Fitch Expects to Affirm Ratings for Storage USA.

Business Editors

NEW YORK--(BUSINESS WIRE)--Nov. 26, 2001

Fitch expects to affirm its `BBB' rating for $600 million outstanding senior unsecured notes of SUSA Partnership LP, the principal operating subsidiary of Storage USA (NYSE: SUS) should SUS ultimately accept and close the current all-cash offer from Security Capital Group Incorporated (NYSE: SCZ) to acquire a 100% equity interest in SUS.

Upon closing, SUS' outstanding senior notes and $66 million of preferred partnership units (unrated) would remain outstanding within the existing operating partnership and REIT, which would become a wholly owned private subsidiary of Security Capital Group (SCZ). SCZ is not anticipated to provide a guarantee on the outstanding SUS securities. Fitch has revised its Rating Outlook from Stable to Negative. Fitch directs readers to its recent press release for SCZ for additional credit commentary on the potential parent company.

The offer is currently under review by SUS, and if accepted, would be followed by a 45-day period during which SUS may solicit competing bids. Fitch's expected affirmation, which remains subject to the review of the interim investment and operating activities of SUS and SCZ, would coincide with the scheduled March, 2002 closing for the acquisition.

Fitch's expected affirmation is based primarily on the cash flow stability inherent in SUS' $2.2 billion (total market capitalization) portfolio of 557 self storage facilities located in 32 states, and the private REIT's initially strong financial measures. SUS' capital structure will be impacted positively by the acquisition, which will eliminate SUS' bank credit facility and retire its $160 million outstandings, thereby reducing leverage from 43% to 32% and increasing pro forma interest coverage from 3.0 times (x) to 3.7x. Also positively impacted will be the ability of SCZ to retain $85 million in common dividends currently paid by SUS to fund ongoing development activity or retire SUS debt maturities. The transaction would increase available retained cash flow from the SUS portfolio to approximately $110 million, an amount that would be more than sufficient to fund SUS' ongoing development and expansion activity (unfunded commitments totaled $19 million as of Sept. 30, 2001), or retire each of SUS' six $100 million senior note maturities that are staggered between 2003 and 2018.

A potential negative associated with the merger is the management integration issues and the possibility that senior management of the SUS portfolio will transition to SCZ personnel. This concern is mitigated by the long relationship between SUS and SCZ and SCZ's demonstrated ability to manage and grow other private companies, including ProLogis (NYSE: PLD) and Archstone (NYSE: ASN).

Additional concerns include uncertainties regarding the funding strategies for SUS and SCZ going forward. Protection measures for SUS bondholders are initially strong, with unencumbered assets representing more than three times unsecured debt obligations, and mortgage debt moderate at $65 million. SCZ's plan to retire the SUS note maturities through unsecured financings at the parent level, or sale of SUS assets, would likely result in stable to improving financial ratios.

However, while recognizing SCZ's considerable levels of retained cash flow from operations, Fitch remains concerned that capital requirements at the parent company could be funded from the sale, mortgage or joint venture of existing SUS properties, potentially depleting the SUS unencumbered asset base. While Fitch anticipates that sale of SUS would be accompanied by reinvestment into additional storage facilities, those properties may not be acquired or developed within SUSA Partnership LP, the obligor for SUS' senior unsecured obligations. With both capital and assets expected to be fungible between the subsidiary and the more highly levered parent company, Fitch expects that its ratings for SUS and other potential acquirees would remain in parity with Fitch's rating for SCZ, which is similarly `BBB' with a Negative Outlook.