Exhibit 13


Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations
                               Storage USA, Inc.

All statements contained herein that are not historical facts, including but not
limited to, statements regarding  anticipated future development and acquisition
activity,  the impact of  anticipated  rental rate  increases  on the  Company's
revenue growth,  the Company's 1997 budgeted  revenues and expenses,  and future
capital requirements,  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  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 the
Company's markets resulting in over-supply thereby lowering rental and occupancy
rates; the availability 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 the other risk factors described in the Company's reports filed
from time to time with the  Securities  and  Exchange  Commission.  The  Company
cautions  readers  not to  place  undue  reliance  on any such  forward  looking
statements,  which  statements  are  made  pursuant  to the  Private  Securities
Litigation Reform Act of 1995 and, as such, speak only as of the date made.

The following  discussion and analysis of the consolidated  financial  condition
and results of operations  should be read in conjunction  with the  Consolidated
Financial  Statements  and  Notes  thereto.  As  discussed  in  Note  1  to  the
Consolidated Financial Statements,  the Company's 1994 results of operations are
presented  from  March  24,  1994,  the date  following  the  completion  of the
Company's  initial  public  offering  (the "IPO") and  conversion to real estate
investment  trust ("REIT")  status,  through  December 31, 1994 (the  "Period").
References  to the  "Company"  include SUSA  Partnership,  L.P.,  the  Company's
principal operating subsidiary (the "Operating Partnership").

Due to the  substantial  number of facilities  acquired from the IPO to December
31,  1996,   management   believes  that  it  is  meaningful   and  relevant  in
understanding  the  present  and  ongoing  operations  of the Company to compare
information using occupancy and  per square foot information.

The following are definitions of terms used throughout this discussion analyzing
the Company's business.  Physical Occupancy is defined as the total net rentable
square feet  rented as of the date  computed  divided by the total net  rentable
square feet available. Gross Potential Income is defined as 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 defined as the sum of
the monthly rent being charged for the rented units at a facility as of the date
computed.  Economic  Occupancy is defined as the Expected  Income divided by the
Gross Potential Income. Rent Per Square Foot is defined as the annualized result
of dividing  Gross  Potential  Income on the date computed by total net rentable
square feet available.  Direct  Property  Operating Cost is defined as the costs
incurred in the operation of a facility,  such as utilities,  real estate taxes,
and on-site  personnel.  Indirect  Property  Operations Cost is defined as costs
incurred in the management of all facilities,  such as accounting  personnel and
management level operations  personnel.  Net Operating Income ("NOI") is defined
as total property revenues less Direct Property Operating Costs.

Outlook:

Internal Growth Strategy:

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.  The  following  table  details  the
same-store  Physical  Occupancy  and  Rent  Per  Square  Foot at the end of each
quarter of 1996 and 1995:
<TABLE>
<CAPTION>
<S> <C>
------------------- ----------------- --------------------- ------------------- ------------------ -------------- ---------------
Quarter ended:      Number of         Physical Occupancy    Physical            Rent Per Square    Rent Per       % increase in
                    same-store        1996                  Occupancy 1995      Foot 1996          Square Foot    Rent Per
                    facilities                                                                     1995           Square Foot
------------------- ----------------- --------------------- ------------------- ------------------ -------------- ---------------
March 31            98                88%                   87%                 $9.61              $8.93          7.6%
------------------- ----------------- --------------------- ------------------- ------------------ -------------- ---------------
June 30             132               90%                   90%                 $9.59              $8.91          7.6%
------------------- ----------------- --------------------- ------------------- ------------------ -------------- ---------------
September 30        146               89%                   90%                 $9.60              $8.98          6.9%
------------------- ----------------- --------------------- ------------------- ------------------ -------------- ---------------
December 31         153               87%                   88%                 $9.61              $8.94          7.5%
------------------- ----------------- --------------------- ------------------- ------------------ -------------- ---------------
</TABLE>

The  Company  was able to  aggressively  increase  its Rent Per  Square  Foot on
facilities it has owned for at least one year,  while  maintaining  its Physical
Occupancy.  This can be attributed, in part, to Company-wide sales and marketing
programs that are  customized  for each  location by facility  managers who have
substantial authority and effective incentives. The Company's policy is to raise
rents,  both  rates  to  existing  customers  and  its  "street"  rates  for new
customers,  at all of its  facilities  at least  once a year  regardless  of the
occupancy  level.  This  increase  typically  takes  place  in the  Spring,  the
beginning of the Company's  highest  rental  season.  The Company  increases its
street rates throughout the year, based on facts and circumstances at individual
facilities.  The 1% decline in Physical  Occupancy  at the end of both the third
and fourth quarters represents less than one thousand self-storage units and can
be  attributed,  in  part,  to the  Company  increasing  rates  during  1996  at
facilities  acquired  during the last six months of 1995.  Historically,  as the
Company implements its rate policies at acquisition facilities, existing tenants
paying lower rental rates may vacate,  to be replaced by tenants  leasing  under
the Company's higher rate structure.

The greater than 7% increases in same-store Rent Per Square Foot translated into
1996  total  same-store  revenue  growth  of 7.7%,  or $3.8  million  over  1995
same-store  total  revenues  of $ 49.2  million.  Revenues  include  late  fees,
administration  fees, lock and packaging income, and other miscellaneous  income
that account for the fact that total same-store  revenue growth was greater than
same-store Rent Per Square Foot growth.

The  Company  anticipates  same-store  revenue  growth  will  slow in  1997,  as
facilities  the Company  has owned for two or more years will  comprise a larger
percentage of the same-store pool of facilities during 1997.  Revenue growth for
a facility generally is greatest in the first year following  acquisition as the
Company  implements  its higher base rate  structure.  The  Company  anticipates
generating  same-store  revenue growth of approximately 5.5% in 1997, subject to
the risks discussed above.

External Growth Strategy:

The Company  continued  executing  its strategy of acquiring  suitably  located,
under  performing  facilities  that offer upside  potential due to low occupancy
rates  or  non  premium   pricing,   and  by  developing  and  constructing  new
self-storage  facilities  in  favorable  markets.  During the year,  the Company
invested $304 million in acquiring 82 facilities  containing  5.4 million square
feet.  The Company  remains  committed to its policy of acquiring  facilities at
projected  annual  capitalization  rates ("Cap  Rates") of not less than 10% and
generally  is  acquiring  properties  at  Cap  Rates  between  10.0-10.5%.   The
acquisition  facilities  continued  to realize  their upside  potential.  The 96
facilities the Company owned at December 31, 1994 generated  returns of 12.3% in
1995, 13.1% in 1996 (calculated by dividing NOI by the total  acquisition  costs
of the facilities), and the Company is budgeting a return of approximately 14.1%
on these  facilities  in 1997.  In 1997,  the Company has budgeted to invest its
acquisition  capital at the same levels as in the prior three years,  seeking to
acquire between 65 and 75 facilities.  The Company's  acquisitions  entail risks
that  investments  will fail to perform as  expected  and that  judgements  with
respect to acquisition  prices and costs of improvements will be inaccurate,  as
well as general real estate investment risks.

In addition to its  acquisitions  during the year,  the Company opened two newly
developed  facilities in northern Virginia totaling 123 thousand square feet for
a cost of $9 million.  The Company also  completed  expansions  to five existing
facilities, adding 129 thousand square feet. The Company's minimum internal rate
of return on investment on development opportunities is 12.5%. The 1997 budgeted
un-leveraged  return  on the two  facilities  opened  during  1996 is  8.8%.  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  lease terms,  all of which could
reduce the Company's return.

The Company  believes that its external growth strategy is enhanced by favorable
supply and demand  conditions.  According to industry data, there were less than
four  hundred  construction  starts  in  1996.  Barriers  to  entry,   including
availability  of  development  capital  and  the  absence  in  many  markets  of
appropriate  zoning for  self-storage,  contribute to the  favorable  supply and
demand balance in the business.  Based on Company surveys,  52% of its customers
are first time users.  The Company  believes  that this low market  penetration,
along  with  improving  product  quality  and  development  of a  more  educated
consumer,  will continue to validate its external growth  strategy.  At December
31,  1996,  the Company had $17.9  million of  development  in progress  and the
Company had plans to develop 21 new  facilities  containing  1.7 million  square
feet.  Expansions  are  planned  for 23 existing  facilities.  Of these,  12 new
construction  projects and 18 expansions are underway with total estimated costs
of $66.8 million.  These 30 projects have expected completion dates ranging from
the second quarter of 1997 through the first quarter of 1998.


Capital Strategy:

The Company expects to finance its external growth  strategy  primarily  through
the issuance of debt and equity  securities.  On February 19, 1997,  the Company
and the Operating  Partnership filed a joint shelf  registration  statement with
the Securities and Exchange  Commission  relating to $450 million of securities,
including  up to $250  million  of common  stock,  preferred  stock,  depository
shares,  and  warrants  of the  Company  and up to $200  million  of  unsecured,
nonconvertable  senior  debt  securities  of  the  Operating   Partnership.   An
additional $150 million of unsecured,  nonconvertable senior debt securities are
issuable  under  the  Operating   Partnership's   existing  shelf   registration
statement,  permitting the Company and the Operating  Partnership to issue up to
$600 million of securities.

The  Company  anticipates  using its lines of  credit  as an  interim  source of
acquisition funds,  repaying the credit lines with long-term debt or equity when
management determines market conditions are favorable.

Results of Operations:
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

In  1996,  the  Company  reported  growth  in  revenue,   income  from  property
operations, and net income,  respectively,  of $39.3 million, $20.2 million, and
$14.4 million over the prior period.  These significant  increases are primarily
attributable to the Company's implementation of its internal and external growth
strategies.

 Facility  acquisitions during 1996, by quarter,  were as follows (in thousands,
except number of facilities):
<TABLE>
<CAPTION>
<S> <C>
------------------------------------- --------------------- --------------------------- ----------------------------

                                      Number of Facilities             Cost              Net Rentable Square Feet
------------------------------------- --------------------- --------------------------- ----------------------------
                                                                                                                419
    Quarter ended March 31, 1996               6                               $21,960
------------------------------------- --------------------- --------------------------- ----------------------------
                                                                                91,754                        1,666
    Quarter ended June 30, 1996                26
------------------------------------- --------------------- --------------------------- ----------------------------
                                                                                85,588                        1,599
  Quarter ended September 30, 1996             23
------------------------------------- --------------------- --------------------------- ----------------------------
                                                                               104,610                        1,717
  Quarter ended December 31, 1996              27
------------------------------------- --------------------- --------------------------- ----------------------------
                                                                               303,912                        5,401
               Total                           82
------------------------------------- --------------------- --------------------------- ----------------------------
</TABLE>


These acquisitions  added 55 thousand units,  bringing the total square feet and
units of the 242  facilities  owned by the Company at December 31, 1996 to 16.37
million and 160  thousand,  respectively.  At  December  31,  1996,  the average
occupancy  of the 242  facilities  was 86%  Physical  and 79%  Economic  with an
average Rent Per Square Foot of $9.73.  For the 153 comparable  facilities owned
by the company since December 31, 1995,  average  occupancy was 87% Physical and
80%  Economic,  compared to 88% Physical  and 81% Economic a year ago.  Rent Per
Square Foot  increased  7.5%,  rising to $9.61 from $8.94 a year ago. Same store
revenues were $52.96 million in 1996, a 7.7% increase over the $49.19 million in
1995. The majority of this increase is attributable to increases in rental rates
as occupancy remained fairly consistent.

Management income in 1996 was $701 thousand, a decline of $371 thousand from the
$1.07  million  reported  in 1995,  as the  Company  purchased  16  self-storage
facilities during 1996 that had been managed by the Company during 1995.

Other  income grew to $1.52  million in 1996,  or $1.04  million,  from the $480
thousand  reported in 1995.  The increase is primarily  caused by $365  thousand
increase  in the sale of  locks  and  boxes  and to a lessor  extent  from  $138
thousand  increase in franchise and general  contractor fees and a $222 thousand
increase in truck rental and billboard/cell tower income.

As a percentage of total revenue, rental and management income declined to 98.6%
of total revenue from 99.3% in 1995.  Other income grew to 1.4% of total revenue
from 0.7% in 1995.

Cost of property operations and maintenance was $28.03 million or 26.1% of total
revenue in 1996.  In 1995,  the  expense was $18.74  million,  or 27.2% of total
revenues.  The decline as a percent of total revenues is explained by same store
revenue growth  out-pacing  expense growth,  combined with the revenue impact of
over $100 million of late fourth quarter acquisitions.  The Company historically
benefits  in the  first  month or two  following  acquisitions  as the  revenues
precede the costs of  implementing  the  Company's  management  and  operational
strategy.  During the first three quarters of 1996,  expenses  averaged 26.5% of
revenues,  a more typical percentage.  Same -store expenses were $11.82 million,
representing 6.4% growth over the $11.12 million of expense in 1995. The expense
growth on a same -store  basis was caused by  increased  repair and  maintenance
charges and  miscellaneous  expenses,  including  postage,  printing,  and trash
removal.

Tax expense  was $8.9  million,  or 8.3% of  revenues in 1996,  compared to $4.9
million, or 7.2% of revenues in 1995. The growth in taxes is caused by increased
assessments  on  properties  acquired  during  late 1994 and 1995.  The  Company
expects the expense to at a consistant level in 1997.

Direct Property  Operating Cost was 30.4% of revenues in 1996, a slight increase
from the 29.9% in 1995. This increase is primarily attributable to the increased
property tax expense in 1996.

General  and  administrative  expense  ("G&A")  was  $4.12  million,  or 3.8% of
revenues in 1996, as compared to $2.57 million or 3.8% of revenues in 1995.  The
growth  in  the  Acquisitions,   Administration,   and  Development  departments
contributed to the majority of the dollar growth in G&A expense.

The increase in depreciation and amortization expense to $12.6 million from $8.6
million  reflects  the  Company's  acquisition  of  $304  and  $220  million  of
facilities in 1996 and 1995, respectively.

Interest  expense was $8.2 million in 1996, an increase of $5.2 million over the
$3.0 million  reported in 1995.  Interest  expense in 1996  represents  weighted
average  borrowings of $92.2  million  under the Company's  lines of credit at a
weighted  average  interest rate of 6.99% as compared to 1995  weighted  average
borrowings  and  interest  rate of $47.2  million  and  6.4%,  respectively.  In
addition,  on November 4, 1996, the Operating Partnership issued $100 million of
7.125% notes due November 1, 2003 and during the year assumed  $37.3  million of
mortgages on facilities acquired.

Interest  income grew to $687  thousand,  or 0.6% of total  revenue in 1996,  an
increase  of $521  thousand,  or 0.2% of total  revenue in 1995.  1996  interest
income  represents   primarily   earnings  on  overnight  deposits  and  amounts
outstanding  under the 1995  Employee  Stock  Purchase  and Loan  Plan.

Gain on investment of $288 thousand  represents a gain on the disposition of the
Company's  investment  in a  Jacksonville,  Florida  storage  facility  that was
exchanged for cash and two facilities located in Oklahoma.

Year Ended  December  31,  1995  Compared to Period  March 24, 1994  (inception)
through December 31, 1994

In  1995,  the  Company  reported  growth  in  revenue,   income  from  property
operations, and net income,  respectively,  of $42.2 million, $27.3 million, and
$17.2 million over the prior period. Compared to pro forma results for 1994, the
Company's revenues grew $21.0 million, income from property operations increased
$12.2 million and net income rose $5.4 million.  These significant increases are
primarily attributable to both the Company's aggressive acquisition strategy and
aggressive rental rate increases.

Facility  acquisitions  during 1995, by quarter,  were as follows (in thousands,
except number of facilities):
<TABLE>
<CAPTION>
<S> <C>
------------------------------------- --------------------- --------------------------- ----------------------------

                                      Number of Facilities             Cost              Net Rentable Square Feet
------------------------------------- --------------------- --------------------------- ----------------------------

    Quarter ended March 31, 1995               2                                $7,080                          180
------------------------------------- --------------------- --------------------------- ----------------------------

    Quarter ended June 30, 1995                34                              119,788                        2,248
------------------------------------- --------------------- --------------------------- ----------------------------

  Quarter ended September 30, 1995             14                               56,682                        1,110
------------------------------------- --------------------- --------------------------- ----------------------------

  Quarter ended December 31, 1995              13                               36,450                          890
------------------------------------- --------------------- --------------------------- ----------------------------

               Total                           63                             $220,000                        4,428
------------------------------------- --------------------- --------------------------- ----------------------------
</TABLE>

These acquisitions  added 44 thousand units,  bringing the total square feet and
units of the 159  facilities  owned by the Company at December 31, 1995 to 10.72
million and 105 thousand, respectively. For the year, the 96 facilities owned on
December  31,  1994,  provided  74%  of  the  Company's  rental  income.   These
facilities'  rental income grew 9.1% over pro forma 1994 results.  Approximately
8% of this growth was provided by rate  increases.  At December  31,  1995,  the
physical and economic occupancy and rent per square foot on these facilities was
88%,  81%,  and $9.24,  respectively.  The  Company's  portfolio  as a whole had
average occupancy at December 31, 1995 of 88% physical and 81% economic, with an
average rent per square foot of $8.93.

Management  income  increased  $365  thousand  over the prior  Period,  and $216
thousand over the 1994 pro forma results.  The pro forma  variance  reflects the
addition  of  three  managed  facilities  and  management  during  the  year  of
facilities that were subsequently purchased by the Company.

Other Income,  which consists  primarily of sales of lock and packaging products
and truck rentals,  increased 4% over the prior Period.  This increase  reflects
primarily the growth in the number of facilities owned.

Cost of property  operations  and  maintenance  was 27.2% of revenue for 1995 as
compared to 26.5% for the prior Period.  This increase  reflects the addition of
Indirect Property  Operations Cost to support the level of growth experienced in
1995 and planned in 1996.

Taxes were 7.2% of revenue for 1995 as compared to 6.5% for the prior Period and
6.8% for the pro forma results.  This growth as a percentage of revenue reflects
the impact of  reassessments  on the properties  purchased during 1994 and 1995.
The majority of the increase is  attributable to  reassessments  on acquisitions
with the  remainder  attributable  to increased  tax rates or  reassessments  on
properties  owned for a full year.  Direct Property  Operating Cost was 29.9% of
rental  income,  both on the 96  properties  owned at December  31, 1994 and the
portfolio as a whole. The property level margins  remained  consistent from 1994
to 1995.

G&A expense  declined as a percentage  of total revenue as compared to the prior
Period and was  consistent as compared to the 1994 pro forma  results.  1995 G&A
expense was $2.6  million,  or 3.8% of total revenue as compared to $1.4 million
or 5.3% in the  prior  Period.  G&A was  $762  thousand  for the  quarter  ended
December 31, 1995 and the Company  expects  that the gross  expense will grow in
1996 as the Company expands its accounting,  management information systems, and
human resource departments, in connection with its ongoing growth strategy.



<PAGE>


The increase in depreciation  and amortization to $8.6 million from $2.9 million
in the prior Period and $5.7 million on a pro forma basis reflects the Company's
acquisition  of $220 million of  facilities  in 1995.  In addition,  the Company
amortized  $903 thousand of the loan fees related to the  Company's  short- term
borrowings in 1995. As of December 31, 1995,  the Company has  unamortized  loan
fees of approximately $230 thousand.

Interest  expense was $3.0  million in 1995, a $1.6  million  increase  over the
prior Period.  1995 interest expense  represents  weighted average borrowings of
$47.2 million under the Company's lines of credit at a weighted average interest
rate of 6.4%.

Interest income in 1995 was $166 thousand, as compared to $658 thousand in 1994.
1995  interest  income  represents  earnings on  overnight  deposits and amounts
outstanding  under the 1995  Employee  Stock  Purchase and Loan Plan,  while the
prior Period  reflected  the  temporary  investment of a portion of the proceeds
from the Company's two common stock offerings during the Period.

Year Ended December 31, 1995 results of the Company, as compared to the combined
(historical)  year ended  December 31, 1994 results of the  Predecessor  and the
Company:

Rental Income  increased  $39.4 million  (146%)  primarily as a result of rental
rate increases, and an increase in the number of facilities owned as a result of
the Company acquiring 63 facilities  during fiscal year 1995.  Management income
increased $.18 million (20%) reflecting the addition of three managed facilities
and management during the year of facilities that were subsequently purchased by
the Company.

Cost of property operations and maintenance  increased $10.8 million (142%) as a
result of an increase in the number of facilities owned during fiscal year 1995.
Cost of property  operations  and  maintenance  was 27.2% of revenue for 1995 as
compared to 26.9% for the combined 1994 period.

Real  estate  taxes  increased  $3.1  million  (166%) as a result of  additional
expenses due to  acquisitions  of 63 facilities  during fiscal year 1995 and the
impact of property  reassessments.  Real  estate  taxes were 7.2% of revenue for
1995 as compared to 6.5% for the combined 1994 period.

G&A expense  increased  $.9  million  (51%) as a result of  additional  expenses
incurred to support the Company's  aggressive  growth strategy.  G&A expense was
3.8% of revenue for 1995 as compared to 6.0% for the combined 1994 period.  This
decline as a percentage of revenue reflects the overall increase in revenue.

Depreciation and amortization  expense  increased $5.5 million (175%) due to the
acquisition  of $220  million in  facilities  in 1995,  as well as the impact of
recognizing a full year of depreciation on the facilities  acquired in the prior
period.

Interest expense  increased $.4 million  reflecting the changes in the Company's
debt structure between the periods.



Liquidity and Capital Resources

Capital Resources

The Company  funds its capital  requirements  primarily  through the issuance of
equity and debt securities.  On March 1, 1996, the Company entered into a series
of  agreements  providing for a strategic  alliance  with Security  Capital U.S.
Realty  ("US  Realty").  Pursuant  to the  agreement,  subject  to the terms and
conditions  thereof,  US Realty  purchased  7,028,754  shares of common stock at
$31.30 per share in three fundings. The initial purchase of 1,948,882 shares for
$61 million  occurred on March 19, 1996. The second funding of 1,916,933  shares
for $60  million  took place on July 8,  1996.  The final  funding of  3,162,939
shares for $99 million  took place on  September  30,  1996.  As of December 31,
1996, US Realty owned  approximately  34.6% of the outstanding  shares of common
stock of the Company.

On November 4, 1996,  the  Operating  Partnership  issued $100 million of 7.125%
Notes due November 1, 2003. The Notes are unsecured obligations of the Operating
Partnership,  and may be  redeemed  at any time at the  option of the  Operating
Partnership, subject to certain terms and conditions. To fund short term capital
needs,  the Company had in place at December 31, 1996,  two lines of credit with
total  borrowing  capacity of $105  million.  The lines bear interest at various
spreads over a base rate,  depending upon the Company's  debt service  coverage.
Amounts  outstanding  under the  lines of credit  bore  interest  at a  weighted
average  rate of  6.78% in  February  1997.  During  1996  the  Company  had net
repayments under its lines of credit of $54.9 million. At December 31, 1996, the
Company had $52.7 million of borrowings outstanding on its lines of credit.

The Company also assumed  $37.3  million of  mortgages  on  facilities  acquired
during 1996.  At December 31, 1996,  the Company had $36.7 million of fixed rate
mortgages  with a weighted  average  interest rate of 10.14% and $9.1 million of
variable rate mortgages with a weighted  average  interest  rate of 9.2%.  These
mortgages mature at various dates through 2021.

During 1996 the Company issued 901,374 units of limited partnership  interest in
the Operating  Partnership  ("Units") valued at $30.7 million in connection with
the  acquisition of facilities.  At December 31, 1996, the Company had 1,903,797
Operating Partnership Units outstanding. Certain Operating Partnership Units are
redeemable for an amount equal to their fair market value ($3.1  million,  based
upon a price per Unit of $37.625 at December  31,  1996)  payable by the Company
either in cash or (at the Company's  option,  based upon a determination  by the
Company's Board of Directors that the Company's  anticipated  cash  requirements
and  anticipated  cash flow make a lump sum payment  imprudent)  by a promissory
note payable in quarterly installments over two years with interest at the prime
rate. Units held by other Limited Partners are redeemable, at the option of such
Limited  Partners,  beginning on the first  anniversary of their  issuance,  for
amounts equal to the then fair market value of their Units ($35.5 million, based
upon a price per Unit of $37.625 at December 31, 1996) payable by the Company in
cash or, at the option of the Company,  in shares of the Company's  Common Stock
at the initial exchange ratio of one share for each Unit. It is anticipated that
a source of funds for any such cash  redemption  will be  retained  cash flow or
proceeds  from the future sale of  securities  of the  Company or other  Company
indebtedness.  The Company has agreed to register  under the  Securities  Act of
1933 any shares of the Company's common stock issued upon redemption of Units.

The Company's investing  activities consisted primarily of the acquisition of 82
self-storage   facilities  for  approximately  $304  million,   along  with  new
development  and  expansion of existing  facilities.  During  1996,  the Company
opened two newly  constructed  facilities  in  northern  Virginia  totaling  123
thousand square feet for a cost of $9.3 million. The Company also completed five
expansions to existing facilities totaling 129 thousand square feet. The Company
generated  cash flow from  operating  activities  of $59.5  million in 1996,  an
increase of $21.2  million over 1995,  primarily as a result of the  significant
expansion of the Company's portfolio as discussed under "Results of Operations".

On February 19, 1997,  the Company and the Operating  Partnership  filed a shelf
registration  statement  relating to $450 million of  securities,  as more fully
discussed under "Outlook- Capital  Strategy".  In March 1997, the Company issued
2.5 million  shares of its common stock for an aggregate  purchase  price of $90
million. The Company contributed the proceeds from the offering to the Operating
Partnership in exchange for additional units of partnership interest,  which the
Operating  Partnership  used to repay debt incurred under its revolving lines of
credit to finance the  acquisition of self-storage  facilities,  and for working
capital.

The Company  anticipates,  subject to  prevailing  market  conditions  and other
business  and  economic  factors,  issuing  preferred  stock or debt  securities
through the Operating Partnership to finance its liquidity  requirements for the
remainder of 1997. In anticipation of a debt offering,  the Company entered into
a forward  starting  interest  rate swap with a notional  amount of $75 million,
which had the effect of fixing the seven-year U.S. Treasury rate starting May 1,
1997 at 6.87%.  At December 31, 1996, the Company had an unrealized loss on this
derivative instrument of $1.1 million.



<PAGE>


The proceeds from any debt or equity  offering by the Operating  Partnership  or
the  Company  would be used to repay  borrowings  under the  Company's  lines of
credit and for general purposes.  As a general matter,  the Company  anticipates
utilizing  its lines of  credit as an  interim  source of funds to  acquire  and
develop self- storage facilities and repaying the credit lines with longer- term
debt or equity when management  determines that market conditions are favorable.
The Company believes that the combination of the common stock issuance, and debt
or equity issuances pursuant to the shelf registration  statements,  in addition
to borrowings  under its credit  facilities and issuances of Units, as described
above,  will provide the Company with necessary  liquidity and capital resources
to meet the requirements of its operating strategies in 1997.

The  Company  expects  to  incur   approximately   $1.2  million  for  scheduled
maintenance  and repairs  during the next twelve months and  approximately  $7.2
million to conform  facilities  acquired during 1996,  1995,  and1994 to Company
standards.

The Company at December 31, 1996, had Shareholders  Equity of approximately $575
million,  a debt- to- equity ratio of 34.5%,  a debt- to -total  assets ratio of
23.5%, and a debt service coverage ration of 7:1. The debt 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.

Funds from Operations ("FFO")

The Company believes FFO should be considered in conjunction with net income and
cash flows to facilitate a clear understanding of its operating results.  FFO is
defined as net income, computed in accordance with generally accepted accounting
principles ("GAAP"),  excluding gains (losses) from debt restructuring and sales
of property,  plus  depreciation  and  amortization,  and after  adjustments for
unconsolidated  partnerships and joint ventures. FFO should not be considered as
an alternative to net income as a measure of the Company's financial performance
or as an  alternative  to cash flows from  operating  activities as a measure of
liquidity.  FFO does not represent cash  generated from operating  activities in
accordance with GAAP and is not necessarily indicative of cash available to fund
cash needs.  Effective January 1, 1996, the National  Association of Real Estate
Investment  Trusts amended its definition of FFO. The Company presented its 1996
FFO under the  amended  method and  restated  prior  years'  FFO.  As such,  the
Company's FFO may not be comparable to similarly  titled measures of other REITs
who may have not  restated  prior  years FFO under the amended  method.  The pro
forma FFO was  prepared  as if the IPO and the related  formation  transactions,
including the acquisition of 26 facilities, had occurred on January 1, 1994.

The  following  table  illustrates  the  components of the Company's FFO for the
years  ended  December  31,  1996 and 1995,  and pro  forma  for the year  ended
December 31, 1994:



<PAGE>
<TABLE>
<CAPTION>
<S> <C>



(Amounts in thousands)                    1996 Historical          1995 Historical         1994 Pro Forma
----------------------------------------- ------------------------ ----------------------- -------------------------
Net Income                                                $43,238                 $29,153                   $14,243

Depreciation of real property                              11,865                   6,996                     2,984

Amortization of non compete                                    83                     252                       167

Amortization of lease guarantees                               70                     385                       186

Consolidated FFO                                          $55,256                 $36,786                   $17,635

Minority Interest share of depreciation
and amortization                                            (684)                   (334)                      (97)

FFO available to Company Shareholders                     $54,572                 $36,452                   $17,538
                                                          =======                 =======                   =======
</TABLE>
The Company had weighted  average  common shares  outstanding  of 20,861,000 and
15,612,000,  for the years ended December 31, 1996, and 1995, respectively.  The
Company  distributed  $2.25  and  $2.04  per  common  share  in 1996  and  1995,
respectively. The Company's payout ratio (the ratio of common dividends declared
per share to per share FFO) was 85.9% and 87.6% for 1996 and 1995, respectively.

The  Company,  as a qualified  REIT,  is required to  distribute  a  substantial
portion of its net income as dividends to its shareholders.  While the Company's
goal is to  generate  and  retain  sufficient  cash flow to meet its  operating,
capital  and debt  service  needs,  its  dividend  requirements  may require the
Company to utilize its bank lines of credit and other  sources of  liquidity  to
finance property acquisitions and development, and major capital improvements.

The Company  believes that its  liquidity and capital  resources are adequate to
meet its cash requirements for the next twelve months.  Portfolio  expansion and
repayment of principal on Company  indebtedness  represent the Company's primary
long-term  liquidity  requirements.  The  Company  does not  expect to  generate
sufficient  funds from  operating  cash flow to meet such  long- term  liquidity
needs and intends to finance them primarily  through  borrowings under its lines
of credit, debt or equity offerings, or additional borrowings for such purpose.

Competition

The Company monitors the development of self- storage facilities in its markets.
The Company has identified four markets in which potential  overbuilding  may be
occurring.  In two of these markets (Dallas and  Albuquerque) the Company may be
required to reduce by 50% its normal  yearly  rental rate  increase,  and in two
markets (Atlanta and Las Vegas),  the Company may experience a minimal reduction
in Physical Occupancy during 1997 As a result of the geographic diversity of the
Company's portfolio, the Company does not expect the potential for excess supply
in these  markets to have a  significant  impact on its  financial  condition or
results of operations.

Inflation

The Company does not believe that inflation has had or will have a direct effect
on its operations.  Substantially  all of the leases at the facilities allow for
monthly rent increases which provide the Company with the opportunity to achieve
increases in rental income as each lease matures.

Seasonality

The  Company's  revenues  typically  have been  higher  in the third and  fourth
quarter  primarily because the Company increases its rental rates on most of its
storage  units  at  the  beginning  of  May,  and  to a  lesser  extent  because
self-storage  facilities tend to experience  greater  occupancy  during the late
spring,  summer,  and early fall  months due to the greater  incidence  of moves
during  those  periods.  The  Company  believes  that  its  tenant  mix,  rental
structure,  and expense  structure  provide  adequate  protection  against undue
fluctuations in cash flows and net revenues during off-peak  seasons.  Thus, the
Company  does not expect  seasonality  to  materially  affect  distributions  to
shareholders.

Recent Accounting Developments

In  February of 1997,  Statement  of  Financial  Accounting  Standards  No. 128,
"Earnings  per Share" was  issued.  The  statement  establishes  standards  for
computing  and  presenting  earnings  per share and is effective  for  financial
statements  issued for periods  ending after  December 15, 1997. The Company has
yet to assess the impact of the standard on the financial statements.

Qualification as a REIT

The  Company  intends to  operate so as to qualify as a REIT under the  Internal
Revenue Code (the "Code").  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.

<PAGE>
                                      Storage USA, Inc.
                                       Consolidated Balance Sheets
                                (Amounts in thousands, except share data)

<TABLE>
<CAPTION>
<S> <C>
                                                                     As of                      As of
                                                               December 31, 1996         December 31, 1995
                                                          -----------------------    ----------------------

Assets

Investments in storage facilities, at cost:
Land                                                                    $235,139                  $139,603
Buildings and equipment                                                  620,503                   369,694
                                                          -----------------------    ----------------------
                                                                         855,642                   509,297

Accumulated depreciation                                                 (26,573)                  (14,561)
                                                          -----------------------    ----------------------
                                                                         829,069                   494,736

Cash & cash equivalents                                                    1,323                     3,006
Other assets                                                              14,853                    11,783
                                                          -----------------------    ----------------------

     Total assets                                                       $845,245                  $509,525
                                                          =======================    ======================

Liabilities & shareholders' equity

Line of credit borrowings                                                $52,730                  $107,605
Mortgage notes payable                                                    45,724                     6,670
Notes payable                                                            100,000                         -
Accounts payable & accrued expenses                                        7,616                     5,945
Rents received in advance                                                  5,640                     3,680
Minority interest                                                         58,407                    27,438
                                                          -----------------------    ----------------------

     Total liabilities                                                   270,117                   151,338
                                                          -----------------------    ----------------------

Commitments and contingencies

Shareholders' equity:
Common stock $.01 par value, 150,000,000 shares                              247                       176
 authorized, 24,723,027 and 17,562,363
 shares issued and outstanding
Paid-in capital                                                          610,793                   385,989
Notes receivable - officers                                              (10,253)                   (6,727)
Accumulated deficit                                                      (15,831)                  (15,831)
Distributions in excess of net income                                     (9,828)                   (5,420)
                                                          -----------------------    ----------------------

     Total shareholders' equity                                          575,128                   358,187
                                                          -----------------------    ----------------------

     Total liabilities & shareholders' equity                           $845,245                  $509,525
                                                          =======================    ======================
</TABLE>
                             See Accompanying Notes
<PAGE>
<TABLE>

                                                Storage USA, Inc.(the "Company")
                                                               and
                                               Storage USA, Inc.(the "Predecessor")
                                              Consolidated Statements of Operations

                                          (amounts in thousands, except per share data)
<CAPTION>
<S> <C>
                                                                                                                    PREDECESSOR
                                                                                       For the period March   For the period January
                                                  Year ended            Year ended     1994(inception) through     1,1994 through
                                              December 31, 1996     December 31, 1995      December 31, 1994       March 23, 1994
                                             -------------------   -------------------   --------------------  --------------------


Property Revenues:
Rental income                                          $105,091               $66,455                $24,667                $2,358
Management income                                           701                 1,072                    707                   188
Other income                                              1,517                   480                    460                    52
                                             -------------------   -------------------   --------------------  --------------------

Total property revenues                                 107,309                68,007                 25,834                 2,598
                                             -------------------   -------------------   --------------------  --------------------

Property Expenses:
Cost of property operations & maintenance                28,029                18,471                  6,851                   792
Taxes                                                     8,903                 4,900                  1,686                   153
General & administrative                                  4,122                 2,568                  1,374                   325
Depreciation & amortization                              12,618                 8,586                  2,882                   244
                                             -------------------   -------------------   --------------------  --------------------

Total property expenses                                  53,672                34,525                 12,793                 1,514
                                             -------------------   -------------------   --------------------  --------------------

Income from property operations                          53,637                33,482                 13,041                 1,084
                                             -------------------   -------------------   --------------------  --------------------

Other income (expense):
Interest expense                                         (8,244)               (3,004)                (1,404)               (1,195)
Interest income                                             687                   166                    658               -------
                                             -------------------   -------------------   --------------------  --------------------

Income before minority interest
and gain on investment                                   46,080                30,644                 12,295                  (111)

Gain on Investment                                          288
                                             -------------------   -------------------   --------------------  --------------------

Income before minority interest                          46,368                30,644                 12,295                  (111)

Minority interest                                        (2,842)               (1,491)                  (365)                  (54)
                                             -------------------   -------------------   --------------------  --------------------

Net income                                              $43,526               $29,153                $11,930                 ($165)
                                             ===================   ===================   ====================  ====================


Net income per share                                      $2.09                 $1.87                  $1.28
                                             ===================   ===================   ====================
Distributions per share                                   $2.25                 $2.04                  $1.41
                                             ===================   ===================   ====================

Weighted average shares outstanding                      20,861                15,612                  9,304
                                             ===================   ===================   ====================
</TABLE>
                             See Accompanying Notes
<PAGE>
<TABLE>

                                                 Storage USA, Inc.(the "Company")
                                                                and
                                               Storage USA, Inc.(the "Predecessor")
                                               Consolidated Statements of Cash Flows

                                                      (Amounts in thousands)
<CAPTION>
<S> <C>
                                                                                                                        PREDECESSOR
                                                                                                                      For the period
                                                                                        For the period March 24,      January 1,1994
                                                   Year ended            Year ended      1994(inception)through           through
                                               December 31, 1996     December 31, 1995     December 31, 1994          March 23, 1994
                                              ------------------    ------------------    ------------------      ------------------

Operating Activities:

Net Income                                              $43,526               $29,153               $11,930                   ($165)

Adjustments to reconcile net income to net
cash provided by operating activities:

     Depreciation and amortization                       12,618                 8,586                 2,882                     244
     Minority interest                                    2,842                 1,491                   365                       -
     Gain on investment                                    (288)
     Changes in assets and liabilities:
          Other assets                                   (2,801)               (3,111)               (2,025)                   (809)
          Other liabilities                               3,631                 2,189                 4,664                     393
                                              ------------------    ------------------    ------------------      ------------------
Net cash provided used by (used in)
operating activities:                                    59,528                38,308                17,816                    (337)
                                              ------------------    ------------------    ------------------      ------------------

Investing Activities:
Acquisition and improvements of storage facilities     (273,043)             (212,332)             (215,857)                  -----
Development of storage facilities                        (3,837)               (4,842)                 (327)                  ------
                                              ------------------    ------------------    ------------------      ------------------
Net cash used in investing activities                  (276,880)             (217,174)             (216,184)                  -----
                                              ==================    ==================    ==================      ==================

Financing Activities:
Net borrowings (repayments) under lines of credit       (54,875)              103,605                 4,000                     450
Mortgage principal payments                                (298)                  (79)              (41,802)                    (44)
Mortgage principal borrowings                             2,063                 2,376                     -                       -
(Decrease) increase in payable to affiliates                  -                     -               (18,812)                    178
Cash dividends                                          (47,934)              (33,433)              (13,070)                   (397)
Proceeds from issuance of stock                         220,721               107,776               271,652                       -
Proceeds from issuance of notes payable                  99,140                     -                     -                       -
Distribution to minority interests                       (3,148)               (1,698)                 (275)                      -
                                              ------------------    ------------------    ------------------      ------------------
Net cash provided by financing activities               215,669               178,547               201,693                     187
                                              ==================    ==================    ==================      ==================

Net increase (decrease) in cash and equivalents          (1,683)                 (319)                3,325                    (150)
Cash and equivalents, beginning of period                 3,006                 3,325             ---------                     150
                                              ------------------    ------------------    ------------------      ------------------
Cash and equivalents, end of period                      $1,323                $3,006                $3,325                      $0
                                              ==================    ==================    ==================      ==================

Supplemental schedule of non-cash activities:
 Common Stock issued in exchange for
   notes receivable                                      $3,541                $6,727                     -
 Mortgages assumed on storage facilities
   acquired                                             $37,289                     -
Land contributed for Operating Partnership
   units                                                 $1,162
Exchange of Operating Partnership units
   for common shares                                       $613                                           -
 Storage facilities acquired in exchange
   for Operating Partnership Units                      $30,726               $17,972                $8,374
                                              ==================    ==================    ==================
</TABLE>
                             See Accompanying Notes
<PAGE>
<TABLE>

                                                      STORAGE USA, INC. (the "Company")
                                                                      and
                                                     STORAGE USA, INC. (the "Predecessor")

                                                            CONSOLIDATED STATEMENTS
                                                            OF SHAREHOLDERS' EQUITY

<CAPTION>
<S> <C>
                                                                  Predecessor



                                      Common Stock
                               --------------------------
                                                                         Notes                         Distributions   Total
                                    Number of              Paid in       Receivable-    Accumulated    in Excess of    Shareholders'
                                    Shares    Amount       Capital       Officers       Deficit        Net Income      Equity
                               ------------------------------------------------------------------------------------------------

Balance at
    December 31, 1993                994        $10                                     ($12,672)                     ($12,662)

Corporate reorganization
    adjustments                                                                           (2,994)                       (2,994)

Net loss                                                                                    (165)                         (165)
                               ------------------------------------------------------------------------------------------------

Balance at March 23, 1994            994        $10                                     ($15,831)                     ($15,821)


                                                                     Company

Balance at March 24, 1994            994        $10                                     ($15,831)                     ($15,821)

Issuance of new shares of
   common stock on
   March 24, 1994                  6,325         63         $125,727                                                   125,790

Issuance of new shares of
   Common stock on
   September 29, 1994              5,980         60          145,802                                                   145,862

Net income                                                                                              $11,930         11,930

Distributions declared
   ($1.41 per share)                                                                                    (13,070)       (13,070)
                               ------------------------------------------------------------------------------------------------

Balance at
   December 31, 1994              13,299        133          271,529                     (15,831)        (1,140)       254,691
                               ================================================================================================

Issuance of new shares of
   common stock on June 7,
   1995                           14,025         40          107,517                                                   107,557

Issuance of new shares of
   common stock to officers
   under the 1995 Employee
   Stock Purchase and Loan Plan      230          2            6,725       (6,727)

Issuance of new shares of
   common stock under the
   Dividend Reinvestment and
   Stock Purchase Plan, and
   the 1993 Omnibus Stock Plan         8          1              218                                                       219

Net Income                                                                                               29,153         29,153

Distributions declared
   ($2.04 per share)                                                                                    (33,433)       (33,433)
                               ------------------------------------------------------------------------------------------------

Balance at
   December 31, 1995              17,562        176          385,989       (6,727)       (15,831)        (5,420)       358,187
                               ================================================================================================

Issuance of new shares of
   common stock                    7,029         69          220,459                                                   220,528

Issuance of new shares of
   common stock to officers
   under the 1995 Employee
   Stock Purchase and Loan Plan
   net of repayments                 103          1            3,540       (3,526)                                          15

Issuance of new shares of
   common stock under the
   Dividend Reinvestment and
   Stock Purchase Plan, and
   the 1993 Omnibus Stock Plan        29          1              805                                                       806

Net Income                                                                                               43,526         43,526

Distributions declared
   ($2.25 per share)                                                                                    (47,934)       (47,934)
                               ------------------------------------------------------------------------------------------------

Balance at
   December 31, 1996              24,723       $247         $610,793     ($10,253)      ($15,831)       ($9,828)      $575,128
                               ================================================================================================
</TABLE>
                             See Accompanying Notes
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                     NOTE 1
                                  ORGANIZATION

Storage USA, Inc. (the "Predecessor" See Note 13) a Tennessee  corporation,  was
formed in 1985 to own, develop,  construct,  and operate self-storage facilities
throughout the United States.  On March 23, 1994, the  Predecessor  completed an
initial  public  offering  (the "IPO") of  6,325,000  shares of common  stock at
$21.75 per share forming Storage USA, Inc. (the "Company"). The Company received
approximately  $125,790 in proceeds,  net of underwriting  discount and offering
expenses. Upon completion of the IPO, the Company contributed  substantially all
of its net assets to SUSA  Partnership,  L.P. (the "Operating  Partnership")  in
exchange  for  an  approximately  98.9%  general  partnership  interest  in  the
Operating  Partnership.  In  addition,  the  Operating  Partnership  formed SUSA
Management,  Inc. ("SUSA  Management"),  to provide  self-storage  management to
third parties and certain ancillary services. The Operating Partnership owns 99%
of the economic interest of SUSA Management.

The  Company  began  operating  as  a  Real  Estate  Investment  Trust  ("REIT")
commencing with the period beginning March 24, 1994. Accordingly,  the Company's
1994 results of operations are presented from March 24, 1994, the date following
the completion  date of the IPO and the  establishment  of REIT status,  through
December 31, 1994. The results for the period from January 1, 1994 through March
23,  1994 are  presented  for the  Predecessor  and are  labeled  as such on the
financial statements related to predecessor activity.

                                     NOTE 2
                   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                              Basis of Presentation

The consolidated  financial  statements include the accounts of the Company, the
Operating  Partnership  and  SUSA  Management.  All  intercompany  balances  and
transactions  have  been  eliminated.   The  financial  statements  reflect  the
segregation of the operating activities for the periods presented related to the
Company and the Predecessor,  which has been accounted for on a basis consistent
with the Company except for the items noted in Note 13.


             Use of Estimates in Preparation of Financial Statements

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported  amounts of assets,  liabilities,  revenues and expenses and
disclosure of contingent  assets and  liabilities.  Actual  results could differ
from those estimates.

                              Federal Income Taxes

The Company  operates so as to qualify to be taxed as a REIT under the  Internal
Revenue Code of 1986, as amended (the "Code").  Generally,  a REIT that 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.  Therefore, the
statement of operations contains no provision for federal income taxes.




                            Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with maturity
of three months or less to be cash equivalents.


                               Revenue Recognition

Rental  income and  management  income is  recorded  when due from  tenants  and
customers.  Rental  income  received  prior to the start of the rental period is
included in rents received in advance.

                                  Other Income

Other income consists primarily of sales of  storage-related  merchandise (locks
and packing supplies) and commissions from truck rentals.

                                    Interest
Interest is capitalized on accumulated  expenditures relating to the development
of certain qualifying  properties.  During 1996, 1995, and 1994, total cash paid
by the Company for the interest  was $7,636,  $3,345,  and $1,404  respectively,
which  includes  $965,  and  $532,  which  was  capitalized  in 1996,  and 1995,
respectively. No interest was capitalized in 1994.

                            Deferred financing costs

Deferred  financing  costs are amortized over a period not to exceed the term of
the related  debt.  Amortization  of deferred  financing  costs is classified as
amortization expense and included in the consolidated statement of operations in
the amount of $361, $705, and $115 in 1996, 1995, and 1994, respectively.

                       Interest rate management agreements

The Company  enters into  interest  rate risk  management  agreements  to manage
interest rate risk associated with  anticipated debt  transactions.  The Company
follows SFAS No. 80  "Accounting  for Futures  Contracts"  which  permits  hedge
accounting for anticipatory  transactions  meeting certain  criteria.  Gains and
losses, if any, on these  transactions are deferred and amortized over the terms
of the related debt as an  adjustment to interest  expense.  Changes in the fair
value of the interest rate risk management  agreements are not recognized in the
financial  statements.  In the event  that the  anticipatory  transaction  is no
longer  likely to occur,  the Company  would mark the  derivative  to market and
would recognize any adjustment in the consolidated statement of operations.  The
Company does not enter into interest rate risk management agreements for trading
or speculative purposes.

                        Investment in Storage Facilities

Storage  facilities  are recorded at cost.  Depreciation  is computed  using the
straight line method over  estimated  useful lives of 40 years for buildings and
improvements,  and three to ten years for  furniture,  fixtures  and  equipment.
Expenditures for significant  renovations or improvements that extend the useful
life of assets are  capitalized.  Repairs and maintenance  costs are expensed as
incurred.  Certain costs,  principally payroll,  directly related to real estate
acquisitions and development, are capitalized.

If there is an event or a change in circumstances  that indicates that the basis
of the Company's  property may not be  recoverable,  the Company's  policy is to
assess any impairment of value. Impairment is evaluated based upon comparing the
sum of the  expected  future  cash  flows  (undiscounted  and  without  interest
charges)  to the  carrying  value of the  asset.  If the cash  flow is less,  an
impairment loss is recognized for the amount by which the carrying amount of the
assets exceeds the fair value of the asset.



                                Minority Interest

The minority  interest  reflects the ownership  interest of the limited partners
who hold Units in the Operating Partnership.  The Unit holders' share of the net
income of the Operating  Partnership is charged to minority interest expense and
increases the Company's liability.  Distributions to Operating  Partnership Unit
holders reduce the Company's liability.



                                Income Per Share

Net income per share is calculated  using the weighted  average number of shares
outstanding  during the period.  The impact of outstanding  stock options is not
materially dilutive.


                                Reclassifications

Certain  previously  reported amounts have been reclassified to conform with the
current financial statement presentation.

<PAGE>



                                     NOTE 3
                        INVESTMENT IN STORAGE FACILITIES


The following summarizes activity in storage facilities during the period:

Cost

Balance at December 31, 1994                           278,993
Property acquisitions                                  220,541
Land acquisitions                                        5,733
Improvements                                             4,030
                                                     ---------
Balance at December 31, 1995                           509,297

Property acquisitions                                  305,760
Land acquisitions  and joint venture development       21,329
Facility expansions                                     8,986
Developments placed in service                          8,679
Improvements                                            4,711
Property Exchange                                      (3,120)
                                                    ---------
Balance at December 31, 1996                          855,642

Accumulated Depreciation

Balance at December 31, 1994                            7,224
Additions during the year                               7,337
                                                    ---------
Balance at December 31, 1995                           14,561

Additions during the year                              12,012
                                                    ---------
Balance at December 31, 1996                           26,573

The aggregate cost of real estate facilities for federal income tax purposes was
approximately $797,352 and $479,037 at December 31, 1996 and 1995, respectively.


                                     NOTE 4
                             MORTGAGE NOTES PAYABLE


Mortgage notes payable consist of the following at December 31:

                                            1996              1995
                                            ----              ----
Conventional fixed rate                   $36,666           $6,670
Conventional variable rate                  9,058             ---
                                           ------            -----
Total                                      45,724            6,670
                                           ------            -----

Conventional  fixed-rate  mortgage  notes  included 13 mortgages  encumbering 13
properties  with a cost basis of $68,572 at  December  31,  1996 and three loans
encumbering  three properties with a cost basis of $16,032 at December 31, 1995.
Mortgage  notes are  generally  due in monthly  installments  of  principal  and
interest  and mature at various  dates  through  2021.  At December 31, 1996 and
1995,  this debt  carried  fixed  rates of interest  ranging  from 6.8% to 11.5%
(10.14%  weighted  average)  and  8.375%  to  10.6%  (9.67%  weighted  average),
respectively.

Conventional  variable-rate  mortgage notes consist of 4 loans  encumbering four
properties  with a cost basis of $13,523 at December 31, 1996.  Two of the notes
require monthly  principal and interest  payments and mature in 2019. Two of the
notes require monthly  payments of interest only and mature in 2001. At December
31, 1996  conventional  variable rate debt had interest rates ranging from 7.81%
to 9.67% with a weighted average interest rate of 9.2%.

The aggregate principal payments of mortgage notes (fixed and variable rate) for
the five years subsequent to December 31, 1996 are as follows:

1997                                                   $  10,802
1998                                                         614
1999                                                         677
2000                                                         746
2001                                                         824
Thereafter                                             $  32,061




                                     NOTE 5
                                  NOTES PAYABLE

On November 4, 1996, the Operating  Partnership issued $100,000 of 7.125% senior
unsecured  notes (the  "Notes") due  November 1, 2003.  Interest on the Notes is
payable on May 1 and November 1 of each year,  commencing May 1, 1997. The Notes
are  redeemable at any time at the option of the Operating  Partnership in whole
or in part, at a redemption  price equal to the sum of: (a) the principal amount
of the Notes being redeemed plus accrued interest or (b) a make-whole  amount as
more fully  defined in the Notes  prospectus.  The Notes are not  subject to any
mandatory  sinking  fund  and  are an  unsecured  obligation  of  the  Operating
Partnership.  The Notes  contain  various  covenants  restricting  the amount of
secured and unsecured indebtedness the Operating Partnership may incur. The $979
offering  discount  and  the  approximately  $353  of  offering  costs,  net  of
accumulated amortization, are included in other assets at December 31, 1996, and
are being amortized into interest expense over the term of the Notes.


                                     NOTE 6
                            LINE OF CREDIT BORROWINGS
<TABLE>
<CAPTION>
<S> <C>
                                                                   1996                       1995
                                                                   ----                       ----
Total lines of credit at December 31                             $105,000                   $123,000
Borrowings outstanding at December 31                             $52,730                   $107,605
Weighted average daily borrowing during the year                  $92,225                   $47,135
Maximum daily borrowing  during the year                         $150,153                   $121,700
Weighted average daily interest rate during the year               6.99%                     6.42%
</TABLE>

At December 31, 1996,  and 1995, the Company had a $75,000 line of credit with a
group of commercial  banks.  This line bears interest at various  spreads over a
base rate based on the Company's debt service  coverage.  The credit  agreements
mature annually in February,  and are renewable at the option of the Company. On
January 28, 1997, the Company  exercised its option and extended the maturity to
February 8, 1998. At December 31, 1996, the Company had a $30,000 line of credit
with a  commercial  bank.  The line bears  interest at spreads over LIBOR and is
payable  on  demand.   None  of  these  agreements  have  compensating   balance
requirements.

During 1996 the Company  entered into a $50,000  bridge loan with the same group
of  commercial  banks as the  $75,000  line of  credit.  The  bridge  loan had a
one-year  term and  bore  interest  at  various  LIBOR  spreads,  which  spreads
increased with the passing of each four-month  period.  The Company borrowed the
entire amount  available  under the bridge loan in June of 1996,  and repaid the
amount in full in September 1996, and the facility was terminated at that time.

At  December  31,  1995,  the  Company  had a $25,000  term note with an initial
termination  date of April 21,  1996.  The note was  issued by the same group of
commercial banks  participating in the $75,000 line of credit, and bore interest
at 1.35% over 30 day  LIBOR.  The note was paid in full in March  1996,  and the
facility was terminated at that time.

At December 31, 1995,  the Company had $23,000 line with a commercial  bank. The
$23,000 line  consisted of an $8,000  tranche that matured on February 15, 1996,
and a $15,000 tranche that matured on July 1, 1996. Both tranches, at the option
of  the  Company,  bore  interest  at  prime  or  LIBOR  plus  2.25%,  and  were
collateralized  by mortgages on 13 facilities.  Subsequent to December 31, 1995,
the  commercial  bank agreed to release the  mortgages  and increase the line to
$30,000.

                                     NOTE 7
                   PRO FORMA FINANCIAL INFORMATION (UNAUDITED)


The following summary of unaudited pro forma combined  financial  information of
the Company is presented as if: (a) the acquisition during 1996 of 82 properties
totaling  5,401  square feet for a cost of  approximately  $304,000  and (b) the
issuance  of 7,029  shares of common  stock for net  proceeds  of  approximately
$220,528  had  occurred on January 1, 1996.  The  unaudited  combined  financial
information is not necessarily indicative of what actual results of operation of
the company would have been assuming such  transactions had been completed as of
January 1, 1996,  nor does it purport to represent the results of operations for
future periods.

Year ended December 31,                 1996
                                        ----
Pro Forma total revenues             $133,039
Pro forma net income                 $ 52,082
Pro forma earnings per share         $   2.11



                                     NOTE 8
                              FINANCIAL INSTRUMENTS

The Company's carrying amounts and fair value of its financial  instruments were
as follows:
<TABLE>
<CAPTION>
<S> <C>
as of December 31,                                         1996                           1995
                                             Carrying value    Fair value    Carrying value    Fair value
                                             --------------    ----------    --------------    ----------
Cash and cash equivalents                    $   1,323         $  1,323      $   3,006         $   3,006
Line of credit borrowings                       52,730           52,730        107,605           107,605
Mortgage notes payable                          45,724           49,963          6,670             7,003
Notes payable                                  100,000           99,587            ---               ---
Interest rate risk management agreements         ----            (1,118)           ---            (3,547)
</TABLE>
The Company,  in determining the fair values set forth above, used the following
methods and assumptions:

            Mortgage and Notes Payable and Line of Credit Borrowings

The Company's  line of credit  borrowings  bear  interest at variable  rates and
therefore  cost  approximates  fair value.  The fair value of the Mortgage notes
payable,  and the  Notes  payable  were  estimated  using  discounted  cash flow
analysis,  based on the Company's current incremental borrowing rate at December
31, 1996 and 1995, for similar types of borrowing arrangements.


                     Interest Rate Risk Management Agreement

In 1996,  the Company  entered into a $75 million  (notional  amount)  fixed pay
forward starting swap agreement with a major Wall Street investment banking firm
in order to reduce  the  interest  rate  risk  associated  with the  anticipated
issuance of fixed rate debt by the Company in 1997. The  transaction  allows the
Company  to lock- in a seven  year  Treasury  rate of 6.87% on or before  May 1,
1997. The Company anticipates terminating the swap transaction upon the issuance
of the fixed rate  debt.  At  December  31,  1996,  the  Company  had a $(1,118)
unrealized loss on this transaction. Any gain or loss from this transaction will
be deferred and amortized as an adjustment to interest  expense over the term of
the fixed rate debt. This transaction  exposes the Company to credit loss in the
event of  non-performance by the counterparty,  however such  non-performance is
not anticipated as the counterparty is a highly rated, credit quality entity.

During 1996,  the Company  entered into an interest rate swap agreement in order
to reduce the interest  rate risk  associated  with the issuance of the $100,000
Notes (see Note 5). The Company  terminated  the agreement on the date the Notes
were  issued and  recognized  a $(2,481)  loss.  This loss,  net of  accumulated
amortization,  is  included in other  assets at  December  31, 1996 and is being
amortized into interest expense over the term of the Notes.

During 1995,  the Company had entered into an interest rate swap  agreement with
the objective of reducing its exposure to future interest rate fluctuations. The
agreement  involved  the exchange of a variable  rate for a fixed rate  interest
payment  obligation.  The agreement had a notional principal amount of $100,000,
an effective  date of March 1, 1996,  and a maturity  date of March 1, 2003.  At
December 31, 1995,  the fair value of the agreement  was  ($3,547).  On March 8,
1996, the Company closed the interest rate swap agreement and received  proceeds
of  approximately  $50.  The gain from this  contract  was deferred and is being
amortized  over the  life of the  Notes  (see  Note  5).  The fair  value of the
interest rate management agreements as of December 31, 1996 and 1995, represents
the estimated  amount the Company would have paid to terminate the agreements on
those dates.

                                     NOTE 9
                          COMMITMENTS AND CONTINGENCIES

                                Lease Agreements

The Company has various lease agreements for office space.  Total future minimum
rental  payments  on the office  leases are $451 in year one:  $471 in years two
through three, $478 in year four, and $433 in year five.

                                   Guarantees

The Company is a limited guarantor on the financing of five development projects
in which the Company has either a partnership  interest or an option to purchase
the  facility  at  various  times  after  completion.  Under  the  terms  of the
guarantee,  the Company has the option, upon notice by the financial institution
of an event which would require  payment by the Company under the guarantee,  of
(a) purchasing the note and all related loan documents  without  recourse or (b)
payment of the guarantee.  At December 31, 1996 the Company had maximum exposure
under the guarantee arrangements of $18,250.

                    Redemption of Operating Partnership Units

At  December  31,  1996,  there  were  1,903,797  Operating   Partnership  Units
outstanding.  Certain  Operating  Partnership Units are redeemable for an amount
equal to their fair market value ($3.1  million,  based upon a price per Unit of
$37.625 at December 31, 1996)  payable by the Company in cash or by a promissory
note payable in quarterly installments over two years with interest at the prime
rate. Units held by other Limited Partners are redeemable, at the option of such
Limited Partners, beginning on the first anniversary of their issue, for amounts
equal to the then fair market value of their Units ($35.5 million,  based upon a
price per Unit of $37.625 at December 31,  1996)  payable by the Company in cash
or, at the option of the Company, in shares of the Company's common stock at the
exchange ration of one share for each Unit.


                                     NOTE 10
                                  DISTRIBUTIONS

The Company's Board of Directors declared  dividends of $2.25,  $2.04, and $1.41
for  1996,  1995 and  1994,  respectively.  For  federal  income  tax  purposes,
distributions declared by the Board of Directors for 1996 were 96% from ordinary
income and 4% return of capital.  In 1995  distributions  were 94% from ordinary
income and 6% return of capital.  In 1994, all distributions  were from ordinary
income.


                                     NOTE 11
                                  CAPITAL STOCK

The Company  applies APB25 and related  interpretations  in  accounting  for its
stock-based  compensation  plan.  In  accordance  with SFAS123  "Accounting  for
Stock-Based  Compensation",  the  Company  elected  to  continue  to  apply  the
provisions of APB25.  However,  pro forma  disclosures as if the Company adopted
the  cost  recognition  provisions  of  SFAS123  in 1995  are  required  and are
presented below along with a summary of the Plan and awards.

The  shareholders  of the Company have  approved and the Company has adopted the
Storage USA,  Inc. 1993 Omnibus Stock  Incentive  Plan.  The Company has granted
options to certain  directors,  officers and key employees to purchase shares of
the Company's common stock at a price not less than the fair market value at the
date of grant. There are 1,000,000 shares available to be issued under the plan.
Generally,  the  optionee  has up to ten  years  from the  date of the  grant to
exercise the options. Plan activity is as follows:

                                     Number of Options           Price per Share
                                     -----------------           ---------------
Options outstanding :
  March 24, 1994                     --                           --
  Granted                            493,402                      $21.75-$25.625
  Exercised                          --                           --
  Cancelled                          --                           --
                                     ---------
Options outstanding December 31,
1994                                 493,402                      $21.75-$25.625
                                     =========
Exercisable at end of year           382,402                      $21.75-$25.625
                                     =========
  Granted                            175,834                      $21.75-$31.00
  Exercised                           (4,500)                     $21.75-$24.75
  Cancelled                           (3,000)                     $24.75
                                     ---------
Options outstanding December 31,
1995                                 661,736                      $21.75-$31.00
                                     =========
Exercisable at end of year           466,861                      $21.75-$31.00
                                     =========
  Granted                            385,614                      $31.25-$36.75
  Exercised                          (2,600)                      $24.75
  Cancelled                          (44,750)                     $31.00
                                     ---------
Options outstanding December 31,
1996                                 1,000,000                    $21.75-$36.75
                                     =========
Exercisable at end of year           690,762                      $21.75-$33.625
                                     =========

The Company has utilized a Black-Scholes option-pricing model with the following
assumptions in order to estimate the fair value of its stock options:

                                                1996                 1995
                                                ----                 ----
Risk free interest rates                        6.8%                 7.8%
Estimated dividend yields                       6.5%                 7.5%
Volatility factors of the expected market
   price of the Company's  Common Shares       25.8%                15.9%
Expected life of the options                  9.2-10 yrs.         8.75-10 yrs.
Weighted average fair value                    $5.72                $3.13

The following pro forma disclosures were computed assuming the fair value of the
options is amortized  to  compensation  expense  over the vesting  period of the
options:

                                       1996                    1995
                                       ----                    ----
Historic net income                   $43,526                $29,153
Historic net income per share         $  2.09                $  1.87
Pro forma compensation expense (1)    $   858                $   112
Pro forma net income (1)              $42,668                $29,041
Pro forma net income per share (1)    $  2.05                $  1.86

(1) Due to the  inclusion  of only 1996 and 1995  option  grants,  the effect of
applying  SFAS123  in 1996 and 1995 may not be  representative  of the Pro Forma
impact in future years.

                      Employee Stock Purchase and Loan Plan

As of December 31,  1996,  the Company has issued  333,000  shares of its common
stock under the 1995  Employee  Stock  Purchase  and Loan Plan.  Pursuant to the
terms of the plan, the Company and certain  officers entered into stock purchase
agreements  whereby the  officers  purchased  common  stock at the then  current
market price. The Company provides 100% financing for the purchase of the shares
with interest at 7% per anum payable quarterly. The underlying notes are secured
by the shares and mature in November 2002.


                  Dividend Reinvestment and Stock Purchase Plan

In 1995, the Company adopted the Dividend  Reinvestment  and Stock Purchase Plan
(the "Plan"). Under the Plan, the Company offers holders of its common stock the
opportunity to purchase, through reinvestment of dividends or by additional cash
payments,  additional shares of its common stock. The shares of common stock for
participants  may be  purchased  from the  Company at the greater of the average
high and low sales price or the average  closing  sales price on the  investment
date or in the open market at 100% of the average price of all shares  purchased
for the Plan.  During 1996 and 1995,  2,022 and 653 shares,  respectively,  were
issued under the Plan.

                                  Common Stock

On March 1, 1996,  the Company  entered  into a Stock  Purchase  Agreement  with
Security  Capital  U.S.  Realty (US Realty),  an  affiliate of Security  Capital
Group.  Under  the  Stock  Purchase  Agreement,  subject  to  certain  terms and
conditions,  US Realty  invested a total of  $220,000  in  purchasing  7,028,754
shares  of the  Company's  common  stock,  placed  two of  its  nominees  on the
Company's Board of Directors,  and executed a Strategic Alliance Agreement and a
Registration  Rights Agreement with the Company. At December 31, 1996, US Realty
owned approximately  34.6% of the outstanding common shares of the Company.  The
proceeds  received  from US  Realty  were  used to repay  borrowings  under  the
Company's lines of credit, to acquire self-storage  facilities,  and for working
capital.





                                     NOTE 12
                          POST EMPLOYMENT BENEFIT PLAN

The  Company   contributes  to  a  401(k)  savings  plan  (a  voluntary  defined
contribution  plan) for the benefit of  employees  meeting  certain  eligibility
requirements  and electing  participation  in the plan. Each year the Company is
obligated to make a matching  contribution on the employee's behalf equal to 50%
of the  participant's  contribution  to the plan, up to 2% of the  participant's
compensation.  Company profit sharing  contributions  to the plan are determined
annually by the Company.  Company  contributions  totaled $382,  $223,  and $137
during 1996, 1995 and 1994, respectively.


                                     NOTE 13
             Summary of Predecessor Significant Accounting Policies

                             Basis of Presentation:

The accompanying  combined  financial  statements for the periods prior to March
24, 1994 present only the "carved-out"  accounts of the Predecessor comprised of
the continuing assets,  liabilities and operations of the Predecessor  following
the IPO, including 11 owned facilities and six controlled  Facilities  (Original
Facilities) and Storage USA Management Corporation (Management Corp.). All other
accounts of the Predecessor  were excluded since the business  segments to which
they  relate were  discontinued  by the  Company  before the IPO.  Due to common
ownership and management of the Original  Facilities and Management  Corp.,  the
historical  combined financial  statements have been accounted for as a group of
entities under common  control,  which is similar to the accounting  method used
for a  pooling  of  interest.  All  significant  intercompany  transactions  and
balances  have been  eliminated  in the  combined  presentation.  The  financial
information  included herein may not necessarily  reflect the financial position
and results of operations of the Predecessor had it been a separate  stand-alone
entity during the periods prior to March 24, 1994.

                               Minority Interest:

The  Predecessor  financial  statements  include the accounts of six  facilities
(Selling Partnerships) which were owned by investment  partnerships in which the
Predecessor or its affiliates had a controlled interest.  The ownership interest
of the other partners in these  partnerships  is treated as a minority  interest
and reported as a liability of the Predecessor.  Increases in minority  interest
are charged to operations.

                              Federal Income Taxes:

The Predecessor was an S Corporation and thus was not subject to taxation at the
corporate  level.  The  self-storage  facilities  owned  through the  investment
partnerships  required the partners to include their respective share of profits
and  losses in their  individual  tax  returns.  Therefore,  the  statements  of
operations  contain no provision for federal  income taxes for any periods prior
to March 24, 1994.

                             Shareholders' Deficit:

The Predecessor's President and Chief Executive Officer contributed a portion of
his interest in two of the Selling Partnerships in exchange for the satisfaction
of his indebtedness tot he Predecessor.  The value attributed to his interest in
the Selling  Partnerships was determined on the same basis as the  determination
of payments made by the  Predecessor  to the unrelated  limited  partners in the
Selling Partnerships.

Corporate reorganization  adjustments consist primarily of dividends deemed cash
distributions,   reclassification  of  certain  minority  interests,  and  other
non-cash adjustments relating to the IPO.

                           Related Party Transactions:

The Predecessor had demand notes payable to the Predecessor's  founder,  bearing
interest  at  prime  plus  2%  (8% at  December  31,  1993).  These  notes  were
collateralized by second mortgages on certain of the Original Facilities.  Total
interest expense to affiliates  amounted to  approximately  $178 for period from
January 1, 1994 to March 23, 1994.

                                     Other:

Total cash paid for interest related to the mortgages  payable and notes payable
balances for the period from January 1, 1994 to March 23, 1994 was $1,017.


                                     NOTE 14
                                SUBSEQUENT EVENTS

                              Property Acquisitions

Subsequent to December 31, 1996, the Company has completed the acquisition of 11
self-storage  facilities for  approximately  $34,625 . These  acquisitions  were
financed  through  operating cash flows and borrowings under the $30,000 line of
credit.

On March 11,  1997 the  Company  issued  1,400  shares  of  common  stock for an
aggregate  purchase  price of  $50,739.  On March  17,  1997,  the  underwriters
exercised their option to purchase 210 additional  shares of common stock for an
aggregate  purchase  price of $7,610.  U.S.  Realty  currently owns 34.6% of the
outstanding common stock of the Company and has indicated it intends to purchase
approximately  851  thousand  shares of common stock  directly  from the Company
prior to March 31, 1997.  Net proceeds  from U.S.  Realty will be  approximately
$32,019.

The proceeds from the issuances are contributed to the Operating  Partnership in
exchange for additional Operating  Partnership units. The Operating  Partnership
will use the net proceeds to repay debt incurred  under its  revolving  lines of
credit to finance the  acquisitions of  self-storage  facilities and for working
capital.

                                     NOTE 15
                      QUARTERLY FINANCIAL DATA (UNAUDITED)


                 The  following is a summary of quarterly  results of operations
for 1996 and 1995:
<TABLE>
<CAPTION>
<S> <C>
1996
                                    First Quarter     Second Quarter     Third Quarter     Fourth Quarter
                                    -------------     --------------     -------------     --------------
            Revenue                    $21,333            $24,356           $29,435            $32,185
           Net Income                  $8,392             $10,145           $11,650            $13,339
      Per share Net Income              $0.47              $0.52             $0.55              $0.54

<CAPTION>

1995
                                    First Quarter     Second Quarter     Third Quarter     Fourth Quarter
                                    -------------     --------------     -------------     --------------
            Revenue                    $12,312            $16,233           $18,667            $20,795
           Net Income                  $5,761             $6,660             $8,528            $8,204
      Per share Net Income              $0.43              $0.47             $0.49              $0.47

</TABLE>

<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and
Shareholders of Storage USA, Inc.

                  We have audited the accompanying  consolidated  balance sheets
of Storage USA, Inc. (the  "Company") as of December 31, 1996 and 1995,  and the
related consolidated  statements of operations,  shareholders'  equity, and cash
flows for each of the two years in the period  ended  December  31, 1996 and for
the period from March 24, 1994  (inception)  through  December 31, 1994. We have
also audited the accompanying  combined statements of operations,  shareholders'
equity,  and cash flows of Storage USA, Inc. (the  "Predecessor") for the period
from January 1, 1994 through March 23, 1994. These financial  statements are the
responsibility  of the  management  of the  Company.  Our  responsibility  is to
express an opinion on these financial statements based on our audits.

                  We conducted our audits in accordance with generally  accepted
auditing  standards.  Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also  includes  assessing the  accounting  principles  used and the  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

                  In our opinion,  the  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of December 31, 1996 and 1995,  and the  consolidated  results of
its  operations and its cash flows for each of the two years in the period ended
December  31, 1996 and for the period from March 24,  1994  (inception)  through
December 31, 1994, and the combined results of the Predecessor's  operations and
cash flows for the  period  from  January 1, 1994  through  March 23,  1994,  in
conformity with generally accepted accounting principles.



                                                  COOPERS & LYBRAND L.L.P.


Baltimore, Maryland
January 29, 1997, except for Note 14,
          as to which the date is
          March 17, 1997
<PAGE>


                          Storage USA, Inc., Facilities
                                  Schedule III
                    Real Estate and Accumulated Depreciation
                             as of December 31, 1996

<TABLE>
<CAPTION>

                                                                              Initial Cost to REIT               Cost of
                                                                          -----------------------------        Improvements
                                                                                             Buiding &          Subsequent
State        Property Name                             Encumbrances           Land            Fixtures        to Acquisition
----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
  AL         Vestavia                                                        652,309         1,771,282              48,781
  AL         Birmingham/Hwy 280                                              348,919           953,148                   -
  AZ         24th Street                                                     500,232         1,362,657              31,565
  AZ         Oracle                                                          587,844         1,595,864              42,192
  AZ         22nd Street                                                     529,702         1,439,965              33,363
  AZ         East Phoenix                                                    370,586         1,021,566              42,203
  AZ         Tempe                                                           878,690         2,389,598              49,705
  AZ         Cave Creek                                                      824,369         2,244,177              69,566
  AZ         Alma School                                                     785,504         2,162,032                   -
  AZ         Metro-21st/Peoria-Phoenix                                       599,712         1,638,042                   -
  AZ         7th St/Indian Sch-Phoenix                                       518,977         1,418,677                   -
  AZ         Phoenix/32nd Street                         4,440,000         1,352,332         3,670,885                   -
  AZ         Mesa/Country Club                                               554,688         1,503,241                   -
  AZ         Mesa/East Main St                           1,482,225           913,783         2,479,293                   -
  AZ         Phoenix/Bell Road                                             1,312,139         3,547,636                   -
  CA         Miramar Self                                                    387,430         1,059,395              43,165
  CA         Miramar Business                                              1,225,124         3,344,676             155,871
  CA         Marina Del Rey                                                1,954,097         5,293,255              89,201
  CA         Covina                                                        1,234,592         3,356,433             179,300
  CA         Norwalk                                                       1,529,221         4,152,897             124,870
  CA         Campbell                                                      1,045,526         2,834,735              57,993
  CA         Monterey I & II                                               1,612,187         4,374,059              73,734
  CA         Palo Alto                                                       654,944         1,780,329              37,677
  CA         San Jose                                                      1,270,652         3,443,410              46,436
  CA         Santa Cruz                                                    1,092,783         2,963,688              40,264
  CA         Scotts Valley                                                   654,945         1,779,847              28,220
  CA         Santa Clara                                                   1,362,331         3,738,431              75,299
  CA         Watsonville                                                     483,703         1,316,251              29,433
  CA         Panorama City                                                   961,128         2,608,919              45,806
  CA         Westminster                                                     975,304         2,641,287              68,585
  CA         Point Loma                                                    2,135,347         5,777,511             153,438
  CA         Rialto                                                          695,327         1,921,602             103,328
  CA         Yucaipa                                                         411,580         1,130,757               9,567
  CA         Fallbrook                                                       418,763         1,154,513              15,982
  CA         Hemet                                                           455,585         1,252,504               3,655
  CA         Victorville                                                     491,597         1,347,613              17,994
  CA         San Bernardino/Baseline                                       1,220,837         3,325,258              18,479
  CA         Colton                                                          514,276         1,425,550              22,070
  CA         San Marcos                                                      318,260           879,411              19,487
  CA         Capitola                                                        827,352         2,283,337              18,353
  CA         Oceanside                                                     1,236,627         3,383,435               9,782
  CA         San Bernardino/Waterman                                         708,661         1,941,602              49,045
  CA         Santee                                                          879,599         2,382,970              84,050
  CA         Santa Ana                                                     1,273,489         3,456,542              18,862
  CA         Garden Grove                                                  1,137,544         3,087,956              21,067
  CA         City of Industry                                                899,709         2,453,012              65,130
  CA         Chatsworth                                                    1,740,975         4,744,309              41,104
  CA         Palm Springs/Tamarisk                                           816,416         2,229,985              96,439
  CA         Moreno Valley                                                   413,759         1,142,629              55,335
  CA         San Bern/23rd St                                                655,883         1,803,082              78,881
  CA         San Bern/Mill Ave                                               368,526         1,023,905              60,662
  CA         Highlands                                                       626,794         1,718,949              34,049
  CA         Redlands                                                        673,439         1,834,612             248,932
  CA         Palm Springs/Gene Autry                                         784,589         2,129,022              21,881
  CA         Thousand Palms                                                  652,410         1,831,765                   -
  CA         Salinas                                                         622,542         1,731,104                   -
  CA         Whittier                                                        919,755         2,516,477                   -
  CA         Florin/Freeport-Sacrament                                       824,241         2,262,310                   -
  CA         Sunrise/Sacramento                                              819,025         2,231,500                   -
  CA         Santa Rosa                                                    1,351,168         3,669,084                   -
  CA         Huntington Beach                                                838,648         2,309,309                   -
  CA         La Puente/Valley Blvd                                           992,211         2,710,041                   -
  CA         Pacheco/First Ave North                                       1,198,654         3,257,766                   -
  CA         Huntington Bch II/McFadden                                    1,050,495         2,846,043                   -
  CA         Hawaiian Gardens/Norwalk                                      1,956,411         5,353,015                   -
  CA         Sacramento/Auburn Blvd                                          666,995         1,808,847                   -
  CA         Sacramento/Perry                                                452,480         1,225,139                   -
  CT         Wethersfield                                                    472,831         1,294,408             880,667
  CT         Enfield                                                         506,875         1,395,631              55,945
  CT         East Hartford                                                   992,547         2,700,212               3,256
  CT         Waterbury                                                       746,487         2,036,915                   -
  CT         Rocky Hill                                                    1,327,857         3,608,978                   -
  CT         Farmington                                                    1,272,203         3,454,995                   -
  DC         U Street                                                      1,388,564         3,769,506              44,584
  DE         Wilmington                                                      610,689         2,512,985              32,263
  FL         Kendall                                                       1,838,903         3,870,318              19,020
  FL         Ives Dairy                                                    1,061,776         4,306,278              50,006
  FL         Longwood                                                        862,849         2,387,142              22,238
  FL         Sarasota                                                      1,281,966         2,007,843           1,772,379
  FL         WPB Southern                                  875,804           226,524           922,193           2,877,838
  FL         WPB II                                                          572,284         2,365,372              21,371
  FL         Port Richey                                                     605,850         1,668,041              60,725
  FL         Ft. Myers                                                       489,609         1,347,207             273,981
  FL         North Lauderdale                                              1,050,449         2,867,443             695,949
  FL         Naples                                                          636,051         1,735,211              43,837
  FL         Hallandale                                                    1,696,519         4,625,578              17,257
  FL         Davie                                                         2,005,938         5,452,384              67,675
  FL         Tampa/Adamo                                                     837,180         2,291,714              14,334
  FL         SR 84 (Southwest)                                             1,903,782         5,187,373              47,755
  FL         Quail Roost                                 2,193,219         1,663,641         4,533,384              11,171
  FL         Tamiami                                                       1,962,917         5,371,139               5,562
  FL         Highway 441 (2nd Avenue)                                      1,734,958         4,760,420              10,342
  FL         Miami Sunset                                                  2,205,018         6,028,210               9,105
  FL         Doral (Archway)                                               1,633,500         4,464,103              47,801
  FL         Boca Raton                                                    1,505,564         4,123,885                   -
  FL         Ft Lauderdale                                                 1,063,136         2,949,236                   -
  FL         Coral Way                                   3,501,163         1,574,578         4,314,468                   -
  FL         Miller Rd.                                  3,501,163         1,409,474         3,898,643                   -
  FL         Harborview/Port Charlotte                                       883,344         2,400,333                   -
  FL         Miami Gardens/441                                               540,649         1,469,557                   -
  FL         Miramar/State Rd 7                                            1,797,370         4,892,278                   -
  FL         Delray Bch/W Atlantic Blvd                                      388,538         1,059,895                   -
  FL         Okeechobee Partners, LP                                       1,134,363                 -                   -
  GA         South Cobb                                                      161,509         1,349,816              77,109
  GA         Lilburn                                                         634,879         1,724,697              27,775
  GA         Eastpoint                                                       937,618         2,194,489             103,745
  GA         Acworth                                                         493,504           917,825             685,678
  GA         Western Hills                                                   842,094         1,855,712              92,569
  GA         Stone Mountain                                                1,053,620         2,908,080                   -
  IL         Brickyard                                                       713,079         1,935,999              42,991
  IL         Cermak                                                          948,679         2,582,566             139,489
  IL         Schaumburg                                                    1,159,033         3,158,017              57,901
  KS         Shawnee                                                         546,118         1,490,460              23,250
  KS         Olathe                                                          429,808         1,176,442              44,729
  KS         Overland Park                                                   561,549         1,530,969              26,053
  KS         State Avenue                                                    448,025         1,224,381              41,991
  LA         Tchoup (New Orleans)                                            920,987         2,501,147             122,851
  MA         Worcester                                                       661,235         1,541,427              82,380
  MA         Haverhill                                                       573,068         1,568,047               5,743
  MA         New Bedford                                                     768,959         2,099,751               9,609
  MA         Whitman                                                         544,178         1,487,628              36,918
  MA         Brockton                                                      1,134,761         3,104,615                   -
  MA         Northborough                                                    822,364         2,279,586                   -
  MA         Nashua/Tyngsboro                                              1,211,930         3,293,838                   -
  MA         South Easton                                                    909,912         2,465,382                   -
  MA         North Attleboro                                                 908,949         2,460,427                   -
  MA         Fall River                                                      773,781         2,097,333                   -
  MA         Salisbury                                                       771,078         2,096,159                   -
  MD         Annapolis/Route 50                          3,377,572         1,565,664         4,324,670              26,895
  MD         Silver Spring                                                 2,776,490         4,455,110              36,572
  MD         Essex                                                         1,015,773         2,396,462              12,907
  MD         Columbia                                                      1,057,034         3,289,952              29,901
  MD         Rockville                                                     1,376,588         3,765,848              21,495
  MD         Annapolis/Trout                                               1,635,928         4,430,887              44,756
  MD         Montgomery Village                                            1,287,176         3,537,609              31,460
  MD         Millersville                                                  1,501,123         4,101,854              30,274
  MD         Waldorf                                                       1,168,869         3,175,314              12,727
  MD         Rt 3/Millersville                                               546,011         1,493,533                   -
  MD         Balto City/E Pleasant St                                      1,547,767         4,185,072                   -
  MD         SUSA Partnership/Management                                   3,531,744           650,997          15,150,726
  MI         Lincoln Park                                                    761,209         2,097,502             338,822
  MI         Tel-Dixie                                                       595,495         1,646,723              26,643
  MI         Troy/Coolidge Highway                                         1,264,541         3,425,505                   -
  MI         Grand Rapids/28th St SE                                         598,182         1,621,080                   -
  MI         Grandville/Spartan Ind Dr                                       579,599         1,840,838                   -
  MO         Grandview                                                       511,576         1,396,230              48,466
  MO         Raytown                                                         427,056         1,171,397              59,940
  NC         Charlotte/Tryon St                                            1,003,418         2,731,345                   -
  NC         Raleigh/Hillsborough St                                         753,296         2,051,496                   -
  NC         Charlotte/Amity Rd                                              947,871         2,583,190                   -
  NJ         Pennsauken                                                      914,938         2,484,553              43,261
  NJ         Lawnside                                                      1,095,126         2,972,032              17,123
  NJ         Cherry Hill/Cuthbert                                            720,183         1,894,545               6,407
  NJ         Cherry Hill/Route 70                                            693,314         1,903,413              13,564
  NJ         Pomona                                                          529,657         1,438,132                   -
  NJ         Mays Landing                                                    386,592         1,051,300                   -
  NJ         Hackensack/S River St                       7,630,393         3,646,649         9,863,617                   -
  NJ         Secaucus/Paterson Plank                     5,629,669         2,851,097         7,712,681                   -
  NJ         Harrison/Harrison Ave                       1,273,522           822,192         2,227,121                   -
  NJ         Orange/Oakwood Ave                          4,033,027         2,408,877         6,517,030                   -
  NJ         Flanders/Bartley Flanders                                       645,486         1,749,362                   -
  NM         Lomas                                                           251,018           691,453              40,482
  NM         San Mateo                                                       524,982         1,436,128              62,004
  NM         Montgomery                                                      606,860         1,651,611              35,985
  NM         Legion                                                                -         1,873,666              40,527
  NM         Ellison                                                         620,366         1,715,897              33,808
  NM         Hotel Circle                                                    277,101           766,547             749,538
  NM         Eubank                                                          577,099         1,568,266             106,954
  NM         Coors                                                           494,400         1,347,792              32,358
  NM         Osuna                                                           696,685         1,891,849              83,264
  NM         East Central                                                    292,031           801,475              46,511
  NV         Rainbow                                                         892,753         2,419,779              55,293
  NV         Oakey                                                           663,607         1,825,505              20,380
  NV         Tropicana                                                       815,085         2,211,925              75,947
  NV         Sunset                                                          947,534         2,569,938              60,172
  NV         Sahara                                                        1,217,565         3,373,622              18,761
  NV         Charleston                                                      557,678         1,520,140              10,145
  NV         Las Vegas-Sahara/Pioneer                                      1,040,367         2,842,388                   -
  NY         Coram/Bald Hill                                               1,976,332         5,352,301                   -
  OK         Sooner Road                                                     453,185         1,252,031              46,494
  OK         10th Street                                                     621,413           743,356             126,516
  OK         Moore                                                           281,912           776,815              60,142
  OK         NW Expressway                                                   353,735           977,978              70,659
  OK         Midwest City                                                    443,545         1,216,512              15,455
  OK         Meridian                                                        252,963           722,040             293,353
  OK         Air Depot                                                       347,690           965,923              59,545
  OK         Peoria                                                          540,318         1,488,307              35,994
  OK         11th & Mingo                                                    757,054         2,071,799              53,964
  OK         Skelly                                                          173,331           489,960              16,334
  OK         Lewis                                                           642,511         1,760,304              20,599
  OK         Sheridan                                                        531,978         1,509,718              34,615
  OK         OKC/Roxbury Blvd                                                241,220           671,753                   -
  OK         OKC/33rd Street                                                 267,059           741,710                   -
  OR         Hillsboro/229th Ave                                           1,198,358         3,249,301                   -
  OR         Beaverton/Murray Ave                                          1,086,999         2,948,220                   -
  OR         Aloha/185th Ave                                               1,337,157         3,624,573                   -
  PA         Philadelphia                                                  1,574,064         2,838,049              20,927
  PA         King of Prussia                                               1,354,359         3,678,011              20,207
  PA         Warminster                                                      891,048         2,446,648              72,092
  PA         Allentown                                                       578,632         1,583,744              34,281
  PA         Bethlehem                                                       843,324         2,317,298              23,507
  PA         Norristown                                                      868,586         2,405,332                   -
  PA         Storage Partners of Paoli                                       433,482           849,584                   -
  SC         Charleston/Ashley River Rd                                      475,367         1,298,593                   -
  SC         Columbia/Broad River Rd                                         461,455         1,267,675                   -
  TN         Summer                                                          172,093         2,663,644              21,959
  TN         Union                                                           286,925         1,889,030              44,303
  TN         Memphis/Mt Moriah                                             1,024,669         1,598,722             816,229
  TN         Antioch/Nashville                                               822,125         2,239,684              97,707
  TN         Keyport (Gateway)                                               403,492         1,100,184              49,041
  TN         Chattanooga                                                     484,457         1,360,998              39,828
  TN         Memphis/Ridgeway                                                638,757         1,141,414             149,116
  TN         Winchester                                                      774,069           974,471                   -
  TN         Nashville/Lebanon Pike                                        1,366,208         3,748,062                   -
  TN         Nashville/Haywood                           1,131,359           423,170         1,166,891                   -
  TN         Nashville/Murfreesboro                        845,495           344,720           950,811                   -
  TN         SUSA/Poplar Partners, LP                                      1,750,000            10,635                   -
  TN         Nashville/Trousdale                                           1,440,860         3,901,994                   -
  TN         Nashville/Murfreesboro                                        1,222,229         3,309,033                   -
  TN         Nashville/Old Hickory Rd                                      1,271,786         3,444,402                   -
  TN         Antioch/Bell Road                                               841,235         2,280,513                   -
  TN         Franklin/Liberty Pike                                           844,335         2,287,937                   -
  TX         Ft. Worth Avenue                                                393,893         1,076,836             142,867
  TX         Euless                                                          359,330           979,859             125,238
  TX         North Freeway                                                   687,758         1,867,833              63,901
  TX         South Freeway                                                   441,599         1,202,291              94,184
  TX         White Settlement                                              1,347,379         2,531,920             605,479
  TX         Airport Freeway                                                 616,535         1,678,683             172,303
  TX         Midway                                                        1,125,514         2,344,420             601,450
  TX         Dallas/Preston                                                1,194,744         3,245,423              17,346
  TX         Bedford                                                         923,948         2,525,303                   -
  TX         Spring/I-45 North                                             1,110,728         3,005,855                   -
  TX         Sugarland/Old Mill Rd                                           675,660         1,830,545                   -
  UT         Orem                                                            629,867         1,722,550              27,132
  UT         Sandy                                                           949,065         2,573,696              36,645
  UT         West Valley                                                     576,248         1,579,605              12,697
  VA         Fairfax Station                                               1,019,015         2,115,385             111,899
  VA         Chantilly                                                       882,257         2,395,841             119,234
  VA         Clarendon                                                        37,575                 -           6,351,724
  VA         Reston                                                          551,285                 -           2,326,986
  VA         Falls Church                                                  1,226,409         3,348,761              49,935
  VA         Willow Lawn                                                   1,516,115         4,105,846                   -
  VA         Stafford/Jefferson Davis                                        751,398         2,035,961                   -
  VA         Fredericksburg/Jefferson                      983,000           668,526         1,812,040                   -
  VA         Charlottesville/Seminole                    2,763,000           748,988         2,029,716                   -
  VA         Fredericksburg/Plank Rd                                         846,358         2,287,063                   -
  WA         Vancouver/78th St                                               753,071         2,045,377                   -

                                               =================================================================================
                                                  $     43,660,611      $224,812,344      $588,937,361     $    41,892,598
                                               =================================================================================


<CAPTION>


                                                  Gross Amount at Close of Period                                       Depreciable
                                             ------------------------------------------                                 Life of
                                                             Buiding &                     Accumulated    Year Placed   Building
State        Property Name                     Land            Fixtures           Total    Depreciation     in Service  Component
-----------------------------------------  --------------------------------------------------------------------------------------

  AL         Vestavia                         652,309        1,820,064         2,472,372     (128,858)          1994          40
  AL         Birmingham/Hwy 280               348,919          953,148         1,302,067       (2,259)          1996          40
  AZ         24th Street                      500,232        1,394,222         1,894,454      (97,662)          1994          40
  AZ         Oracle                           587,844        1,638,056         2,225,900     (112,352)          1994          40
  AZ         22nd Street                      529,702        1,473,328         2,003,030     (103,352)          1994          40
  AZ         East Phoenix                     370,586        1,063,770         1,434,355      (48,131)          1995          40
  AZ         Tempe                            879,017        2,438,975         3,317,993      (81,714)          1995          40
  AZ         Cave Creek                       824,369        2,313,742         3,138,112      (63,841)          1995          40
  AZ         Alma School                      785,504        2,162,032         2,947,535      (54,707)          1996          40
  AZ         Metro-21st/Peoria-Phoenix        599,712        1,638,042         2,237,754      (24,283)          1996          40
  AZ         7th St/Indian Sch-Phoenix        518,977        1,418,677         1,937,654      (21,007)          1996          40
  AZ         Phoenix/32nd Street            1,352,332        3,670,885         5,023,217      (30,725)          1996          40
  AZ         Mesa/Country Club                554,688        1,503,241         2,057,929       (6,404)          1996          40
  AZ         Mesa/East Main St                913,783        2,479,293         3,393,075       (5,223)          1996          40
  AZ         Phoenix/Bell Road              1,312,139        3,547,636         4,859,776            -           1996          40
  CA         Miramar Self                     387,430        1,102,560         1,489,990      (75,500)          1994          40
  CA         Miramar Business               1,225,124        3,500,547         4,725,671     (247,934)          1994          40
  CA         Marina Del Rey                 1,954,097        5,382,456         7,336,553     (368,168)          1994          40
  CA         Covina                         1,234,592        3,535,733         4,770,325     (194,323)          1994          40
  CA         Norwalk                        1,529,221        4,277,767         5,806,988     (238,040)          1994          40
  CA         Campbell                       1,041,860        2,896,392         3,938,253     (151,443)          1994          40
  CA         Monterey I & II                1,613,922        4,446,057         6,059,979     (246,313)          1994          40
  CA         Palo Alto                        651,280        1,821,670         2,472,950     (101,932)          1994          40
  CA         San Jose                       1,266,988        3,493,510         4,760,498     (181,548)          1994          40
  CA         Santa Cruz                     1,092,718        3,004,016         4,096,734     (168,191)          1994          40
  CA         Scotts Valley                    651,281        1,811,732         2,463,012     (101,440)          1994          40
  CA         Santa Clara                    1,362,331        3,813,730         5,176,061     (145,696)          1995          40
  CA         Watsonville                      480,039        1,349,348         1,829,387      (70,021)          1994          40
  CA         Panorama City                    961,128        2,654,725         3,615,853     (151,370)          1994          40
  CA         Westminster                      975,304        2,709,871         3,685,176     (135,644)          1994          40
  CA         Point Loma                     2,139,342        5,926,953         8,066,296     (295,551)          1994          40
  CA         Rialto                           695,327        2,024,930         2,720,257      (84,644)          1995          40
  CA         Yucaipa                          411,580        1,140,324         1,551,904      (51,750)          1995          40
  CA         Fallbrook                        418,763        1,170,495         1,589,258      (52,107)          1995          40
  CA         Hemet                            455,585        1,256,159         1,711,744      (56,049)          1995          40
  CA         Victorville                      491,597        1,365,607         1,857,204      (59,287)          1995          40
  CA         San Bernardino/Baseline        1,220,837        3,343,738         4,564,574     (148,114)          1995          40
  CA         Colton                           514,276        1,447,620         1,961,896      (63,699)          1995          40
  CA         San Marcos                       318,260          898,898         1,217,158      (40,048)          1995          40
  CA         Capitola                         827,352        2,301,690         3,129,042      (88,529)          1995          40
  CA         Oceanside                      1,236,627        3,393,217         4,629,844     (150,885)          1995          40
  CA         San Bernardino/Waterman          708,988        1,990,320         2,699,308      (67,139)          1995          40
  CA         Santee                           879,599        2,467,019         3,346,619      (65,212)          1995          40
  CA         Santa Ana                      1,273,816        3,475,077         4,748,893     (116,112)          1995          40
  CA         Garden Grove                   1,137,871        3,108,696         4,246,567     (104,180)          1995          40
  CA         City of Industry                 900,036        2,517,815         3,417,851      (84,011)          1995          40
  CA         Chatsworth                     1,738,243        4,788,145         6,526,388     (158,904)          1995          40
  CA         Palm Springs/Tamarisk            816,743        2,326,096         3,142,840      (79,125)          1995          40
  CA         Moreno Valley                    414,614        1,197,109         1,611,723      (37,450)          1995          40
  CA         San Bern/23rd St                 655,883        1,881,963         2,537,846      (55,401)          1995          40
  CA         San Bern/Mill Ave                370,043        1,083,050         1,453,093      (32,564)          1995          40
  CA         Highlands                        627,594        1,752,198         2,379,792      (51,411)          1995          40
  CA         Redlands                         731,365        2,025,619         2,756,983      (58,366)          1995          40
  CA         Palm Springs/Gene Autry          784,589        2,150,904         2,935,492      (54,706)          1995          40
  CA         Thousand Palms                   652,410        1,831,765         2,484,175      (46,563)          1996          40
  CA         Salinas                          622,542        1,731,104         2,353,646      (32,309)          1996          40
  CA         Whittier                         919,755        2,516,477         3,436,232      (47,328)          1996          40
  CA         Florin/Freeport-Sacrament        824,241        2,262,310         3,086,551      (33,232)          1996          40
  CA         Sunrise/Sacramento               819,025        2,231,500         3,050,525      (28,379)          1996          40
  CA         Santa Rosa                     1,351,168        3,669,084         5,020,251      (46,240)          1996          40
  CA         Huntington Beach                 838,648        2,309,309         3,147,957      (25,398)          1996          40
  CA         La Puente/Valley Blvd            992,211        2,710,041         3,702,252      (28,883)          1996          40
  CA         Pacheco/First Ave North        1,198,654        3,257,766         4,456,420      (27,593)          1996          40
  CA         Huntington Bch II/McFadden     1,050,495        2,846,043         3,896,538      (17,858)          1996          40
  CA         Hawaiian Gardens/Norwalk       1,956,411        5,353,015         7,309,426      (34,128)          1996          40
  CA         Sacramento/Auburn Blvd           666,995        1,808,847         2,475,841       (3,860)          1996          40
  CA         Sacramento/Perry                 452,480        1,225,139         1,677,619            -           1996          40
  CT         Wethersfield                     472,831        2,175,076         2,647,906      (88,274)          1994          40
  CT         Enfield                          506,875        1,451,577         1,958,451      (89,857)          1994          40
  CT         East Hartford                    992,547        2,703,468         3,696,015     (118,612)          1995          40
  CT         Waterbury                        746,487        2,036,915         2,783,402      (26,436)          1996          40
  CT         Rocky Hill                     1,327,857        3,608,978         4,936,834      (45,453)          1996          40
  CT         Farmington                     1,272,203        3,454,995         4,727,198      (44,188)          1996          40
  DC         U Street                       1,388,564        3,814,090         5,202,654     (261,647)          1994          40
  DE         Wilmington                       610,689        2,545,248         3,155,937     (489,344)          1989          40
  FL         Kendall                        1,838,903        3,889,338         5,728,241     (791,879)          1988          40
  FL         Ives Dairy                     1,061,776        4,356,283         5,418,060     (859,355)          1988          40
  FL         Longwood                         862,849        2,409,380         3,272,229     (471,711)          1988          40
  FL         Sarasota                       2,007,894        3,054,294         5,062,188     (433,573)          1988          40
  FL         WPB Southern                     996,405        3,030,150         4,026,555     (173,421)          1991          40
  FL         WPB II                           572,284        2,386,742         2,959,027     (201,144)          1991          40
  FL         Port Richey                      605,850        1,728,767         2,334,616     (119,947)          1994          40
  FL         Ft. Myers                        645,219        1,465,579         2,110,797      (97,264)          1994          40
  FL         North Lauderdale               1,282,769        3,331,072         4,613,841     (201,113)          1994          40
  FL         Naples                           636,051        1,779,048         2,415,099      (99,882)          1994          40
  FL         Hallandale                     1,696,519        4,642,835         6,339,354     (196,603)          1995          40
  FL         Davie                          2,005,938        5,520,059         7,525,997     (222,970)          1995          40
  FL         Tampa/Adamo                      837,180        2,306,048         3,143,228      (92,383)          1995          40
  FL         SR 84 (Southwest)              1,903,782        5,235,128         7,138,910     (164,351)          1995          40
  FL         Quail Roost                    1,663,641        4,544,555         6,208,196     (142,233)          1995          40
  FL         Tamiami                        1,962,917        5,376,701         7,339,618     (213,171)          1995          40
  FL         Highway 441 (2nd Avenue)       1,734,958        4,770,762         6,505,720     (188,956)          1995          40
  FL         Miami Sunset                   2,205,018        6,037,315         8,242,333     (239,647)          1995          40
  FL         Doral (Archway)                1,633,500        4,511,904         6,145,404     (180,162)          1995          40
  FL         Boca Raton                     1,505,564        4,123,885         5,629,449      (77,657)          1996          40
  FL         Ft Lauderdale                  1,063,136        2,949,236         4,012,371      (55,535)          1996          40
  FL         Coral Way                      1,574,578        4,314,468         5,889,045      (73,458)          1996          40
  FL         Miller Rd.                     1,409,474        3,898,643         5,308,117      (67,744)          1996          40
  FL         Harborview/Port Charlotte        883,344        2,400,333         3,283,677      (35,513)          1996          40
  FL         Miami Gardens/441                540,649        1,469,557         2,010,206      (18,293)          1996          40
  FL         Miramar/State Rd 7             1,797,370        4,892,278         6,689,647      (61,244)          1996          40
  FL         Delray Bch/W Atlantic Blvd       388,538        1,059,895         1,448,433       (9,003)          1996          40
  FL         Okeechobee Partners, LP        1,134,363                -         1,134,363            -           1996          40
  GA         South Cobb                       161,509        1,426,924         1,588,434     (141,428)          1992          40
  GA         Lilburn                          634,879        1,752,471         2,387,351     (123,132)          1994          40
  GA         Eastpoint                        937,618        2,298,234         3,235,852     (154,466)          1994          40
  GA         Acworth                          520,032        1,576,975         2,097,007      (62,376)          1994          40
  GA         Western Hills                    846,462        1,943,913         2,790,375     (108,755)          1994          40
  GA         Stone Mountain                 1,053,620        2,908,080         3,961,700      (55,241)          1996          40
  IL         Brickyard                        716,443        1,975,626         2,692,069     (122,000)          1994          40
  IL         Cermak                           949,042        2,721,692         3,670,734     (155,573)          1994          40
  IL         Schaumburg                     1,159,033        3,215,918         4,374,951     (134,255)          1995          40
  KS         Shawnee                          546,118        1,513,710         2,059,828     (105,054)          1994          40
  KS         Olathe                           429,808        1,221,171         1,650,979      (86,147)          1994          40
  KS         Overland Park                    561,549        1,557,022         2,118,571     (108,698)          1994          40
  KS         State Avenue                     448,025        1,266,372         1,714,397      (69,415)          1994          40
  LA         Tchoup (New Orleans)             920,987        2,623,998         3,544,985     (178,744)          1994          40
  MA         Worcester                        661,235        1,623,807         2,285,042      (94,723)          1994          40
  MA         Haverhill                        573,068        1,573,790         2,146,858      (89,595)          1994          40
  MA         New Bedford                      768,959        2,109,361         2,878,319     (120,038)          1994          40
  MA         Whitman                          544,178        1,524,546         2,068,724      (85,554)          1994          40
  MA         Brockton                       1,134,761        3,104,615         4,239,376      (59,023)          1996          40
  MA         Northborough                     822,364        2,279,586         3,101,950      (43,203)          1996          40
  MA         Nashua/Tyngsboro               1,211,930        3,293,838         4,505,768      (42,580)          1996          40
  MA         South Easton                     909,912        2,465,382         3,375,294      (31,173)          1996          40
  MA         North Attleboro                  908,949        2,460,427         3,369,376      (30,882)          1996          40
  MA         Fall River                       773,781        2,097,333         2,871,114      (26,379)          1996          40
  MA         Salisbury                        771,078        2,096,159         2,867,236      (27,170)          1996          40
  MD         Annapolis/Route 50             1,565,664        4,351,566         5,917,229     (712,851)          1989          40
  MD         Silver Spring                  2,776,490        4,491,681         7,268,172     (832,466)          1989          40
  MD         Essex                          1,015,773        2,409,368         3,425,142     (383,806)          1990          40
  MD         Columbia                       1,057,034        3,319,853         4,376,887     (477,431)          1991          40
  MD         Rockville                      1,376,588        3,787,342         5,163,931     (238,545)          1994          40
  MD         Annapolis/Trout                1,635,928        4,475,643         6,111,571     (260,670)          1994          40
  MD         Montgomery Village             1,287,176        3,569,068         4,856,245     (201,500)          1994          40
  MD         Millersville                   1,501,123        4,132,128         5,633,251     (126,679)          1995          40
  MD         Waldorf                        1,169,197        3,187,713         4,356,910     (107,308)          1995          40
  MD         Rt 3/Millersville                546,011        1,493,533         2,039,544      (18,984)          1996          40
  MD         Balto City/E Pleasant St       1,547,767        4,185,072         5,732,839       (8,718)          1996          40
  MD         SUSA Partnership/Management   10,427,038        8,906,429        19,333,467     (335,988)          1989           5
  MI         Lincoln Park                   1,028,677        2,168,856         3,197,533      (92,200)          1995          40
  MI         Tel-Dixie                        595,495        1,673,366         2,268,861      (71,627)          1995          40
  MI         Troy/Coolidge Highway          1,264,541        3,425,505         4,690,046      (14,324)          1996          40
  MI         Grand Rapids/28th St SE          598,182        1,621,080         2,219,261       (6,770)          1996          40
  MI         Grandville/Spartan Ind Dr        579,599        1,840,838         2,420,437       (7,686)          1996          40
  MO         Grandview                        511,576        1,444,696         1,956,272     (100,201)          1994          40
  MO         Raytown                          427,056        1,231,337         1,658,393      (68,659)          1994          40
  NC         Charlotte/Tryon St             1,003,418        2,731,345         3,734,763      (34,209)          1996          40
  NC         Raleigh/Hillsborough St          753,296        2,051,496         2,804,791      (25,935)          1996          40
  NC         Charlotte/Amity Rd               947,871        2,583,190         3,531,061      (32,365)          1996          40
  NJ         Pennsauken                       914,938        2,527,814         3,442,752     (169,533)          1994          40
  NJ         Lawnside                       1,095,126        2,989,156         4,084,281     (131,160)          1995          40
  NJ         Cherry Hill/Cuthbert             720,183        1,900,951         2,621,135      (84,236)          1995          40
  NJ         Cherry Hill/Route 70             693,641        1,916,650         2,610,291      (64,479)          1995          40
  NJ         Pomona                           529,657        1,438,132         1,967,790      (18,233)          1996          40
  NJ         Mays Landing                     386,592        1,051,300         1,437,892      (13,410)          1996          40
  NJ         Hackensack/S River St          3,646,649        9,863,617        13,510,266      (20,529)          1996          40
  NJ         Secaucus/Paterson Plank        2,851,097        7,712,681        10,563,778      (16,065)          1996          40
  NJ         Harrison/Harrison Ave            822,192        2,227,121         3,049,313       (4,637)          1996          40
  NJ         Orange/Oakwood Ave             2,408,877        6,517,030         8,925,907      (13,574)          1996          40
  NJ         Flanders/Bartley Flanders        645,486        1,749,362         2,394,848       (3,641)          1996          40
  NM         Lomas                            251,018          731,936           982,953      (47,970)          1994          40
  NM         San Mateo                        524,982        1,498,132         2,023,114      (97,359)          1994          40
  NM         Montgomery                       606,860        1,687,596         2,294,456     (111,549)          1994          40
  NM         Legion                                   -      1,914,193         1,914,193     (121,526)          1994          40
  NM         Ellison                          620,366        1,749,705         2,370,071     (115,271)          1994          40
  NM         Hotel Circle                     255,163        1,538,023         1,793,186      (49,355)          1994          40
  NM         Eubank                           577,099        1,675,220         2,252,319      (88,654)          1994          40
  NM         Coors                            494,400        1,380,150         1,874,550      (74,264)          1994          40
  NM         Osuna                            696,685        1,975,113         2,671,798     (102,833)          1994          40
  NM         East Central                     292,031          847,986         1,140,017      (46,882)          1994          40
  NV         Rainbow                          892,753        2,475,071         3,367,825     (131,642)          1994          40
  NV         Oakey                            663,607        1,845,885         2,509,492      (94,641)          1995          40
  NV         Tropicana                        815,085        2,287,872         3,102,957     (120,012)          1994          40
  NV         Sunset                           947,534        2,630,111         3,577,644     (139,850)          1994          40
  NV         Sahara                         1,217,565        3,392,383         4,609,948     (162,599)          1995          40
  NV         Charleston                       558,006        1,529,957         2,087,963      (51,586)          1995          40
  NV         Las Vegas-Sahara/Pioneer       1,040,367        2,842,388         3,882,755      (53,821)          1996          40
  NY         Coram/Bald Hill                1,976,332        5,352,301         7,328,633      (67,340)          1996          40
  OK         Sooner Road                      453,185        1,298,525         1,751,710      (90,560)          1994          40
  OK         10th Street                      621,413          869,872         1,491,285      (53,202)          1994          40
  OK         Moore                            281,912          836,956         1,118,869      (58,369)          1994          40
  OK         NW Expressway                    353,735        1,048,637         1,402,372      (72,390)          1994          40
  OK         Midwest City                     443,545        1,231,967         1,675,512      (85,931)          1994          40
  OK         Meridian                         244,143        1,024,213         1,268,356      (55,885)          1994          40
  OK         Air Depot                        347,690        1,025,468         1,373,158      (70,357)          1994          40
  OK         Peoria                           540,318        1,524,301         2,064,619      (58,023)          1995          40
  OK         11th & Mingo                     757,054        2,125,763         2,882,817      (80,906)          1995          40
  OK         Skelly                           173,331          506,294           679,625      (20,454)          1995          40
  OK         Lewis                            642,511        1,780,903         2,423,414      (67,987)          1995          40
  OK         Sheridan                         531,978        1,544,333         2,076,311      (56,703)          1995          40
  OK         OKC/Roxbury Blvd                 241,220          671,753           912,972       (6,175)          1996          40
  OK         OKC/33rd Street                  267,059          741,710         1,008,769       (6,678)          1996          40
  OR         Hillsboro/229th Ave            1,198,358        3,249,301         4,447,659      (40,650)          1996          40
  OR         Beaverton/Murray Ave           1,086,999        2,948,220         4,035,219      (36,886)          1996          40
  OR         Aloha/185th Ave                1,337,157        3,624,573         4,961,730      (45,342)          1996          40
  PA         Philadelphia                   1,574,064        2,858,975         4,433,040     (522,705)          1990          40
  PA         King of Prussia                1,354,359        3,698,219         5,052,577     (159,123)          1995          40
  PA         Warminster                       891,048        2,518,740         3,409,788     (106,125)          1995          40
  PA         Allentown                        578,632        1,618,025         2,196,657      (72,028)          1995          40
  PA         Bethlehem                        843,324        2,340,805         3,184,129     (104,295)          1995          40
  PA         Norristown                       868,586        2,405,332         3,273,918      (50,835)          1996          40
  PA         Storage Partners of Paoli        433,482          849,584         1,283,065            -           1996          40
  SC         Charleston/Ashley River Rd       475,367        1,298,593         1,773,960      (16,293)          1996          40
  SC         Columbia/Broad River Rd          461,455        1,267,675         1,729,130      (15,995)          1996          40
  TN         Summer                           172,093        2,685,603         2,857,696     (615,157)          1986          40
  TN         Union                            286,925        1,933,333         2,220,258     (412,368)          1987          40
  TN         Memphis/Mt Moriah              1,034,883        2,404,737         3,439,620     (317,408)          1989          40
  TN         Antioch/Nashville                822,125        2,337,391         3,159,516     (163,330)          1994          40
  TN         Keyport (Gateway)                403,492        1,149,225         1,552,717      (67,663)          1994          40
  TN         Chattanooga                      484,457        1,400,826         1,885,283      (40,530)          1995          40
  TN         Memphis/Ridgeway                 638,849        1,290,438         1,929,287      (49,378)          1995          40
  TN         Winchester                       774,069          974,471         1,748,539            -           1996          40
  TN         Nashville/Lebanon Pike         1,366,208        3,748,062         5,114,270      (47,170)          1996          40
  TN         Nashville/Haywood                423,170        1,166,891         1,590,061       (5,164)          1996          40
  TN         Nashville/Murfreesboro           344,720          950,811         1,295,530       (4,263)          1996          40
  TN         SUSA/Poplar Partners, LP       1,750,000           10,635        1,760,635            -            1996          40
  TN         Nashville/Trousdale            1,440,860        3,901,994         5,342,853       (8,223)          1996          40
  TN         Nashville/Murfreesboro         1,222,229        3,309,033         4,531,263       (6,932)          1996          40
  TN         Nashville/Old Hickory Rd       1,271,786        3,444,402         4,716,188       (7,271)          1996          40
  TN         Antioch/Bell Road                841,235        2,280,513         3,121,747       (4,854)          1996          40
  TN         Franklin/Liberty Pike            844,335        2,287,937         3,132,272       (9,607)          1996          40
  TX         Ft. Worth Avenue                 393,893        1,219,703         1,613,596      (71,018)          1994          40
  TX         Euless                           359,330        1,105,097         1,464,427      (58,295)          1994          40
  TX         North Freeway                    687,758        1,931,734         2,619,492     (105,869)          1994          40
  TX         South Freeway                    441,599        1,296,475         1,738,074      (68,112)          1994          40
  TX         White Settlement               1,370,309        3,114,469         4,484,778     (169,012)          1994          40
  TX         Airport Freeway                  616,535        1,850,985         2,467,521      (98,519)          1994          40
  TX         Midway                         1,169,859        2,901,525         4,071,384     (129,345)          1994          40
  TX         Dallas/Preston                 1,194,744        3,262,768         4,457,513      (95,509)          1995          40
  TX         Bedford                          923,948        2,525,303         3,449,251      (32,439)          1996          40
  TX         Spring/I-45 North              1,110,728        3,005,855         4,116,583      (18,795)          1996          40
  TX         Sugarland/Old Mill Rd            675,660        1,830,545         2,506,205       (7,636)          1996          40
  UT         Orem                             629,867        1,749,682         2,379,549     (100,127)          1994          40
  UT         Sandy                            949,065        2,610,341         3,559,406     (147,269)          1994          40
  UT         West Valley                      576,248        1,592,302         2,168,550      (44,482)          1995          40
  VA         Fairfax Station                1,019,015        2,227,285         3,246,299     (164,583)          1993          40
  VA         Chantilly                        882,257        2,515,075         3,397,332     (160,743)          1994          40
  VA         Clarendon                      1,187,575        5,201,724         6,389,299      (70,764)          1996          40
  VA         Reston                           551,285        2,326,986         2,878,271      (40,304)          1996          40
  VA         Falls Church                   1,226,736        3,398,369         4,625,105     (114,597)          1995          40
  VA         Willow Lawn                    1,516,115        4,105,846         5,621,961      (34,258)          1996          40
  VA         Stafford/Jefferson Davis         751,398        2,035,961         2,787,359       (8,523)          1996          40
  VA         Fredericksburg/Jefferson         668,526        1,812,040         2,480,566       (7,592)          1996          40
  VA         Charlottesville/Seminole         748,988        2,029,716         2,778,704       (8,502)          1996          40
  VA         Fredericksburg/Plank Rd          846,358        2,287,063         3,133,422       (9,566)          1996          40
  WA         Vancouver/78th St                753,071        2,045,377         2,798,447      (25,602)          1996          40

                                         ================================================================
                                         $235,139,274     $620,503,025      $855,642,289 $(26,572,972)
                                         ================================================================

</TABLE>
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS
                                STORAGE USA, INC.



To the Board of Directors and
Shareholders of Storage USA, Inc.

                  Our report on the consolidated financial statements of Storage
USA, Inc. is included in this Form 10-K of Storage USA, Inc. In connection  with
our  audits of such  financial  statements,  we have also  audited  the  related
financial statement schedule included in this Form 10-K.

                  In our opinion,  the financial  statement schedule referred to
above, when considered in relation to the basic financial  statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.






                                         COOPERS & LYBRAND L.L.P.



Baltimore, Maryland
January 29, 1997