increases - The Company has historically
     increased rents in all of its facilities at least once a year regardless of
     the occupancy level. As a facility nears 100% occupancy, the Company
     typically increases rents more frequently. The Company is typically
     confident in its local competitive position, and tends to seek higher rents
     more aggressively in appropriate unit-size categories than its competitors.
     The Company believes the average rental rate per net rentable square foot
     in its facilities is usually higher than the rental rates at its
     competitors' facilities.

<PAGE>


o    Trained Facility Managers - The Company carefully selects and thoroughly
     trains managers of its self-storage facilities. Personality profiles and
     personal interviews are used to screen applicants during the recruiting
     process to hire outgoing, personable, sales-oriented people capable of
     implementing the Company's programs. Training programs feature facility
     operations and marketing manuals, sales and marketing programs, telephone
     communication, computer systems, and daily facility operations (unit
     rental, retail sales, facility maintenance, security systems and financial
     duties). The Company's formal training programs are followed by on-the-job
     training (supervised by a regional manager) and a three-step,
     self-administered certification program. The Company conducts monthly
     telephone surveys in which "mystery shoppers" hired by the Company call
     each facility posing as prospective customers. These telephone calls are
     recorded and graded by management for policy compliance and sales skills.

 o   Integrated Management Information Systems - To maintain appropriate
     controls and enhance operational efficiencies, the Company has installed at
     each facility computer systems with comprehensive facilities management
     software. Weekly operating results are transmitted electronically from each
     of these facilities to the Company's headquarters. These systems allow the
     Company to closely monitor manager performance and market response to the
     Company's rental structure.

         External Growth

The Company's external growth strategy is designed to increase the number of
facilities owned by the Company either by acquiring suitably located facilities
that offer upside potential due to low occupancy rates or non-premium pricing,
or where the Company's operating strategy would enhance performance, or by
developing and constructing new self-storage facilities in favorable markets. In
pursuing acquisition opportunities, the Company seeks to add facilities in those
metropolitan areas in which the Company operates and selectively to enter new
markets that have desirable characteristics such as a growing population and a
concentration of multifamily dwellings. The Company intends to acquire or
develop facilities that have strong retail characteristics and are attractively
designed.

                  Acquisitions

Since the Company's initial public offering in March 1994 (the"IPO"), the
Company has purchased 317 self-storage facilities containing 20.4 million net
rentable square feet for an aggregate purchase price of approximately $1.027
billion. Management believes that there are several factors that favor its
acquisition policy:

o    Fragmented Industry Ownership - The Company believes that there are
     approximately 26,000 self-storage facilities in the United States with
     approximately 1,015 million net rentable square feet. According to the
     Self-Storage Almanac 1997-1998 edition, the 10 largest operators of
     self-storage facilities managed approximately 3,200 facilities or 16% of
     the total square feet available. Management believes this fragmented
     ownership offers opportunities for acquisitions, including opportunities
     resulting from the necessity of sale by some smaller operators who cannot
     obtain refinancing, the desire of some smaller operators to sell their
     facilities to obtain retirement funds or to seek alternative investments,
     and the inability of other smaller operators to obtain funds with which to
     compete for acquisitions as timely and inexpensively as the Company.

o    Operating Efficiencies - After a facility is acquired, the Company
     implements Storage USA operating methods, allowing it to increase rates and
     trim excess expenses. Typically the Company acquires facilities at a
     minimum capitalization rate ("Cap Rate") (calculated by dividing NOI by the
     total acquisition cost of the facility) of 10, and the performance gained
     through the Company's operating methods improves that Cap Rate
     approximately 75 basis points during the first year following acquisition.
     After a year of operation, the acquired facilities fall under the internal
     growth strategy and will be managed accordingly to provide optimal
     long-term growth. As an example, the 96 facilities owned by the Company at
     December 31, 1994, generated returns of 12.3% in 1995, 13.1% in 1996, and
     13.6% in 1997.

o    Demand for Tax Deferral - In several of its acquisitions, the Company has
     financed a portion of the purchase price through the issuance of units of
     limited partnership interest in the Partnership ("Units"),
     permitting the sellers to at least partially defer taxation of capital
     gains. The Company believes that its ability to offer Units as a form of
     consideration is a key element in its ability to successfully negotiate
     with sellers of self-storage facilities. Since the IPO, the Company has
     issued 2.7 million Units valued at $92 million in consideration for the
     acquisition of self-storage facilities.

                  Development

The third point of focus in the Company's growth strategy has been implemented
to provide long-term gains that could exceed returns achieved by acquired
facilities. By developing properties, the Company is able to capitalize on
unsaturated markets where suitable acquisition opportunities may be minimal or
nonexistent. These locations may provide long-term returns in excess of those
available in typical suburban markets. Management believes that several factors
favor its facilities development strategy:

o    In-House Development Expertise - The Company has recently taken advantage
     of its inhouse development capability to selectively develop new facilities
     in areas where suitable acquisitions may not be available. The development
     activities consist primarily of additions to existing facilities and
     construction of new facilities. During the year, the Company placed in
     service five development properties at a cost of $16.5 million, adding 332
     thousand square feet and expanded the available square feet at eight
     facilities, adding 132 thousand square feet for a cost of $6.1 million. At
     December 31, 1997, the Company had incurred $31.3 million of development in
     process and the Company had plans to develop 21 new facilities. Expansions
     are planned for 18 existing facilities. These 39 new construction projects
     and expansions are underway with total estimated costs of $ 99.0
     million. These 39 projects have expected completion dates ranging from the
     first quarter of 1998

<PAGE>

     through the second quarter of 1999. These developments are currently
     underway in the following markets: Baltimore, Maryland/Washington, D.C.,
     Memphis, Tennessee, Northern California, Massachusetts and Central Florida.

o    Access to Development Capital - The Company has a proven ability to access
     various forms of capital that differentiates it from most of its
     competitors, particularly since capital for the construction of new
     self-storage facilities (traditionally funded by savings and loan
     associations) has been less available in recent years.

o    Potentially Higher Development Returns - Development properties provide
     the potential for long-term returns greater than those that can typically
     be achieved by acquired facilities. However losses during the lease-up
     period on these properties will reduce the Company's earnings. In addition,
     local regulations may present barriers to new development. As with all real
     property, storage facilities must conform to local zoning ordinances.
     Typically, self-storage facilities are not a permitted use within the
     commercial and retail zones desired by the Company for development of a new
     facility. Therefore, the Company must generally obtain a special use permit
     or zoning variance to undertake the development of a new facility. During
     1997, the development properties placed in service in 1997 reduced Funds
     from Operations ("FFO") by $(367) thousand, or $(0.014) per share. The
     Company is increasing its development spending and is planning to invest up
     to $80 million in development in 1998. The level of development is
     monitored closely by management to ensure that dilution of FFO caused by
     development properties in lease-up does not materially affect FFO growth.
     In addition to risks associated with owning and operating established
     facilities, development involves additional risks relating to delays in
     construction and lease-up and less-favorable-than-anticipated rental rates,
     all of which could reduce the Company's return.

                  Franchising

Storage USA Franchise Corp. ("Franchise") was established in 1996. The Company
owns a 97.5% ecenomic interest in Franchise and 100% of its Class B non-voting
common stock. The investment was intended to enhance the Company's short- and
long-term income streams and to provide a pipeline of acquisitions designed and
constructed to Storage USA's standards. Franchise offers a turnkey package
including access to capital, analysis of potential markets and sites, facility
design, general contractor work and facility management. As of December 31,
1997, Franchise has seven facilities open and operating, 43 under
development and 23 in due diligence. Of the total 73 facilities, approximately
43 are joint venture properties that would include earnings participation by
Franchise (this figure is subject to change, as Franchisees in the due diligence
stage have not definitively chosen which arrangement they will use). The
franchised facilities in total represent approximately $250 million in potential
future acquisitions.

The Company believes that its investment in Franchise will contribute to its
goal of enhancing shareholder return by providing an acquisition pool of
facilities designed and developed to Company specifications utilizing
franchisees' equity capital.

Capital Strategy

The Company and the Partnership intend to maintain a conservative capital
structure designed to enhance access to capital and to facilitate earnings
growth. The Company expects to finance long-term capital needs through the
issuance of equity (common and preferred) and debt securities. Since the IPO,
the Company has issued $371 million of its Common Stock in four public offerings
and $284 million of its Common Stock in a series of direct placements with
Security Capital U.S. Realty ("USRealty"), an affiliate of Security Capital
Group. Since October 1996, the Partnership has issued to the public
$400 million of its unsecured Senior Notes. These notes have been issued at
interest rates ranging from 7.125% to 8.2% and maturities ranging from
2003-2027. In addition, since the IPO, the Partnership has issued 2.7
million Units valued at $92 million in consideration for the acquisition of
self-storage facilities.

Short-term capital needs, including acquisition funding pending the issuance of
additional securities, are met through the Company's revolving lines of credit.
The Company has available $190.0 million in two unsecured revolving lines of
credit with a group of commercial banks, under which it had borrowed $31.8
million as of December 31, 1997. At December 31, 1997, the Company also had
mortgage loans outstanding of $42.8 million that were collateralized by 19
properties. The policy of the Company and the Partnership, which is subject to
change at the discretion of the Company's Board of Directors, is to limit total
indebtedness to the lesser of 50% of total assets at cost or that amount that
will sustain a minimum debt service coverage ratio of 3:1. As of December 31,
1997, the total indebtedness of the Company is 36.4% of total assets at cost and
its debt service coverage ratio for the year ended December 31, 1997, is 4.6:1.
The Company believes that this policy, the Company's success in raising equity
and, through the Partnership, debt capital, its preference for
unsecured debt and its ability to purchase self-storage facilities in exchange
for Units all demonstrate the commitment of the Company to maintain a
conservative but flexible capital structure that should permit continued access
to the capital markets on favorable terms.

Strategic Alliance with Security Capital U.S. Realty

In March 1996, the Company entered into a Strategic Alliance Agreement with
USRealty. The Strategic Alliance Agreement, among other things, permits USRealty
to purchase up to 42.5% of the Company's Common Stock and to participate in
certain offerings of the Company's equity securities. At December 31, 1997,
USRealty owned 38.3% of the Company's common stock.

The Company believes that the alliance with USRealty has provided it with access
to significant additional financial and strategic resources not otherwise
readily available to it, thereby enhancing its short-term and long-term growth
prospects and better positioning it to capitalize on opportunities as the REIT
industry matures. The Company also expects that it will benefit significantly
from its affiliation with USRealty and access to USRealty's market knowledge,
operating experience and research capabilities.

<PAGE>

Pursuant to the Strategic Alliance Agreement, and until the first to occur of
(A) the expiration of the five-year period following shareholder approval of the
Strategic Alliance (the "Standstill Period") and any extension thereof, and (B)
the first date following the consummation of the second funding in connection
with the Strategic Alliance on which US Realty's ownership of Company Common
Stock drops below 20% of the outstanding shares of Company Common Stock for a
continuous period of 180 days (a "20% Termination Date"), the Company may not
(a) incur total indebtedness in an amount exceeding 60% of the value of the
Company's total assets (which is deemed to be equal to the market value of the
Company's outstanding equity (on a fully-diluted basis at a price of $31.30 per
share) and debt as of March 1, 1996, plus the acquisition cost of properties
acquired after March 1, 1996 (less any proceeds of property dispositions that
are distributed to shareholders)), (b) cause or permit the sum of (i) securities
of any other person, (ii) assets held other than directly by the Company or the
Partnership, (iii) loans made by the Company to the Partnership or any other
Subsidiary, or the reverse, (iv) assets managed by persons other than employees
of the Company or the Partnership, to, at any time, exceed 10%, at
cost, of the consolidated assets owned by both the Company and the Operating
Partnership, (c) own real property other than self-storage facilities or land
suitable for the development of self-storage facilities whose value exceeds 10%
of the aggregate value of the Company's real estate assets at cost, (d)
terminate its eligibility for treatment as a REIT for federal income tax
purposes, or (e) except as permitted or required by agreements existing as of
March 1, 1996, (i) own any interest in any partnership unless the Company is the
sole managing general partner of such partnership or (ii) permit the Operating
Partnership to issue Units, or securities convertible or exercisable for Units,
if such issuance would cause the Company to own less than 90% of the Units on a
fully diluted basis (collectively, the "Corporate Action Covenants"). The
Company has certain specified rights to cure certain failures to comply with the
Corporate Action Covenants.

In addition, the Company is subject to certain limitations pursuant to the
Strategic Alliance that continue until USRealty's ownership of Company Common
Stock shall have been below 20% by value of the actually outstanding shares of
Company Common Stock for a continuous period of 180 days (subject to certain
conditions). Generally, these limitations restrict the amount of assets that the
Company may own indirectly through other entities and the manner in which the
Company conducts its business. USRealty requested these conditions because of
its belief that REITs with direct and extensive control over the operation of
all of their assets operate more effectively and in order to permit USRealty to
comply with certain requirements of the Code and other countries' tax laws
applicable to foreign investors. The Company, during the same period, has agreed
not to take actions in the future that would result in more than 10% of its
gross income, or more than 10% of the Company's assets by value (subject to
certain adjustments), being attributable to properties that are indirectly owned
and are not managed by employees of the Company or the Partnership.
USRealty has agreed to waive these requirements in certain specific instances
where indirect ownership facilitates the Company's acquisition of certain
facilities.

The Company believes that these limitations are generally consistent with its
operating strategies and does not believe that they will materially restrict its
operations or have a material adverse effect on its financial condition or
results of operations, though there can be no assurance that they will not do so
in the future.

Competition

Competition exists in all of the market areas in which the facilities are
located. The Company principally faces competitors who seek to attract tenants
primarily on the basis of lower prices. However, the Company usually does not
seek to be the lowest price competitor. Rather, based on the quality of its
facilities and its customer service-oriented managers and amenities, the
Company's strategy is to lead particular markets in terms of prices.

The pool of self-storage users has increased in recent years due to greater
consumer awareness, cost reduction programs by businesses, increased mobility in
the general population and an increasing mix of products and services offered by
self-storage facilities. Although circumstances vary among markets, the Company
believes that current demand for self-storage facilities is strong when compared
to the available supply of self-storage space. At the same time, the Company
believes that few operators of self-storage facilities are currently
constructing additional facilities or have access to the capital and the
development and construction expertise necessary to do so. Therefore, the
Company believes that the supply of self-storage facilities will remain
relatively limited for some time, and that the industry generally will continue
to experience strong occupancy and increasing rental rates. The Company believes
that its access to capital markets as a public company, the systems and methods
it has developed and the skilled personnel it has gathered and trained for
acquiring and managing self-storage facilities with potential for increased
occupancy and rental rates, and its expertise in facility development and
construction place the Company in a position to capitalize on these market
conditions for the benefit of its shareholders.

The Company is the second largest self-storage operator, with 26.9 million
square feet in 377 owned and 39 managed (including 9 franchises) facilities as
of March 12, 1998. In addition to the Company, there are four other publicly
traded REITs and numerous private and regional operators. These other entities
may generally be able to accept more risk than the Company can prudently manage,
including risks with respect to the geographic proximity of its investments and
the payment of higher facility acquisition prices. This competition may reduce
the number of suitable acquisition opportunities offered to the Company and
increase the price required to be able to consummate the acquisition of
particular facilities. Further, the Company believes that competition from
entities organized for purposes substantially similar to the Company's
objectives could increase. Nevertheless, the Company believes that the
operations, development and financial experience of its executive officers and
directors and its customer-oriented approach to management of self-storage
facilities should enable the Company to compete effectively.

Employees

All persons referred to herein as employees of the Company are employees of the
Partnership or its subsidiaries. As of December 31, 1997, the Company employed
approximately 1,400 employees, of whom approximately 333 were employed part-time
(fewer than 30 hours per week) on a regular basis. None of the Company's
employees are covered by a collective bargaining agreement.


<PAGE>

Qualification as a Real Estate Investment Trust

The Company operates so as to qualify as a Real Estate Investment Trust ("REIT")
under the Internal Revenue Code of 1986, as amended (the "Code"). Generally, a
REIT which complies with the Code and distributes at least 95% of its taxable
income to its shareholders does not pay federal tax on its distributed income.
Qualification as a REIT involves the application of highly technical and complex
rules for which there are only limited judicial or administrative
interpretations. The complexity of these rules is greater in the case of a REIT
that holds its assets in partnership form. Furthermore, there are no controlling
authorities that deal specifically with many tax issues affecting a REIT that
operates self-storage facilities. The determination of various factual matters
and circumstances not entirely within the Company's control may affect its
ability to qualify as a REIT. In addition, new regulations, administrative
interpretations or court decisions could have a substantial adverse effect with
respect to the qualifications as a REIT or the federal income tax consequences
of such qualification. If the Company were to fail to qualify as a REIT in any
taxable year, the Company would not be allowed a deduction for distributions to
shareholders in computing its taxable income and would be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Unless entitled to relief under certain Code
provisions, the Company also would be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification was lost.
As a result, the cash available for distribution to shareholders would be
reduced for each of the years involved. Although the Company currently intends
to operate in a manner designed to qualify as a REIT it is possible that future
economic, market, legal, tax or other considerations may cause the Board of
Directors, with the consent of a majority of the shareholders, to revoke the
REIT election.

Environmental Matters

The Company has obtained Phase 1 environmental audits on all of its facilities
from various outside environmental engineering firms. The purpose of the Phase 1
audits is to identify potential sources of contamination at these facilities and
to access the status of environmental regulatory compliance. The Phase 1 audits
include historical reviews of the facilities, reviews of certain public records,
preliminary investigations of the sites and surrounding properties, visual
inspection for the presence of asbestos, PCBs and underground storage tanks, and
the preparation and issuance of a written report. A Phase 1 audit does not
include invasive procedures, such as soil sampling or ground water analysis. In
certain instances the Company has obtained Phase 2 environmental audits or
procedures in order to determine (using invasive testing) whether potential
sources of contamination indicated in Phase 1 audits actually exist. While some
of the facilities have in the past been the subject of environmental remediation
or underground storage tank removal, the Company is not aware of any
contamination of facilities requiring remediation under current law. The Company
will not take ownership of any acquisition facility prior to completing a
satisfactory environmental review and inspection procedure. No assurance can be
given that the Phase 1 and 2 audits identified or will identify all significant
environmental problems or that no additional environmental liabilities exist.

Under various federal, state and local laws and regulations, an owner or
operator of real estate may be liable for the costs of removal or remediation of
certain hazardous or toxic substances on such property. Such laws often impose
such liability without regard to whether the owner caused or knew of the
presence of hazardous or toxic substances and whether or not the storage of such
substances was in violation of a tenant's lease. Furthermore, the cost of
remediation or removal of such substances may be substantial, and the presence
of such substances, or the failure to promptly remediate such substances, may
adversely affect the owner's ability to sell such real estate or to borrow using
such real estate as collateral. In connection with the ownership and operation
of its facilities, the Company or the Partnership may become liable for such
costs.

The environmental audit reports have not revealed any environmental liability
that the Company believes would have a material adverse effect on the Company's
business, assets or results of operations, nor is the Company aware of any such
liability. Nevertheless, it is possible that these reports do not or will not
reveal all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Moreover, no assurances can be
given that (i) future laws, ordinances or regulations will not impose any
material environmental liability, (ii) the current environmental condition of
the facilities will not be affected by the condition of the properties in the
vicinity of the facilities (such as the presence of leaking underground storage
tanks) or by third parties unrelated to the Partnership or the Company or, (iii)
tenants will not violate their leases by introducing hazardous or toxic
substances into the Company's facilities. The Company may be potentially liable
as owner of the facility for hazardous materials stored in units in violation of
a tenant's lease, although to date the Company has not incurred any such
liability.

The Company believes that the facilities are in compliance in all material
respects with all applicable federal, state and local ordinances and regulations
regarding hazardous or toxic substances and other environmental matters. The
Company has not been notified by any governmental authority of any material
noncompliance, liability or claim relating to hazardous or toxic substances or
other environmental substances in connection with any of its present or former
properties.

Policies and Objectives with Respect to Certain Activities

The following is a discussion of the Company's policies with respect to
investment and financing activities. The policies with respect to these
activities have been determined by the Board of Directors of the Company and may
be amended or revised from time to time at the discretion of the Board of
Directors without a vote of the shareholders of the Company. See also
"Limitations on Corporate Actions Pursuant to Strategic Alliance Agreement"
above.

         Financing Policies

The Company may from time to time re-evaluate its borrowing policies in light of
then current economic conditions, relative costs of debt and equity capital,
market values of facilities, growth and acquisition opportunities and other
factors. The Charter and Bylaws of the Company do not limit the amount or
percentage of indebtedness, funded or otherwise, the Company might incur. The
Board of Directors of the Company has adopted a policy limiting the Company's
indebtedness to the lesser of 50% of its total assets at cost or the amount that
will sustain a minimum debt service coverage ratio of 3:1. However, the Board of
Directors can, without shareholder approval, amend or modify its current policy
on borrowing. If this policy were changed, the Company could become more highly
leveraged, resulting in an increase in debt service that could adversely affect
the Company's

<PAGE>


cash flow and ability to make distributions to its shareholders, an increased
risk of default on its obligations and an increased risk of foreclosure on
facilities securing debt. In the event management deems it appropriate, the
Company will enter into arrangements with a creditworthy financial institution
for the purpose of limiting the maximum interest expense to which the Company
would be subjected in the event interest rates rise. The Company is also subject
to certain limitations with respect to the incurrence of indebtedness under the
Strategic Alliance Agreement, as described above.

Borrowings may be incurred through the Partnership or the Company. Indebtedness
incurred by the Company may be in the form of bank borrowings, secured and
unsecured, and publicly and privately placed debt instruments. Indebtedness
incurred by the Partnership may be in the form of purchase money obligations to
the sellers of properties, publicly or privately placed debt instruments,
financing from banks, institutional investors or other lenders, any of which
indebtedness may be unsecured or may be secured by mortgages or other interests
in the property owned by the Partnership. Such indebtedness may be recourse to
all or any part of the assets of the Company or the Partnership, or may be
limited to the particular property to which the indebtedness relates. The
proceeds from any borrowings by the Company or the Partnership may be
used for the payment of distributions, working capital, for refinancing existing
indebtedness or for financing acquisitions or expansions of facilities.

         Investment Policies

The Company's investment objectives are to acquire or develop income-producing
self-storage facilities with property level cash flow growth potential. While
the Company emphasizes equity real estate investments, it may, in its
discretion, invest in mortgage and other real estate interests, including
securities of other REITs. The Company does not currently invest in securities
of other REITs and has no present intention of doing so. The Company may invest
in participating or convertible mortgages if it concludes that it may benefit
from the cash flow or any appreciation in the value of the subject property.
Such mortgages are similar to equity participation. Specifically, the Company
may make participating and non-participating loans collateralized by
self-storage facilities owned by third parties.

Forward-Looking Statements and Risk Factors

All statements contained in this Annual Report that are not historical facts,
including, but not limited to, statements regarding: the Company's anticipated
future development and acquisition activity; the impact of anticipated rental
rate increases on the Company's revenue growth; the Company's 1998 budgeted
revenues, expenses and returns; future capital requirements; the Company's
business strategies; and managements' evaluation of industry and competitive
conditions, are based on current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties.
Actual results may differ materially. Among the factors that could cause actual
results to differ materially are the following: changes in the economic
conditions in the markets in which the Company operates negatively impacting the
financial resources of the Company's clients; certain of the Company's
competitors, including some with substantially greater financial resources than
the Company, reducing the number of suitable acquisition opportunities offered
to the Company and increasing the price necessary to consummate the acquisition
of particular facilities; increased development of new facilities and
competition in Company markets resulting in over-supply and lower rental or
occupancy rates; the unavailability of sufficient capital to finance the
Company's business plan on terms satisfactory to the Company; increased costs
related to compliance with laws, including environmental laws; general business
and economic conditions; and other risk factors described elsewhere in this
Annual Report. Any such forward-looking statements speak only as of the date
made and the Company cautions readers not to place undue reliance on them.

The Company's business is subject to the following particular risks and may be
subject to other risks as yet unidentified by management:

         Acquisition and Development Risks

Acquisitions entail risks that investments will fail to perform in accordance
with expectations and that judgments with respect to the prices paid for
acquired facilities and the costs of any improvements required to bring an
acquired facility up to standards established for the market position intended
for that facility will prove inaccurate, as well as general investment risks
associated with any new real estate investment. There can be no assurance that
acquisition targets meeting the Company's guidelines for quality and yield will
continue to be available in the number experienced in prior periods and that the
Company will be able to purchase such facilities in volumes adequate to meet its
goals.

The self-storage development business involves significant risks in addition to
those involved in the ownership and operation of established self-storage
facilities, including unfavorable financing terms, timing delays in construction
and lease-up, unavailable permanent financing and less-favorable than
anticipated lease terms. Consequently, there can be no assurance that the
Company will realize its development goals or that newly developed facilities
will perform as well as other facilities developed by the Company or realize
their budgeted returns.

         Debt Financing Reduces Cash Flow and Increases Risk of Default

General Risks. The Company finances certain of its acquisitions and development
with unsecured debt and, in some cases, mortgage debt. As a result of the
Company's use of debt in its capital structure, the Company is subject to the
risks normally associated with debt financing. The required payments on
indebtedness are not reduced if the economic performance of the Company or any
property declines. If such decline occurs, the Company's ability to make debt
service payments would be adversely affected. If a property is mortgaged to
secure payment of indebtedness and the Company is unable to meet mortgage
payments, the property could be transferred to the mortgagee with a consequent
loss of revenue and asset value to the Company. Likewise if increased debt
payment requirements utilize funds that would otherwise have been distributed in
order to meet the 95% REIT distribution test, the Company may lose its REIT
status.

In order to maintain its qualification as a REIT, the Company must make annual
distributions to its shareholders of at least 95% of its taxable income (which
does not include net capital gains). Under certain circumstances, the Company
may be required to make distributions in excess of cash

<PAGE>


available for distribution to shareholders in order to meet such distribution
requirements. In such event, the Company would seek to borrow the amount of the
deficiency or sell assets to obtain the cash necessary to make distributions to
retain its qualification as a REIT for federal income tax purposes.

No Limitation on Debt. The Board of Directors has adopted a policy limiting the
Company's total indebtedness to the greater of not more than 50% of its total
assets at cost or the amount that will sustain a minimum debt service coverage
ration of 3:1. However, the Board of Directors of the Company, without
shareholder approval, may amend or modify its current policy on borrowing. If
this policy were changed, the Company could become more highly leveraged,
resulting in an increase in debt service that could adversely affect the
Company's funds from operations, cash flow and ability to make distributions to
its shareholders, an increased risk of default on its obligations and an
increased risk of foreclosure on facilities securing debt.

Effect of Market Interest Rates on Price of Common Stock. One of the factors
that influences the price of the Common Stock in public trading markets is the
annual yield from distributions by the Company on the price paid for Common
Stock as compared to yields on other financial instruments. Thus, an increase in
market interest rates will result in higher yields on other financial
instruments, which could adversely affect the market price of the Common Stock.

Changes in Policies

The major policies of the Company, including its policies with respect to
acquisitions, development, financing, growth, operations, debt limitation and
distributions, are determined by its Board of Directors. The Board of Directors
may amend or revise these and other policies from time to time without a vote of
the shareholders of the Company.

         Tax Risks

Tax Liabilities as a Consequence of the Failure to Qualify as a REIT. The
Company intends to operate so as to qualify as a REIT for federal income tax
purposes. However, no assurance can be given that the Company will qualify or
remain qualified as a REIT. Qualification as a REIT involves the application of
highly technical and complex provisions of the Code for which there are only
limited judicial or administrative interpretations. The complexity of these
provisions and of the applicable income tax regulations that have been
promulgated under the Code is greater in the case of a REIT that holds its
assets in partnership form. Furthermore, there are no controlling authorities
that deal specifically with many tax issues affecting a REIT that operates
self-storage facilities. The determination of various factual matters and
circumstances not entirely within the Company's control may affect its ability
to qualify as a REIT. In addition, no assurance can be given that legislation,
new regulations, administrative interpretations or court decisions will not have
a substantial adverse effect with respect to the qualification as a REIT or the
federal income tax consequences of such qualification.

If the Company were to fail to qualify as a REIT in any taxable year, the
Company would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Unless entitled to relief under certain Code
provisions, the Company also would be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification was lost.
As a result, the cash available for distribution to shareholders would be
reduced for each of the years involved. Moreover, if the Company were to fail to
qualify as a REIT, it would no longer be subject to the distribution
requirements of the Code and, to the extent that distributions to stockholders
had been made in anticipation of the Company's qualification, the Company might
be required to borrow funds or to liquidate assets to pay applicable corporate
tax. Although the Company currently intends to operate in a manner designed to
qualify as a REIT, it is possible that future economic, market, legal, tax or
other considerations may cause the Board of Directors, with the consent of a
majority of the shareholders, to revoke the REIT election.

On February 2, 1998, the Clinton Administration released a summary of its
proposed budget plan, which contained provisions that, if enacted, would affect
REITs, including the Company (the "REIT Proposals"). One such provision would
prohibit REITs from owning more than ten percent of the value of all classes of
stock of a third-party service subsidiary corporation that generates
nonqualifying income under the 95 percent gross income test. Because the Company
owns more than 10% of the value of Franchise, the REIT Proposals could adversely
affect the manner in which the Company structures its ownership of Franchise and
the magnitude of the franchising and management activities conducted by the
Company in the future. It is important to note that the REIT Proposals are only
precursors to the first stage in a lengthy legislative process that may or may
not culminate in the passage of legislation affecting REITs. Therefore, the
Company is unable to determine whether the REIT Proposals will be enacted into
legislation and, if enacted, the impact any final legislation may have on the
Company.

Adverse Effects of REIT Minimum Distribution Requirements. In order to qualify
as a REIT, the Company generally will be required each year to distribute to its
shareholders at least 95% of its net taxable income (excluding any net capital
gain). In addition, the Company will be subject to a 4% nondeductible excise tax
on the amount, if any, by which certain distributions paid by it with respect to
any calendar year are less than the sum of (i) 85% of its ordinary income, (ii)
95% of its capital gain net income for that year and (iii) 100% of its
undistributed taxable income from prior years.

The Company intends to make distributions to its shareholders to comply with the
95% distribution requirement and to avoid the nondeductible excise tax. The
Company's income and cash flow consists primarily of its share of those items
from the Partnership. Differences in timing between taxable income and cash
available for distribution could require the Company, by itself or through the
Partnership, to borrow funds on a short-term basis to meet the 95% distribution
requirement and to avoid the nondeductible excise tax. For federal income tax
purposes, distributions paid to shareholders may consist of ordinary income,
capital gains, nontaxable return of capital, or a combination thereof. The
Company will provide its shareholders with an annual statement as to the
taxability of distributions.


<PAGE>

Distributions by the Partnership are determined by the Company's Board of
Directors and will be dependent on a number of factors, including the amount of
the Partnership's cash available for distribution, the Partnership's financial
condition, any decision by the Board of Directors to reinvest funds rather than
to distribute such funds, the Partnership's capital expenditures, the annual
distribution requirements under the REIT provisions of the Code and such other
factors as the Board of Directors deems relevant.

         Self-Storage Industry Risks

Operating Risks. The Company's facilities are subject to all operating risks
common to the self-storage facility industry. These include the risks normally
associated with lack of demand for rental spaces in a locale, changes in supply
of or demand for similar or competing facilities in an area and changes in
market rental rates.

Competition. The Company's facilities compete with other self-storage properties
in their geographic markets. Most of the Company's competitors seek to compete
by offering storage space at lower prices than the Company. However, instead of
emphasizing lower prices, the Company seeks to emphasize its facilities'
convenience and customer-oriented management and amenities to attract quality
tenants.

The Company competes in operations and for investment opportunities with
entities which have substantially greater financial resources than the Company.
These entities may generally be able to accept more risk than the Company can
prudently manage. Competition may generally reduce the number of suitable
investment opportunities offered to the Company and increase the bargaining
power of property owners seeking to sell. See "Business-Competition" above.

         Real Estate Investment Risks

General Risks. The Company's investments are subject to varying degrees of risk
generally incident to the ownership of real property. The underlying value of
the Company's real estate investments and the Company's income and ability to
make distributions to its shareholders is dependent upon the Company's ability
to operate the facilities in a manner sufficient to maintain or increase cash
provided by operations. Income from the facilities may be adversely affected by
adverse changes in national economic conditions, adverse changes in local market
conditions due to changes in general or local economic conditions and
neighborhood characteristics, competition from other self-storage properties,
changes in interest rates and in the availability, cost and terms of mortgage
funds, the impact of present or future legislation and regulatory compliance,
including the costs of compliance with environmental, zoning and land use and
fire and safety regulations as well as building codes and other laws, rules and
regulations affecting the Company's facilities, the ongoing need for capital
improvements, changes in real estate tax rates and other operating expenses,
adverse changes in governmental rules and fiscal policies, civil unrest, acts of
God, including earthquakes and other natural disasters (which may result in
uninsured losses), acts of war, and other factors which are beyond the control
of the Company.

Illiquidity of Real Estate May Limit its Value. Real estate investments are
relatively illiquid. The ability of the Company to vary its portfolio in
response to changes in economic and other conditions is limited. There can be no
assurance that the Company will be able to dispose of an investment when it
finds disposition advantageous or necessary or that the sale price of any
disposition will recoup or exceed the amount of the Company's investment.

Uninsured and Underinsured Losses Could Result in Loss of Value of Facilities.
The Company maintains comprehensive insurance on each of its facilities,
including liability, fire and extended coverage. Management believes this
coverage is of the type and amount customarily obtained for or by an owner on
real property. However, there are certain types of losses, generally of a
catastrophic nature, such as earthquakes and floods, that may be uninsurable or
not economically insurable, as to which the Company's facilities are at risk in
their particular locales. The Company's management uses its discretion in
determining amounts, coverage limits and deductibility provisions of insurance,
with a view to requiring appropriate insurance on the Company's investments at a
reasonable cost and on suitable terms. This may result in insurance coverage
that in the event of a substantial loss would not be sufficient to pay the full
current market value or current replacement cost of the Company's lost
investment. Inflation, changes in building codes and ordinances, environmental
considerations, and other factors also might make it unfeasible to use insurance
proceeds to replace a facility after it has been damaged or destroyed. Under
such circumstances, the insurance proceeds received by the Company might not be
adequate to restore its economic position with respect to such property.

Possible Liability Relating to Environmental  Matters.  The Company may be
subject to liability under various  environmental laws as an owner or operator
of real estate.  See "Business - Operating Practices - Environmental Matters."

         Anti-Takeover Measures

The Company's Charter and By-laws and Tennessee law include a number of
provisions that could have the effect of discouraging a takeover or other
transaction in which shareholders of the Company 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, including: (i) a prohibition on
direct or constructive ownership of more than 9.8% of the outstanding shares of
Common Stock by any person (except USRealty, which may acquire up to 42.5% of
the Company's Common Stock); (ii) the capacity to issue "blank check" preferred
stock with terms and preferences established by the Board of Directors; and
(iii) the Tennessee Investor Protection Act, Business Combination Act and
Greenmail Act, which impose certain restrictions and require certain procedures
with respect to certain takeover offers and business combinations.



<PAGE>


Item 2.    Properties

The following are definitions of terms used throughout this discussion in
analyzing the Company's business. "Physical occupancy" is the total net rentable
square feet rented as of the date computed divided by the total net rentable
square feet available. "Economic occupancy" is determined by dividing the
expected income by the gross potential income. "Gross potential income" is the
sum of all units available to rent at a facility multiplied by the market rental
rate applicable to those units as of the date computed. "Expected income" is the
sum of the monthly rent being charged for the rented units at a facility as of
the date computed. "Rent per square foot" is the annualized result of dividing
gross potential income on the date computed by total net rentable square feet.

Self-Storage Facilities

The Company's self-storage facilities offer customers fully-enclosed units,
which are for their exclusive use and to which they control access by furnishing
their own locks. The average size of a Company-owned facility is 65,000 square
feet and contains an average of 620 units. At December 31, 1997, the average
rent per square foot for the Company-owned facilities was $9.90. The average
direct expense per square foot for Company owned facilities is $2.39. Based on
surveys performed by the Company in the third quarter of 1997, the Company's
client base is 63% residential and 37% commercial. The average length of stay of
a commercial tenant is 26.4 months and for a residential tenant is 8.2 months.
At December 31, 1997, the average occupancy of the 360 facilities owned by the
Company was 84% physical and 76% economic.

The Company's self-storage facilities are located near major business and
residential areas, and generally are clearly visible and easily accessible from
major traffic arteries. They are generally protected by computer-controlled
access gates, door alarm systems and video cameras. These facilities are
typically constructed of one-story 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 and to protect items from damage. Sites have
wide drive aisles to accommodate most vehicles. The Company's facilities are
designed to be aesthetically pleasing, are kept clean and in good repair by
friendly, trained managers, and are open for service during hours and on days
convenient to tenants and prospective tenants. At most of the facilities, a
property manager lives in an apartment located on site. Climate-controlled space
is offered in many facilities for storing items that are sensitive to extreme
humidity or temperature. Some of the facilities provide paved secure storage
areas for recreational vehicles, boat and commercial vehicles. All facilities
offer reception of deliveries for commercial customers. The facilities generally
contain 400 to 1,000 units varying in size from 25 to 400 square feet. The
majority of the Company's tenants are individuals, ranging from high-income
homeowners to college students, who typically store furniture, appliances and
other household and personal items. Commercial users range from sales
representatives and distributors storing inventory to small businesses that
typically store equipment, records and seasonal items. The facilities generally
have a diverse tenant base of 500 to 600 tenants, with no single tenant
occupying more than one to two percent of the net rentable square feet of a
facility.

Capital Expenditures and Maintenance

Due to the type of simple structures and durable materials used for the
facilities, property maintenance is minimal as compared to other types of real
estate investments. The majority of the Company's facilities are one story, with
either tilt-up concrete or masonry load-bearing walls, easily moved steel
interior walls, and metal roofs. 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 tenant vehicles). Maintenance within
a storage unit between leasing typically consists of sweeping out the unit and
changing a light bulb. Maintenance is the responsibility of the facility manager
who resides in the apartment located at most of the facilities.


<PAGE>



Markets

<TABLE>
<CAPTION>

                        Number of       Available           Available          Physical             Rent Per            Economic
 State                  Properties          Units         Square Feet         Occupancy          Square Foot           Occupancy
----------------------------------------------------------------------------------------------------------------------------------

<S> <C>

 Alabama                   2                 874             110,612             88.2%            $   8.04                81.1%
 Arizona                  19              11,264           1,100,276             80.7%            $   8.66                75.5%
 California               78              57,749           5,777,482             87.4%            $  10.42                76.5%
 Colorado                  2               1,382             158,055             79.5%            $   8.65                76.5%
 Connecticut               7               4,591             530,659             88.6%            $  11.11                82.2%
 District of Columbia      1               1,402             107,405             82.6%            $  16.28                80.6%
 Delaware                  1                 624              71,720             86.8%            $  11.88                79.0%
 Florida                  29              24,181           2,257,911             80.8%            $  11.78                74.5%
 Georgia                   6               3,660             418,817             75.0%            $   8.64                67.0%
 Illinois                  1                 625              76,191             67.5%            $   9.52                54.4%
 Indiana                  22               8,916           1,010,984             79.4%            $   6.75                72.0%
 Kansas                    4               1,685             200,805             85.8%            $   8.60                81.6%
 Kentucky                  6               2,522             279,755             77.9%            $   7.04                69.1%
 Massachusetts            12               5,796             693,430             88.8%            $   9.98                80.2%
 Maryland                 12               8,892             857,660             89.0%            $  14.17                82.1%
 Michigan                  7               4,140             442,577             87.5%            $   9.30                76.4%
 Missouri                  2                 955             104,870             92.2%            $   7.40                93.1%
 North Carolina            6               3,671             400,769             78.6%            $   7.05                73.3%
 New Jersey               15               9,566           1,021,474             86.7%            $  13.98                81.1%
 New Mexico               10               5,066             501,437             71.4%            $   8.38                62.9%
 Nevada                    8               4,578             540,630             83.1%            $   8.57                75.4%
 New York                  6               3,466             316,911             86.3%            $  10.81                81.3%
 Ohio                     20               8,712           1,172,659             78.3%            $   6.94                69.0%
 Oklahoma                 16               7,962             949,434             84.0%            $   5.94                78.0%
 Oregon                    3               2,172             205,235             83.1%            $  11.07                74.5%
 Pennsylvania              8               5,077             506,800             87.0%            $  11.64                79.0%
 Tennessee                26              13,792           1,589,601             80.4%            $   8.91                71.6%
 Texas                    15              10,283           1,138,376             84.8%            $   8.13                77.4%
 Utah                      3               1,576             196,635             81.2%            $   7.27                75.2%
 Virginia                 12               7,734             723,085             85.1%            $  13.91                78.3%
 Washington                1                 582              62,550             89.0%            $   8.01                80.0%
                         -------------------------------------------------------------------------------------------------------
 Grand Total             360             223,495          23,524,805             83.8%            $   9.90                76.2%
                         =======================================================================================================
</TABLE>

Item 3.    Legal Proceedings.

The Company is the subject of a purported national class action filed on
September 25, 1997, in the Superior Court of the District Of Columbia, Nelda
Perkins v. Storage USA, Inc., Civil Action No. 97-CA97426, seeking recovery of
certain late fees paid by Company tenants since September 1993, treble damages,
unspecified punitive damages and an injunction against further assessment of
similar fees. The Company filed its initial response in the case, believes it
has defenses to the claims and intends to defend the suit vigorously. While the
ultimate resolution of this case cannot be currently determined, management
believes that the aggregate liability or loss, if any, resulting from this claim
will not have a material adverse effect on its financial position. However, if
durirng any period the potential contingency should become probable, the results
of operations in that period could be materially affected.

Item 4.    Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of the Company's shareholders during the
last quarter of its fiscal year ended December 31, 1997.


<PAGE>



                                     PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters.

Incorporated herein by reference from the caption "Price Range of Common Stock
and Dividends" appearing in the Company's 1997 Annual Report to Shareholders,
the relevant portion of which is attached hereto as Exhibit 13. Information
regarding the Company's dividend policy is included in Item 7. On November 6,
1997, the Company issued 91,966 shares of its common stock to four individuals
in exchange for their interest in certain self-storage facilities. The shares
were issued in a private transaction in reliance on the exemption from
registration provided by section 4(2) of the Securities Act of 1933.

Item 6.   Selected Financial Data.

Incorporated herein by reference from the caption "Selected Financial Data"
appearing in the Company's 1997 Annual Report to Shareholders, the relevant
portion of which is attached hereto as Exhibit 13.

Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operation.

Incorporated herein by reference from the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing in the
Company's 1997 Annual Report to Shareholders, the relevant portion of which is
attached hereto as Exhibit 13.

Item 8.   Financial Statements and Supplementary Data.

The Company's Financial Statements and Supplementary Data for the year ended
December 31, 1997, are incorporated herein by reference from the Company's 1997
Annual Report to Shareholders, the relevant portion of which is attached hereto
as Exhibit 13.

Item 9.   Changes in and Disagreements With Accountants on Accounting and
          Financial Disclosure.

None.

                                    PART III

Item 10.     Directors and Executive Officers of the Registrant:
             at March 25, 1998


The information required hereunder is incorporated herein by reference from the
captions "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's definitive proxy statement to be filed
with respect to its Annual Meeting of Shareholders.

The following information relates to executive officers of the Company who are
not also directors:

         Dennis A. Reeve has been Chief Financial Officer of the Company since
June 1, 1997. Mr. Reeve was a Director of the Company from April 13, 1994 until
his appointment as Chief Financial Officer. From 1994 until June 1, 1997, Mr.
Reeve was President of Sparks Capital Corporation, a NASD general securities
broker/dealer. In 1992 and 1993 Mr. Reeve worked as a private consultant.

         Douglas  Chamberlain  has been  Executive  Vice  President, Development
of the Company since March 1994 and President and Chief  Operating Officer of
Storage USA  Construction  Corp.  since March 1989.  Mr. Chamberlain holds a
Masters degree in Structural Engineering from the University of Maryland.

         Karl Haas has been  Executive Vice  President,  Management of the
Company since March 1994. He was Executive Vice President of Storage USA
Management  Corp. from October 1988 until November 1991,  when he became its
President and Chief  Operating  Officer. Mr. Haas  received his Bachelor of
Science  degree in Accounting  from the  University of Maryland,  is a Certified
Public Accountant and worked for the accounting firm of Arthur Young & Co. for
ten years.

         Morris J. Kriger has been Executive Vice President of the Company since
March of 1996, and is responsible for Acquisitions. Mr. Kriger holds a Bachelors
Degree in Industrial Management from MIT and received his Juris Doctorate from
Harvard Law School. Mr. Kriger has more than 30 years experience in practical
real estate law and lending law, representing developers and lenders in a
variety of real estate types throughout the United States. Mr. Kriger has also
served as General Counsel to two prestigious real estate companies.

         Christopher Marr became Senior Vice President, Finance and Accounting
of the Company on July 1, 1997. Prior to that, Mr. Marr was Vice President,
Financial Reporting and Controller of the Company from August 1, 1994. From 1986
to July 1994, Mr. Marr worked for the accounting firm of Coopers & Lybrand, from
1992 through 1994 as a senior manager. Mr. Marr holds a Bachelor of Arts degree
in Accounting from Loyola College, Baltimore, Maryland, and is a Certified
Public Accountant.

<PAGE>


         Richard B. Stern has been Senior Vice President,  Development  since
July of 1996. Prior to joining the Company,  Mr. Stern held Senior Executive
positions with Kemper  Corporation,  Baird & Warner and Balcor. Mr. Stern holds
a B.A. in Urban Planning from the University if Illinois and an M.A. in
Geography from Northeastern Illinois University.

         Buck Brown has been Senior Vice President, Human Resources since
February of 1998. Prior to joining the Company, Mr. Brown held various positions
at AutoZone, Inc., most recently Vice President of Human Resources.

Item 11.     Executive Compensation.

Incorporated herein by reference from the caption "Election of Directors -
Executive Compensation" in the Company's definitive proxy statement to be filed
with respect to its Annual Meeting of Shareholders.

Item 12.     Security Ownership of Certain Beneficial Owners and Management.

Incorporated herein by reference from the caption "Election of Directors -
Beneficial Ownership of Company Common Stock" in the Company's definitive proxy
statement to be filed with respect to its Annual Meeting of Shareholders.

Item 13.     Certain Relationships and Related Transactions.

Incorporated herein by reference from the caption "Election of Directors -
Certain Transactions" in the Company's definitive proxy statement to be filed
with respect to its Annual Meeting of Shareholders.



<PAGE>


PART IV

Item 14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

           (a) The following documents are filed as a part of this report and
           are hereby incorporated by reference from the Company's 1997 Annual
           Report to Shareholders, excerpts from which are attached hereto as 
           Exhibit 13:


1.   Financial Statements:
     Report of Coopers & Lybrand L.L.P.

     Balance sheets as of December 31, 1997 and 1996

     Statements of operations for the years ended December 31, 1997, 1996
     and 1995

     Statements of cash flows for the years ended December 31, 1997, 1996
     and 1995

     Statements of shareholders' equity for the years ended December 31, 1997,
     1996 and 1995

     Notes to consolidated financial statements

     Supplementary information on quarterly financial data (unaudited)
     Selected Financial Data

     Schedule III, Real Estate and Accumulated Depreciation as of December
     31, 1997

     Report of Independent Accountants




         All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the financial
statements and notes thereto.

(b)     Reports on Form 8-K

         On October 6, 1997, the Company filed an amendment to its Current
Report on Form 8-K, filed September 17, 1997. The amendment included the
following historical and pro forma financial statements with respect to the 9
self-storage facilities referred to in the filing.

           Financial Statements Applicable to Real Estate Properties Acquired:

           o          Report of Independent Accountants
           o          Acquisition Facilities Historical Summaries of Combined
                      Gross Revenue and Direct Operating Expenses for the year
                      ended December 31, 1996 (Audited), and for the six months
                      ended June 30, 1997 (Unaudited).
           o          Notes to Historical Summaries of Combined Gross Revenue
                      and Direct Operating Expenses

           Pro Forma Financial Information:

           o          Unaudited Pro-Forma Combined Condensed Balance Sheet as of
                      June 30, 1997.
           o          Unaudited Pro-Forma Combined Condensed Statement of
                      Operation for the six months ended June 30, 1997.
           o          Unaudited Pro-Forma Combined Condensed Statement of
                      Operations for the year ended December 31, 1996.
           o          Notes to Unaudited Pro-Forma Combined Condensed Financial
                      Statements.

<PAGE>


         On November 21, 1997, the Company filed its current report on Form 8-K.
The filing included certain information with respect to the 37 self-storage
facilities referred to in the filing.

         On November 25, 1997, the Company filed an amendment to its Current
Report on Form 8-K, filed on November 21, 1997. The amendment included the
following historical and pro forma financial statements with respect to the 37
self-storage facilities referred to in the filing.

           Financial Statements Applicable to Real Estate Properties Acquired:

           o          Report of Independent Accountants
           o          Acquisition Facilities Historical Summaries of Combined
                      Gross Revenue and Direct Operating Expenses for the year
                      ended December 31, 1996 (Audited), and for the nine months
                      ended September 30, 1997 (Unaudited).
           o          Notes to Historical Summaries of Combined Gross Revenue
                      and Direct Operating Expenses

           Pro Forma Financial Information:

           o          Unaudited Pro-Forma Combined Condensed Balance Sheet as of
                      September 30, 1997.
           o          Unaudited Pro-Forma Combined Condensed Statement of
                      Operation for the nine months ended September 30, 1997.
           o          Unaudited Pro-Forma Combined Condensed Statement of
                      Operations for the year ended December 31, 1996.
           o          Notes to Unaudited Pro-Forma Combined Condensed Financial
                      Statements.


(c)     Exhibits

         The following exhibits are filed as part of this report:

Exhibit No.                         Description

        3.1      Amended and Restated Charter of Storage USA, Inc. (the
                 "Company"), (filed as Exhibit 3.1 to the Company's Registration
                 Statement on Form S-3 (File No. 333-44641), and
                 incorporated by reference herein).

        3.2*     Restated and Amended Bylaws of the Company.

          4*     Specimen Common Stock Certificate.

       10.1*     Agreement between the Company and certain executive
                 officers prohibiting conflicting self-storage interests.

       10.2*     Company's Omnibus Stock Option Plan.

       10.3*     SUSA Partnership, L.P. (the "Partnership") 401(k) Savings Plan.

       10.4**    Form of Registration Rights Agreement relating to
                 Partnership unit issuances in 1994.

       10.5++    Form of Agreement of General Partners relating to certain
                 Partnership unit issuances in 1995 and schedule of
                 beneficiaries.

       10.6++    Form of Registration Rights Agreement relating to certain
                 issuances of Partnership units after 1994 and schedule of
                 beneficiaries.

       10.7++    Form of Stock Purchase Agreement in connection with the 1995
                 Employee Stock Purchase and Loan Plan, and schedule of
                 participants.

       10.8++    Form of Promissory Note in connection with the 1995
                 Employee Stock Purchase and Loan Plan, and schedule of
                 issuers.


<PAGE>



       10.9++++  Second Amended and Restated Agreement of Limited
                 Partnership of the Partnership, dated as September 21, 1994
                 (the "Partnership Agreement").

       10.10     First Amendment to the Partnership Agreement, dated March
                 19, 1996 (filed as Exhibit 10.3 to the Company's Current
                 Report on Form 8-K/A, filed April 1, 1996, and incorporated
                 by reference herein).

       10.11     Second Amendment to the Partnership Agreement, dated as of
                 June 14, 1996 (filed as Exhibit 10.0 to the Company's
                 Current Report on Form 8-K/A filed July 17, 1996, and
                 incorporated by reference herein).

       10.12     Third Amendment to Partnership Agreement, dated as of
                 August 14, 1996 (filed as Exhibit 10.1 to the Company's
                 Amendment No. 1 to a Registration Statement on Form S-3
                 (File No. 333-04556), and incorporated by reference
                 herein).

       10.13     Strategic Alliance Agreement, dated as of March 1, 1996,
                 between the Company and Security Capital Holdings S.A. and
                 Security Capital U.S. Realty (filed as Exhibit 10.1 to the
                 Company's Current Report on Form 8-K, filed on April 1,
                 1996, and incorporated by reference herein).

       10.14     Amendment No. 1 to Strategic Alliance Agreement, dated June 14,
                 1996, between the Company, the Partnership, Storage USA Trust,
                 Security Capital U.S. Realty and Security Capital Holdings,
                 S.A. (filed as Exhibit 10.2 to the Company's Amendment No. 1 to
                 Registration Statement on Form S-3 (File No. 333-04556), and
                 incorporated by reference herein).

       10.15     Registration Rights Agreement, dated as of March 19, 1996,
                 between the Company, Security Capital Holdings, S.A. and
                 Security Capital U.S. Realty (filed as Exhibit 10.2 to the
                 Company's Current Report on Form 8-K, filed on April 1,
                 1996, and incorporated by reference herein).

       10.16     Indenture, dated November 1, 1996, between the Partnership
                 and First National Bank of Chicago, as Trustee (filed as
                 Exhibit 10.1 to the Company's Current Report on Form 8-K,
                 filed on November 8, 1996, and incorporated by reference
                 herein).

       10.17+    First Amendment to the Adoption Agreement for the Company's
                 401(k) Plan.

       10.18     Amended and Restated Revolving Credit Agreement dated
                 December 23, 1997 (filed as an exhibit to the Company's
                 current Report on Form 8-K, filed on January 20, 1998,
                 and incorporated by reference herein.

          13     Relevant portions of the Company's 1997 Annual Report to
                 Shareholders are filed herewith.

          21     Subsidiaries of Registrant.

          23     Consent of Coopers & Lybrand L.L.P.

          27.1   Financial Data Schedule - 1997

          27.2   Financial Data Schedule - 1997 (First three quarters)

          27.3   Financial Data Schedule - 1996

          27.4   Financial Data Schedule - 1995

*          Filed as an Exhibit to the Company's Registration Statement on Form
           S-11, File No. 33-74072, as amended, and incorporated by reference
           herein.
**         Filed as an Exhibit to the Company's Registration Statement on Form
           S-11, File No. 33-82764, as amended, and incorporated by reference
           herein.
***        Filed as an Exhibit to the Company's Annual Report on Form 10-K for
           the

<PAGE>

           fiscal year ended December 31, 1994, and incorporated by
           reference herein.
+          Filed as an Exhibit to the Company's Annual Report on Form 10-K for
           the fiscal year ended December 31, 1995, and incorporated by
           reference.
++         Filed as an Exhibit to the Company's Current Report on Form 8-K, as
           amended to Form 8-K/A Filed November 17, 1995, and incorporated by
           reference herein.
++         Filed as an Exhibit to the Company's Current Report on Form 8-K,
           filed May 30, 1995, and incorporated by reference herein.
++++       Filed as an Exhibit to the Company's Registration Statement on Form
           S-3, File No. 33-91302, and incorporated by reference herein.




<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                STORAGE USA, INC.

                                By:  /s/ Dennis A. Reeve
                                     -------------------
                                     Dennis A. Reeve
                                     Chief Financial Officer
                                     (Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>


                          Signature                                  Title                                            Date
                          ---------                                  -----                                            ----
<S> <C>
                      /s/ DEAN JERNIGAN                       Chairman of the Board of Directors                 March 27, 1998
                 ----------------------------                 Chief Executive Officer & President (Principal
                          Dean Jernigan                       Executive Officer)

                      /s/ CHRISTOPHER P. MARR                 (Principal Accounting Officer)                     March 27, 1998
                 ----------------------------
                          Christopher P. Marr

                      /s/ HOWARD P. COLHOUN                   Director                                           March 27, 1998
                 ----------------------------
                          Howard P. Colhoun

                      /s/ C. RONALD BLANKENSHIP               Director                                           March 27, 1998
                 ----------------------------
                          C. Ronald Blankenship

                      /s/ HARRY J. THIE                       Director                                           March 27, 1998
                 ----------------------------
                          Harry J. Thie

                      /s/ MARK JORGENSEN                      Director                                           March 27, 1998
                 ----------------------------
                          Mark Jorgensen

                      /s/ JOHN P. MCCANN                      Director                                           March 27, 1998
                 ----------------------------
                          John P. McCann

                      /s/ WILLIAM D. SANDERS                  Director                                           March 27, 1998
                 ----------------------------
                          William D. Sanders

                      /s/ CAROLINE S. MCBRIDE                 Director                                           March 27, 1998
                 ----------------------------
                          Caroline S. McBride

                      /s/ ALAN B. GRAF, JR.                   Director                                           March 27, 1998
                 ----------------------------
                          Alan B. Graf, Jr.

</TABLE>


<PAGE>


                                  EXHIBIT INDEX

   Exhibit No.               Description
   -----------               -----------
      3.1     Amended and Restated Charter of Storage USA, Inc. (the "Company"),
              (filed as Exhibit 3.1 to the Company's Registration Statement on
              Form S-3 (File No. 333-44641), and incorporated by reference
              herein).

      3.2*    Restated and Amended Bylaws of the Company.

        4*    Specimen Common Stock Certificate.

     10.1*    Agreement between the Company and certain executive
              officers prohibiting conflicting self-storage interests.

     10.2*    Company's Omnibus Stock Option Plan.

     10.3*    SUSA Partnership, L.P. (the "Partnership") 401(k) Savings Plan.

     10.4**   Form of Registration Rights Agreement relating to
              Partnership unit issuances in 1994.

     10.5++   Form of Agreement of General Partners relating to certain
              Partnership issuances in 1995 and schedule of
              beneficiaries.

     10.6++   Form of Registration Rights Agreement relating to certain
              issuances of Partnership units after 1994 and schedule of
              beneficiaries.

     10.7++   Form of Stock Purchase Agreement in connection with the 1995
              Employee Stock Purchase and Loan Plan, and schedule of
              participants.

     10.8++   Form of Promissory Note in connection with the 1995
              Employee Stock Purchase and Loan Plan, and schedule of
              issuers.

     10.9++++ Second Amended and Restated Agreement of Limited
              Partnership of the Partnership, dated as September 21,
              1994 (the "Partnership Agreement").

     10.10    First Amendment to the Partnership Agreement, dated March
              19, 1996 (filed as Exhibit 10.3 to the Company's Current
              Report on Form 8-K, filed April 1, 1996, and incorporated
              by reference herein).

     10.11    Second Amendment to the Partnership Agreement, dated as of
              June 14, 1996 (filed as Exhibit 10.0 to the Company's
              Current Report on Form 8-K/A filed July 17, 1996, and
              incorporated by reference herein).

     10.12    Third Amendment to Partnership Agreement, dated as of August
              14, 1996 (filed as Exhibit 10.1 to the Company's Amendment
              No. 1 to a Registration Statement on Form S-3 (File No.
              333-04556), and incorporated by reference herein).

     10.13    Strategic Alliance Agreement, dated as of March 1, 1996,
              between the Company and Security Capital Holdings S.A. and
              Security Capital U.S. Realty (filed as Exhibit 10.1 to the
              Company's Current Report on Form 8-K, filed on April 1,
              1996, and incorporated by reference herein).

     10.14    Amendment No. 1 to Strategic Alliance Agreement, dated June 14,
              1996, between the Company, the Partnership, Storage USA Trust,
              Security Capital U.S. Realty and Security Capital Holdings, S.A.
              (filed as Exhibit 10.2 to the Company's Amendment No. 1 to
              Registration Statement on Form S-3 (File No. 333-04556), and

<PAGE>


              incorporated by reference herein).

     10.15    Registration Rights Agreement, dated as of March 19, 1996,
              between the Company, Security Capital Holdings, S.A. and
              Security Capital U.S. Realty (filed as Exhibit 10.2 to the
              Company's Current Report on Form 8-K, filed on April 1,
              1996, and incorporated by reference herein).

     10.16    Indenture, dated November 1, 1996, between the Partnership
              and First National Bank of Chicago, as Trustee (filed as
              Exhibit 10.1 to the Company's Current Report on Form 8-K,
              filed on November 8, 1996, and incorporated by reference
              herein).

     10.17+   First Amendment to the Adoption Agreement for the Company's
              401(k) Plan.

     10.18    Amended and Restated Revolving Credit Agreement dated
              December 23, 1997 (filed as an exhibit to the Company's
              current Report on Form 8-K, filed on January 20, 1998, and
              incorporated by reference herein.


     13       Relevant portions of the Company's 1997 Annual Report to
              Shareholders are filed herewith.

     21       Subsidiaries of Registrant.

     23       Consent of Coopers & Lybrand L.L.P.

     27.1     Financial Data Schedule - 1997

     27.2     Financial Data Schedule - 1997 (First three quarters)

     27.3     Financial Data Schedule - 1996

     27.4     Financial Data Schedule - 1995

*          Filed as an Exhibit to the Company's Registration Statement on Form
           S-11, File No. 33-74072, as amended, and incorporated by reference
           herein.
**         Filed as an Exhibit to the Company's Registration Statement on Form
           S-11, File No. 33-82764, as amended, and incorporated by reference
           herein.
***        Filed as an Exhibit to the Company's Annual Report on Form 10-K for
           the fiscal year ended December 31, 1994, and incorporated by
           reference herein.
+          Filed as an Exhibit to the Company's Annual Report on Form 10-K for
           the fiscal year ended December 31, 1995, and incorporated by
           reference.
++         Filed as an Exhibit to the Company's Current Report on Form 8-K, as
           amended to Form 8-K/A Filed November 17, 1995, and incorporated by
           reference herein.
++         Filed as an Exhibit to the Company's Current Report on Form 8-K,
           filed May 30, 1995, and incorporated by reference herein.
++++       Filed as an Exhibit to the Company's Registration Statement on Form
           S-3, File No. 33-91302, and incorporated by reference herein.