14
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 $250
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from --------------- to --------------------.
Commission file number 33-25729
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. II
(Exact name of registrant as specified in its charter)
Washington 91-1436174
(State of organization) (IRS Employer Identification No.)
1201 Third Avenue, Suite 2200, Seattle, Washington 98101
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (206) 624-8100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K ( 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
[ X ]
DOCUMENTS INCORPORATED BY REFERENCE
The Annual Report to Security Holders for the fiscal year ended
December 31, 1994 are incorporated by reference into Part II and III of
this Form 10-K.
PART I
ITEM 1. BUSINESS.
General
IDS/Shurgard Income Growth Partners L.P. II was organized under the
laws of the State of Washington on November 15, 1988. The General Partner
is Shurgard Associates L.P. II. The Partnership will terminate December
31, 2030, unless terminated at an earlier date.
The business of the Partnership is to acquire, develop and operate
storage centers. The principal investment objectives of the Partnership
are to provide the Limited Partners with regular quarterly cash
distributions which, for Taxable Limited Partners, are expected to be
partially tax-sheltered; to obtain long-term appreciation in the value of
its properties; and to preserve and protect the Limited Partners' capital.
The Partnership began operations during 1989, at which time it obtained
approximately $10.3 million in short-term financing for the purchase of two
existing storage facilities. The offering was completed in April 1990 with
total proceeds raised through the sale of limited partnership interest of
approximately $28.8 million. This enabled the Partnership to retire the
short-term loans and purchase an additional five existing storage centers
and one partially completed facility. For more information regarding the
properties owned by the Partnership at December 31, 1994, see Item 2 below.
Self-Service Storage
Self-service storage centers provide a low-cost alternative to
warehousing and other forms of storage. Storage customers vary from
individuals and professionals to small and large businesses. These
customers rent an enclosed space or "unit" to store various items,
including household goods, recreation vehicles, inventory and business
records. Individual units are secured by the customer's own lock and key
and the property's security is maintained through a computerized access
system. Storage space is rented on a month-to-month basis and the typical
rental period for storage tenants is less than two years. This short
rental period makes it necessary for management to continually re-lease
available space in order to maximize property revenues. The primary
technique for renting available space is through advertisements placed in
local Yellow Pages and through signage at the property site. In addition,
the Partnership may utilize various promotional programs to stimulate
rental activities at a particular facility or within specific market areas.
The Partnership's storage centers are designed to offer high-quality
storage space for personal and business use at a competitive price. Rental
rates reflect the comparative quality of the center (security,
accessibility and appearance), as well as the superior service provided by
on-site managers. Because storage leases are short term, any adjustments
in rental rates due to inflation or other market factors can become
effective promptly after they are announced by the Partnership.
While rental income from leased space constitutes the primary source
of revenue from the properties, additional revenue is generated from
incidental services and products available at the storage centers.
Management believes that providing such ancillary services will become
increasingly important as competition forces operators to seek to
differentiate their product. The Partnership currently receives additional
revenue from storage supplies sales as well as truck rental operations.
Property Management
The Partnership has entered into a Management Services Agreement with
Shurgard Incorporated, an affiliate of the General Partner, whereby
Shurgard Incorporated has agreed to manage the Partnership's properties for
a monthly fee of 6% of the gross revenues from operations of storage
centers, plus $75 per month per facility for rendering advertising
services. Since the management of the centers is supervised by Shurgard
Incorporated, all on-site managers and associate managers are employees of
the management company. As of February 6, 1995, there were 13 such
employees on-site at the Partnership's storage centers.
Under the Management Services Agreement, Shurgard Incorporated has
granted the Partnership the non-exclusive right to use the name, trademark
and service mark "Shurgard" in connection with the rental and operation of
its properties. The Management Services Agreement can be terminated
without cause by the Partnership with sixty days written notice. However,
if the agreement is so terminated, all rights to use the "Shurgard" name,
trademark and service mark are also terminated and any signs bearing the
name "Shurgard" are to be removed at the Partnership's expense. If the
agreement is terminated by Shurgard Incorporated for reasons other than the
Partnership's breach thereof, or Shurgard Incorporated is terminated for
cause, the Partnership will maintain the right to use the "Shurgard" name,
trademark, service mark and related items until the properties are sold or
otherwise disposed of. However, such rights may not be passed on to any
subsequent purchaser of a property.
On March 24, 1995, Shurgard Incorporated was merged into Shurgard
Storage Centers, Inc. As a result of the merger, SSCI assumed all of
Shurgard Incorporated's rights and obligations under the Management
Services Agreement and will manage the Partnership's properties on the
terms set forth in the Management Services Agreement.
Competition
Relatively low increases in storage supply and continued increases in
the industry demand have driven substantial occupancy gains over the last
several years. Management considers occupancy levels in the 90% range to
be "full", and as such they believe significant future occupancy gains will
be difficult to obtain. Management anticipates that future increases in
revenues from storage centers currently owned by the Partnership will be
primarily the result of rental rate increases. To the extent that the
existing properties continue to operate profitably, this will likely
stimulate further development and result in greater competition between the
newly developed and existing properties.
Entry into the self-storage business through acquisition of existing
facilities is relatively easy for persons or institutions with the required
initial capital. Development of new self-storage facilities is more
difficult, however, due to zoning, environmental and other regulatory
requirements. Management has seen recent increases in storage development,
but anticipates that this development will not begin to effect industry
occupancies until 1996 or 1997. The Partnership competes with, among
others, national and regional storage operators and developers.
Performance at any one location is generally most influenced by
competition within a three to five mile radius. The primary factors upon
which competition will be based are location, rental rates, suitability of
the property's design to prospective tenants' needs and the manner in which
the property is operated and marketed. The Partnership has established
itself within its markets as a quality operator, emphasizing customer
service and security.
Competition may be accentuated by any increase in availability of
funds for investment in real estate. Rising interest rates tend to
decrease the availability of funds and therefore can have a positive impact
on competition. The extent to which the Partnership is affected by
competition will depend in significant part on general market conditions.
Disposition of Assets
As originally stated, the Partnership plans to dispose of its interest
in its properties seven to nine years after acquisition or completion of
the properties' development, i.e., between 1996 and 2000. However, as
originally indicated, the actual time of the sale depends on a variety of
factors not capable of prediction, including future property values,
availability of credit worthy purchasers, existing financing opportunities,
operating results and the Partnership's assessment of the respective merits
of the continued operation or disposition of the properties.
ITEM 2. PROPERTIES.
The following table lists each of the Partnership's storage centers at
December 31, 1994, the metropolitan area they serve, the respective
rentable space, the acquisition or completion date, and the square foot
occupancy at December 31, 1994, 1993 and 1992.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Rentable
Metropolitan Square Acquisition/ Occupancy at Dec. 31,
Area Footage Completion
Date 1992 1993 1994
----------------- -------- -------------- ---- ---- ----
Shurgard of Orange Los Angeles, CA 90,200 2/89 92 91 92
Shurgard of Sterling Detroit, MI 104,650 12/88 92 95 88
Heights
Shurgard of Newport Newport News, VA 59,000 8/89 <F1> <F1> <F1>
News North
Shurgard of Chesapeake Virginia Beach, 31,900 8/89 <F1> <F1> <F1>
VA
Shurgard of Leesburg Washington, D.C. 27,510 8/89 <F1> <F1> <F1>
Shurgard of T.C. Houston, TX 64,012 4/90 73 92 92
Jester
Shurgard of Bellefield Bellevue, WA 64,774 2/90 89 92 93
Shurgard of Kennydale Bellevue, WA 58,450 5/91 74 91 91
<F1> These properties are individually less than 10% of historical cost. The
average occupancy of these projects was 92%, 88% and 87% for the years
1992, 1993 and 1994, respectively.
</TABLE>
Shurgard of Kennydale was purchased from an affiliated partnership
after approval by a majority vote of limited partners. The Houston, Texas
center was purchased from Shurgard Incorporated at its net cost. The
remaining six centers were purchased from unaffiliated sellers.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Market information.
There is no established public market for the Partnership's
units of limited partnership interest.
Transfers of limited partner interests are restricted in
certain circumstances. Transfers which would result in the
termination of the Partnership under Section 708 of the Internal
Revenue Code, transfers of fractional units, and transfers which
result in a limited partner owning less than the minimum number
of units are restricted. There is a fee charged for transfers.
(b) Holders.
As of February 6, 1994, there was one general partner and
approximately 4,200 limited partners in the Partnership.
(c) Distributions.
During the fiscal years ended December 31, 1993 and 1994,
the Partnership distributed $15.62 and $15.78 respectively, per
$250 unit of limited partnership interest. In February 1995, the
Partnership distributed $4.06 per $250 unit of limited
partnership interest. As of December 31, 1994, total
distributions of $9,036,743 are greater than total earnings on a
basis consistent with generally accepted accounting principles by
$3,145,188. Therefore, the partners' original investment has
been reduced by that amount for financial reporting purposes.
ITEM 6. SELECTED FINANCIAL DATA.
The information called for by this item is incorporated by reference
of the Annual Report to Security Holders for the fiscal year ended December
31, 1994, a copy of which is filed as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
THE RESULTS OF OPERATIONS.
The information called for by this item is incorporated by reference
of the Annual Report to Security Holders for the fiscal year ended December
31, 1994, a copy of which is filed as Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this item is incorporated by reference
of the Annual Report to Security Holders for the fiscal year ended December
31, 1994, a copy of which is filed as Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Partnership's General Partner is Shurgard Associates L.P. II, a
Washington limited partnership. Shurgard Associates L.P. II is managed by
the directors and executive officers of Shurgard General Partner, Inc., the
corporate General Partner, and by the Individual General Partners.
Shurgard Incorporated and IDS Partnership Services Corporation (IPSC), a
Minnesota corporation, are limited partners of Shurgard Associates L.P. II,
and as such, do not control the day-to-day affairs of the General Partner
or, through the General Partner, the Partnership. Management of the
operations of Partnership projects is performed by Shurgard Incorporated
pursuant to the Management Services Agreement.
The directors of Shurgard General Partner, Inc. have been elected to
serve until their successors are duly elected and qualified. As the sole
shareholder of Shurgard General Partner, Inc., Charles K. Barbo is in a
position to control the election of directors. Mr. Barbo is a party to a
business agreement whereby he shall use his best efforts to cause Donald B.
Daniels to be elected a vice president and director of Shurgard General
Partner, Inc., so long as Mr. Daniels is willing to serve in such
positions.
The directors and officers of Shurgard General Partner, Inc., are
required to devote only so much of their time to the Partnership's affairs
as is necessary or required for the effective conduct and operation of the
Partnership's business. The Individual General Partners devote their
individual time to the Partnership to the extent they deem advisable in
view of the participation of Shurgard Incorporated in Partnership affairs
and such other factors as they consider relevant.
The Individual General Partners of Shurgard Associates L.P. II and the
executive officers, directors and certain key personnel of Shurgard General
Partner, Inc., and Shurgard Incorporated are as follows:
Name Age Company Office and Date of Election
------------------ --- ---------------------------- ---------------------------
Charles K. Barbo 53 Shurgard Associates L.P. II Individual General Partner
(1988)
Shurgard Incorporated President (1992), Chairman
of the Board (1979)
Shurgard General Partner, President (1992), Chairman
Inc. of the Board (1983)
Arthur W. Buerk 58 Shurgard Associates L.P. II Individual General Partner
(1988)
Shurgard Incorporated Director (1982)
Shurgard General Partner, Director (1979)
Inc.
Donald B. Daniels 56 Shurgard Incorporated Vice President (1983),
Director (1972)
Shurgard General Partner, Vice President (1983),
Inc. Director (1979)
Kristin H. Stred 36 Shurgard Incorporated Secretary (1992)
Shurgard General Partner, Secretary (1992)
Inc.
Michael Rowe 38 Shurgard Incorporated Executive Vice President
(1993)
Harrell Beck 38 Shurgard Incorporated Treasurer (1992)
Shurgard General Partner, Treasurer (1992)
Inc.
David Grant 41 Shurgard Incorporated Executive Vice President
(1993)
On March 24, 1995, Shurgard Incorporated was merged into Shurgard
Storage Centers, Inc. ("SSCI"). Pursuant to this merger, Shurgard Storage
Centers, Inc. succeeds to rights and responsibilities of Shurgard
Incorporated and will perform all the duties previously performed by
Shurgard Incorporated, including supervision of the operation of the
Partnership projects. The directors, executive officers and key personnel
of Shurgard Storage Centers, Inc. are as follows:
<TABLE>
<S> <C> <C>
Name Age Positions and Offices With the Company
--------------- --- ------------------------------------------
Charles K. Barbo 53 Chairman of the Board, President and Chief Executive Officer
Harrell L. Beck 38 Director, Senior Vice President, Chief Financial Officer and
Treasurer
Dan Kourkoumelis 43 Director
Donald W. Lusk 66 Director
Wendell J. Smith 61 Director
David K. Grant 41 Executive Vice President
Michael Rowe 38 Executive Vice President
Kristin H. Stred 36 Senior Vice President, Secretary and General Counsel
</TABLE>
Charles K. Barbo has been involved as a principal in the real estate
investment industry since 1969. Mr. Barbo is one of the co-founders of
Shurgard Incorporated, which was organized in 1972 to provide property
management services for self-service storage facilities and other real
estate and commercial ventures. Mr. Barbo was also a co-founder of
Shurgard General Partner, Inc. Upon Mr. Buerk's resignation on January 1,
1992, Mr. Barbo assumed the responsibilities of President of Shurgard
Incorporated until March 24, 1995 and Shurgard General Partner, Inc. Mr.
Barbo is also a general partner in a number of other public real estate
partnerships. On March 24, 1995, Mr. Barbo was named the Chairman of the
Board, President and Chief Executive Officer of Shurgard Storage Centers,
Inc.
Arthur W. Buerk joined Shurgard Incorporated in 1977. During the
ensuing years, Mr. Buerk shared with Messrs. Barbo and Daniels (see below)
the various executive management functions within Shurgard Incorporated.
Mr. Buerk served as President of Shurgard Incorporated from 1979 to 1991
and Shurgard General Partner, Inc. from 1983 to 1991. Effective January 1,
1992, Mr. Buerk resigned as President of both Shurgard Incorporated and
Shurgard General Partner, Inc. to pursue other avenues of interest. He
remains a director of Shurgard General Partner Inc. as well as a general
partner of Shurgard Associates L.P. II and until March 24, 1995, remained a
director of Shurgard Incorporated. Mr. Buerk is also a general partner in
a number of other public real estate partnerships. Mr. Buerk holds no
office in Shurgard Storage Centers, Inc.
Donald B. Daniels has been involved in the real estate investment
industry since 1971 and in the self-service storage industry since 1974.
Mr. Daniels is one of the co-founders of Shurgard Incorporated. He is a
director of Shurgard General Partner, Inc. and was a director of Shurgard
Incorporated until March 24,1995. Mr. Daniels is also a general partner in
a number of other real estate partnerships. Mr. Daniels holds no office in
Shurgard Storage Centers, Inc.
Kristin H. Stred joined Shurgard Incorporated in 1992. She served as
General Counsel and Secretary of Shurgard Incorporated until March 24, 1995
and currently serves as Secretary of Shurgard General Partner, Inc. Ms.
Stred served as a corporate attorney in the broadcasting and aerospace
industries from 1987 to 1992. On March 24, 1995, Ms. Stred was named
Senior Vice President of Shurgard Storage Centers, Inc. She also serves as
Secretary and general counsel of Shurgard Storage Centers, Inc.
Michael Rowe came to Shurgard Incorporated as Controller in 1982. In
1983, he became a Vice President and, in 1987, was named Director of
Operations of Shurgard Incorporated. Mr. Rowe served as Treasurer of both
Shurgard Incorporated and Shurgard General Partner, Inc. from 1983 to 1992.
He served as Executive Vice President of Shurgard Incorporated from 1993
until March 24, 1995. Mr. Rowe currently serves as Executive Vice
President of Shurgard Storage Centers, Inc.
Harrell Beck joined Shurgard Incorporated in April 1986 as the Eastern
Regional Operations Manager and, in 1990, he became the Chief Financial
Officer. Mr. Beck served as Treasurer of Shurgard Incorporated from 1992
until March 24, 1995. He currently serves as Director, Treasurer and CFO
of Shurgard Storage Centers, Inc. as well as Treasurer of Shurgard General
Partner, Inc. On March 24, 1995, Mr. Beck was named Senior Vice President
of Shurgard Storage Centers, Inc.
David K. Grant joined Shurgard Incorporated in November 1985 as
Director of Real Estate Investment. Mr. Grant was elected Vice President
of Shurgard Incorporated in 1992 and Executive Vice President in 1993. On
March 24, 1995, Mr. Grant was named Executive Vice President of Shurgard
Storage Centers, Inc.
Dan Kourkoumelis has served as a director of Shurgard Storage Centers,
Inc. since March 1994. He is the President, Chief Operating Officer and a
director of Quality Food Centers, Inc. ("QFC"), a publicly held corporation
that operates the largest independent supermarket chain in the Seattle
area. Mr. Kourkoumelis joined QFC in 1967 and has held a variety of
positions since then. He served as Executive Vice President from 1983 to
1987, when he also became Chief Operating Officer, and became President in
1989 and a director in 1991.
Donald W. Lusk has served as a director of Shurgard Storage Centers,
Inc. since March 1994. He is the President of Lusk Consulting Group, which
is engaged in general management consulting, as well as the formation and
delivery of management development programs in Western Canada. From 1974
to 1991, Mr. Lusk was Regional Managing Partner of Management Action
Programs in the Pacific Northwest.
Wendell J. Smith has served as a director of Shurgard Storage Centers,
Inc. since March 1994. He retired in 1991 from the State of California
Public Employees Retirement System ("Calpers") after 27 years of
employment, the last 21 in charge of all real estate equities and mortgage
acquisitions for Calpers. During those 21 years, Calpers invested over $8
billion in real estate and mortgages. In 1991, Mr. Smith established
W.J.S. & Associates, which provides advisory and consulting services for
pension funds and pension fund advisors.
Pursuant to Articles 16 and 17 of the Agreement of Limited
Partnership, a copy of which is filed as an exhibit to the Partnership's
Registration Statement, each of the general partners continues to serve
until (i) death, insanity, insolvency, bankruptcy or dissolution, (ii)
withdrawal with the consent of the other general partners (if any) and a
majority vote of the limited partners, or (iii) removal by a majority vote
of the limited partners.
ITEM 11. EXECUTIVE COMPENSATION.
Number of Capacities
Persons in in which Cash
Group Served Compensation
----------------------------------- ---------------
1 General Partner 95,600*
*The General Partner has a 5% interest in cash distributions made by the
Partnership, which is disproportionate to its share of the capital of
the Partnership, which is .0035%. This amount represents the portion of
cash distributions made to the General Partner during the fiscal year
ended December 31, 1994, which is in excess of what a proportionate
share of distributions would have been.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
(a) Security ownership of certain beneficial owners as of
February 6, 1995:
None owning more than 5% of the Partnership's voting
securities.
(b) Security ownership of management as of February 6, 1995:
Management's security ownership in Shurgard Associates L.P.
II as of February 6, 1995 was as follows:
Title of Name of Percent
Class Beneficial Owner of Class
-------- ------------------------------- ---------
General Shurgard General Partner, Inc.1,2 .2%
Partners' Charles K. Barbo2 9.9%
Interest Arthur W. Buerk2 9.9%
Shurgard Incorporated3,4 40.0%
IDS Partnership Services Corporation3 40.0%
----
100.0%
====
1 Charles K. Barbo owns 100% of the stock of Shurgard General
Partner, Inc.
2 Owner is a General Partner of Shurgard Associates L.P. II.
3 Owner is a Limited Partner of Shurgard Associates L.P. II.
4 On March 24, 1995, these interests were transferred to
Shurgard Storage Centers, Inc. pursuant to the merger.
Although Shurgard Storage Centers, Inc. acquired through the
merger Shurgard Incorporated's interest in the General
Partner, substantially all of the appreciation in the value
of that interest during the next five years will inure to
the benefit of the shareholders of Shurgard Incorporated in
the form of additional shares of Shurgard Storage Centers,
Inc. As a consequence, the future benefits to be derived
from the interest in the General Partner (except current
operating cash flow and appreciation after five years), if
any, will be received by the shareholders of Shurgard
Incorporated (including members of management of Shurgard
Storage Centers, Inc.) and not by Shurgard Storage Centers,
Inc. or its shareholders."
(c) Changes in control: On March 24, 1995, Shurgard
Incorporated was acquired by Shurgard Storage Centers, Inc.
Pursuant to this merger, Shurgard Storage Centers, Inc. will
perform all the duties previously performed by Shurgard
Incorporated, including supervision of the operation of the
Partnership projects. For the directors, executive officers,
key personnel of Shurgard Storage Centers, Inc. and a
description of the circumstances under which the General
Partner may be removed, see Item 10 of this form 10K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Partnership agreement provides a fee payable to Shurgard
Incorporated for property management services equal to 6% of gross revenues
from self-service storage operations for day-to-day professional property
management services. The monthly fee for management services will be
reduced to 3% if leasing services are performed by a party other than
Shurgard Incorporated. Payments to Shurgard Incorporated for such
management totaled $242,259 for the year ended December 31, 1994.
Subsequent to March 24, 1995, the property management services will be
performed by Shurgard Storage Centers, Inc.
Note C at page 9 of the Annual Report to Security Holders for the year
ended December 31, 1994, a copy of which is included as Exhibit 13, is
incorporated by reference. In addition, Shurgard Incorporated will receive
fees from the Partnership as specified in the Agreement of Limited
Partnership, reference to which is made as Exhibit 3(a), and in the
Management Services Agreement, reference to which is made as Exhibit 10(a),
both of which documents are incorporated by reference. Shurgard Storage
Centers, Inc. will succeed Shurgard Incorporated with respect to these
agreements. On March 24, 1995 pursuant to the merger, the shareholders of
Shurgard Incorporated received shares of Shurgard Storage Centers, Inc.
The following persons owned approximately the designated percentages of the
named corporation's outstanding common stock.
Ownership Ownership
of Shurgard of
Person Relationship to Partnership Inc. SSCI (1)
----- -------------------------------- ---------- ---------
Charles K. Barbo Individual General Partner
of Shurgard Associates L.P.
President and Chairman of the Board of
Shurgard General Partner, Inc. 48% 4%
Arthur W. Buerk Individual General Partner of
Shurgard Associates L.P. 25% *
Director of Shurgard General Partner, Inc.
Donald B. Daniels Director and Vice President of
Shurgard General Partner, Inc. 13% *
As shareholders of the named corporation these individuals may benefit
indirectly from the transactions disclosed in this item.
(1) Pursuant to the terms of the merger, Shurgard Incorporated
shareholders will be entitled to receive additional Shurgard Storage
Centers, Inc. shares based on (i) the extent to which, during the five
years following the closing of the merger, Shurgard Storage Centers,
Inc. realized value as a result of certain transactions relating to,
among others, Shurgard Storage Centers, Inc.'s interest in the General
Partner and (ii) the value, at the end of five years or in the event of
a change of control, of any remaining interests in the General Partner
as determined by independent appraisal. The ownership percentages in
SSCI above do not reflect theses additional shares.
* Mr. Buerk and Mr. Daniels each own less than 1% of SSCI.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-
-K.
(a) 1. Financial statements:
The following financial statements of IDS/Shurgard Income
Growth Partners L.P. II are incorporated by reference in Part II
and are filed as Exhibit 13:
Balance sheets - December 31, 1994 and 1993
Statements of earnings - Three years ended December 31, 1994
Statements of partners' equity (deficit) - Three years ended December
31, 1994
Statements of cash flows - Three years ended December 31, 1994
Notes to combined financial statements - Three years ended December
31, 1994
Independent auditors' report
2. All schedules are omitted because either they are not
applicable or the required information is shown in the financial
statements or notes thereto.
3. Exhibits:
All exhibits to this report are listed in the Exhibit Index.
(b) Reports on Form 8-K:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 29, 1995 IDS/SHURGARD INCOME GROWTH PARTNERS L.P. II
By: Shurgard Associates L.P. II, General Partner
By: Shurgard General Partner, Inc. General Partner
By: HARRELL BECK
Harrell Beck, Treasurer
By: CHARLES K. BARBO
Charles K. Barbo, General Partner
By: ARTHUR W. BUERK
Arthur W. Buerk, General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
---------------- ---------------------------------- ---------------
CHARLES K. BARBO President, Chairman of the Board and March 29, 1995
Charles K. Barbo Director of Shurgard General Partner, Inc.
(principal executive officer)
ARTHUR W. BUERK Director of Shurgard General Partner, Inc. March 29, 1995
Arthur W. Buerk (principal executive officer)
HARRELL BECK Treasurer of Shurgard General Partner, Inc. March 29, 1995
Harrell Beck (principal financial officer and principal
accounting officer)
Exhibit Index
Exhibit Reference or Sequential Page Number
----------------------------------- ------------------------------------
3. Articles of incorporation and by-laws Filed as Exhibit 3 to Form S-11 for
(a) Agreement of Limited Partnership Registration No. 33-25729
4. Instruments defining the rights of See Exhibit 3(a), above
security holders, including
indentures
10. Material contracts: Filed as Exhibit 10(a) to Form S-11
(a) Management Services Agreement for Registration No. 33-25729
13. Annual report to security holders Filed as Exhibit 13 to Form 10 K for
Registration No. 33-25729
21. Subsidiaries of the registrant See Item 1 of this Form 10-K
27. Financial Data Schedule Filed as Exhibit 27 to Form 10 K for
Registration No. 33-25729
IDS2-EGR.DOC -- Page 1
MANAGEMENT'S DISCUSSION & ANALYSIS
RESULTS OF OPERATIONS
Revenues: Rental revenues rose $420,000 from 1993 to 1994, after a
$378,000 increase from 1992 to 1993. The average rental rate per square
foot rose each year from $7.39 in 1992 to $7.78 in 1993 to $8.08 in 1994.
During 1993, an expansion was completed at Newport News North adding 26,000
square feet and, as a result, the storage center's revenues increased
$66,000 from 1992 to 1993 and $108,000 from 1993 to 1994. The Kennydale
facility also showed impressive increases primarily from rising occupancy;
revenues for this center rose $161,000 from 1992 to 1993 and $94,000 from
1993 to 1994. The average occupancy for all of the Partnership's storage
centers was 90%, 91% and 85% at December 31, 1994, 1993 and 1992,
respectively.
Expenses: Operating expenses increased $89,000 in 1994 after a
$86,000 increase in 1993. Increases in 1994 were primarily attributable to
repair and maintenance costs for the air conditioning unit at T.C. Jester
and higher salary cost throughout the Partnership's storage centers. The
1993 increase was partially due to larger performance bonuses paid to
storage center managers and the cost of the telephone center personnel and
equipment. Also, utility expense increased due to the expansion of Newport
News North in 1993.
From 1992 to 1993 real estate taxes increased due to assessment
increases at T.C. Jester and Kennydale and the expansion of Newport News
North in 1993. The decreases in real estate taxes in 1994 are accredited
to winning an appeal for Kennydale's 1993 and 1994 assessed value. The
refund due for 1993 taxes was offset against the taxes due in 1994.
Interest expense rose $72,000 and $64,000 in 1994 and 1993,
respectively. The increases in 1994 and 1993 are due to the Partnership
borrowings on their line of credit to finance the expansion of Newport News
North in 1993 and was subsequently refinanced in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash From Operations: Cash from operations increased $461,000 from
1993 to 1994, after decreasing $189,000 from 1992 to 1993. These
fluctuations reflect changes in earnings adjusted by the timing of certain
expense payments and payments due to affiliates. Cash balances are
adequate to support the future operating needs of the Partnership.
Investing Activities: The Partnership has invested $553,000 during
1994 to expand the Chesapeake facility. This project entails the
construction of two, one-story buildings totaling approximately 26,000
square feet of storage space, as well the addition of 2,400 square feet of
RV parking. The new addition is expected to be open in April 1995 and will
cost approximately $1,300,000. Expenditures during 1994 were funded from
operating cashflow and cash reserves; the remaining costs will be funded
primarily from the line of credit. The expansion of the Partnership's
existing facilities provide an opportunity to increase revenue without a
significant increase in operating costs. In 1993 the Partnership completed
the expansion at Newport News North at a cost of $763,000. This expansion
added 26,000 square feet to the existing 33,000 square feet of storage.
The additional space includes both climate controlled and non-climate
controlled units.
Investments in storage centers improvements have been $51,000, $47,000
and $360,000 during 1994, 1993 and 1992. In 1992, investments were
primarily for the completion of tenant improvements at Kennydale. Planned
improvements for 1995 total approximately $71,000 and include security
equipment at Orange as well as pavement work at Sterling Heights and
Bellefield. These improvements are expected to be funded from operations.
Financing Activities: In 1994, the Partnership converted their
$1,250,000 line of credit into a seven year note which will mature in March
of 2001. The Partnership borrowed these funds in 1993 to fund the
expansion at Newport News North and replenish cash reserves. Additionally,
the Partnership has obtained bridge loan financing to fund the Chesapeake
expansion. Under this credit facility, the Partnership can borrow up to
$1,500,000 at prime plus 0.5% until May 1, 1995, at which time any
outstanding balance converts to a term note. No amounts are currently
outstanding on this loan.
Distributions to Partners: Annualized distributions rates were 6.31%
for 1994 and 6.25% for 1992 through 1993. Distributions are expected to
continue on a quarterly basis and will reflect the Partnership's future
operating results and cash position.
SELECTED FINANCIAL INFORMATION
At or For the Year Ended December 31,
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
Rental Revenue $ 4,037,720 $ 3,617,849 $ 3,239,555 $ 2,277,377 $ 2,007,036
=========== =========== =========== =========== ===========
Interest Income $ 19,765 $ 3,549 $ 7,191 $ 104,082 $ 404,066
=========== =========== =========== =========== ===========
Earnings $ 1,340,145 $ 1,094,475 $ 967,598 $ 1,133,764 $ 1,234,198
=========== =========== =========== =========== ===========
Earnings per Unit of Limited
Partnership Interest $ 11.06 $ 9.03 $ 7.99 $ 9.36 $ 10.59
=========== =========== =========== =========== ===========
Distributions to
Limited Partners $ 1,816,578 $ 1,798,591 $ 1,798,591 $ 1,798,591 $ 1,372,551
=========== =========== =========== =========== ===========
Distributions per Unit of
Limited Partnership
Interest $ 15.78 $ 15.62 $ 15.62 $ 15.62 $ 12.40
=========== =========== =========== =========== ===========
Total Assets $25,866,021 $26,321,921 $26,123,867 $26,371,546 $25,737,965
=========== =========== =========== =========== ===========
Total Debt $ 2,938,331 $ 3,005,313 $ 1,793,868 $ 1,240,000 $ _
=========== =========== =========== =========== ===========
Partners'Equity $22,466,953 $23,038,996 $23,837,776 $24,763,433 $25,522,924
=========== =========== =========== =========== ===========
BALANCE SHEETS
December 31,
1994 1993
---------- ----------
Assets:
Cash and cash equivalents $ 384,867 $ 621,073
Storage centers, net 25,126,512 25,355,084
Other assets 174,768 133,076
Amortizable assets, less accumulated
amortization of $279,821 and $208,986 179,874 212,688
---------- -----------
Total Assets $25,866,021 $26,321,921
=========== ===========
Liabilities and partners' equity (deficit):
Liabilities:
Accounts payable and other accrued expenses $ 169,033 $ 170,894
Construction payable 173,572
Unearned rent and tenant deposits 118,132 106,718
Line of credit 1,250,000
Notes payable 2,938,331 1,755,313
---------- ----------
Total Liabilities 3,399,068 3,282,925
---------- ----------
Commitments (Note F)
Partners' equity (deficit):
Limited partners 22,623,217 23,166,657
General partner (156,264) (127,661)
---------- ----------
Total Partners' Equity 22,466,953 23,038,996
---------- ----------
Total Liabilities and Partners' Equity $25,866,021 $26,321,921
=========== ===========
COMBINED STATEMENTS OF EARNINGS
Year Ended December 31,
1994 1993 1992
----------- ----------- -----------
Revenues:
Rental $4,037,720 $3,617,849 $3,239,555
Interest income 19,765 3,549 7,191
----------- ----------- -----------
Total Revenues 4,057,485 3, 621,398 3,246,746
----------- ----------- -----------
Expenses:
Operating 875,926 786,459 700,474
Property management fees 242,259 217,121 193,764
Depreciation 832,554 814,883 793,997
Real estate taxes 327,337 337,741 297,668
Interest 237,962 166,036 102,090
Amortization 70,835 78,580 76,240
Administrative 130,467 126,103 114,915
----------- ----------- -----------
Total Expenses 2,717,340 2,526,923 2,279,148
----------- ----------- -----------
Earnings $1,340,145 $1,094,475 $ 967,598
=========== =========== ===========
Earnings per unit of limited
partnership interest $ 11.06 $ 9.03 $ 7.99
=========== =========== ===========
Distributions per unit of limited
partnership interest $ 15.78 $ 15.62 $ 15.62
=========== =========== ===========
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
Limited PartnersGeneral Partner Total
------------------------------ ------------
Balance, January 1, 1992 $ 24,804,870 $ (41,437) $24,763,433
Distributions (1,798,591) (94,664) (1,893,255)
Earnings 919,218 48,380 967,598
------------- ------------ -------------
Balance, December 31, 1992 23,925,497 (87,721) 23,837,776
Distributions (1,798,591) (94,664) (1,893,255)
Earnings 1,039,751 54,724 1,094,475
------------- ------------ -------------
Balance, December 31, 1993 23,166,657 (127,661) 23,038,996
Distributions (1,816,578) (95,610) (1,912,188)
Earnings 1,273,138 67,007 1,340,145
------------- ------------ -------------
Balance, December 31, 1994 $ 22,623,217 $ (156,264) $22,466,953
============= ============ =============
STATEMENTS OF CASH FLOWS
Year Ended December 31,
---------------------------------------
1994 1993 1992
----------- ---------- -----------
Operating activities:
Earnings $1,340,145 $1,094,475 $ 967,598
Adjustments to reconcile earnings
to net cash provided by operating activities:
Depreciation and amortizatio n 903,389 893,463 870,237
Changes in operating accounts:
Other assets (41,692) (22,696) (22,677)
Accounts payable and other
accrued expenses (1,861) (212,815) 127,166
Unearned rent and tenant deposits 11,414 (1,796) (3,056)
--------- ---------- ----------
Net cash provided by operating
activities 2,211,395 1,750,631 1,939,268
---------- ---------- ----------
Investing activities:
Improvements to storage centers (430,410) (809,619) (360,349)
--------- ---------- --------
Financing activities:
Proceeds from line of credit 1,250,000 360,000
Payments on line credit (1,250,000) (1,600,000)
Payments of loan costs (38,021) (2,671) (34,201)
Payment of notes payable (66,982) (38,555) (6,132)
Proceeds from notes payable 1,250,000 1,800,000
Distributions to partners (1,912,188) (1,893,255) (1,893,255)
---------- ---------- ----------
Net cash used in
financing activities (2,017,191) (684,481) (1,373,588)
---------- ---------- ----------
(Decrease) increase in cash and
cash equivalents (236,206) 256,531 205,331
Cash and cash equivalents
at beginning of year 621,073 364,542 159,211
---------- ---------- ----------
Cash and cash equivalents
at end of year $ 384,867 $ 621,073 $ 364,542
========== ========== ==========
Supplemental disclosure of
cash flow information:
Cash paid during year for interest $ 237,962 $ 166,036 $ 102,090
========== ========== ==========
Supplemental Disclosure of non-cash investing activities:
Liabilities incurred in connection with
the improvement and construction
of storage centers $ 173,572 $ _ $ _
========== ========== ==========
NOTES TO FINANCIAL STATEMENTS
Three Years Ended December 31, 1994
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General: IDS/Shurgard Income Growth Partners L.P. II (the
Partnership) was organized under the laws of the State of Washington on
November 15, 1988, for the purpose of acquiring, developing and operating
storage centers. The Partnership will terminate December 31, 2030, unless
terminated at an earlier date. The general partner is Shurgard Associates
L.P. II, a Washington limited partnership.
As of December 31, 1994, there were approximately 4,200 limited
partners in the Partnership. There were 115,100 units of limited
partnership interest outstanding at a contribution of $250 per unit.
Cash Equivalents: Cash equivalents consist of money market
instruments with original maturities of 90 days or less.
Storage Centers: Storage centers, including land, buildings and
equipment, are recorded at cost. Depreciation on buildings and equipment
is recorded on a straight-line basis over their estimated useful lives
which range from three to thirty years.
Amortizable Assets: Amortizable assets, consisting of loan costs and
non compete covenants, are amortized over their expected useful lives of
three to eight years.
Rental Revenue: Rental revenue is recognized as earned under accrual
accounting principles.
Taxes on Income: The financial statements do not reflect a provision
for Federal income taxes because such taxes are the responsibility of the
individual partners.
Earnings Per Unit of Limited Partnership Interest: Earnings per unit
of limited partnership interest is based on earnings allocated to the
limited partners divided by the number of limited partnership units
outstanding during the year (115,110 units for each of the three years
ended December 31, 1994).
Distributions Per Unit of Limited Partnership Interest: Distributions
per unit of limited partnership interest is based on the total amount
distributed to limited partners divided by the number of limited
partnership units outstanding during the year (115,110 units for each of
the three years ended December 31, 1994).
Reclassification: Certain items in the 1992 and 1993 financial
statements have been reclassified to conform with current year
presentation.
NOTE B STORAGE CENTERS
Storage centers consist of the following
December 31,
------------------------------
1994 1993
------------- -------------
Land $ 5,848,181 $ 5,848,181
Buildings 22,381,990 21,813,897
Equipment 732,213 696,324
------------- -------------
28,962,384 28,358,402
Less accumulated depreciation (3,835,872) (3,003,318)
------------- -------------
$25,126,512 $25,355,084
============= =============
NOTE C TRANSACTIONS WITH AFFILIATES
In connection with the management of both the storage centers and the
Partnership, the Partnership has paid or accrued the following amounts to
its named affiliates:
Year Ended December 31,
--------------------------------------
1994 1993 1992
---------- --------- ----------
Partnership management expenses
and reimbursement at cost $ 64,800 $ 83,700 $ 57,700
Property management fees 242,300 217,100 193,800
NOTE D NOTE PAYABLE
December 31,
---------------------------
1994 1993
----------- ----------
Note payable to a commercial bank. Secured
by real estate and payable in monthly in-
stallments of $15,056, including principal
and interest at 8%, due October 1999.
The note reprices in September 1997
1997 and can be fixed for various periods
at the Partnership's option. $1,713,603 $1,755,313
Note payable to a commercial bank.
Secured by real estate and payable
in monthly installments of $10,539,
including principal and interest at 8.125%,
due March 2001. The note reprices in
March 1995 and can be fixed for various
periods at the Partnership's option. 1,224,728
----------- -----------
$2,938,331 $1,755,313
=========== ===========
The approximate maturities of principal on these notes payable over
the next five fiscal years are as follows:
1995 $ 72,608
1996 78,671
1997 85,241
1998 92,359
1999 89,357
Thereafter 2,520,095
In June 1994, the Partnership obtained a $1,500,000 line of credit to
fund the Chesapeake buildout. The line bears interest at prime plus .5%
and is available until May 1, 1995 at which time the outstanding balance
converts to a term note. At the time of conversion the Partnership may
elect from various interest rates and terms up to seven years. Currently,
the Partnership has not drawn on the line of credit.
In addition, at December 31, 1993 the Partnership had $1,250,000
outstanding on a fully drawn line of credit, bearing interest at .5% above
prime rate. This line of credit was replaced by permanent financing in
March 1994.
NOTE E LEASE
The Partnership leases retail space at the Kennydale facility to a
single tenant under a noncancellable operating lease which expires October
31, 2003. The lease is renewable at current market rates at that time.
Future minimum lease receipts are as follows:
1995 $ 125,338
1996 125,338
1997 125,338
1998 110,578
1999 103,198
2000 to 2003 412,792
----------
$1,002,582
==========
NOTE F COMMITMENT
The Partnership has signed a construction contract for the expansion
of the Chesapeake facility. The remaining commitment under this contract
is $450,000.
INDEPENDENT AUDITORS' REPORT
General Partners and Limited Partners
IDS/Shurgard Income Growth Partners L.P. II
Seattle, Washington
We have audited the accompanying balance sheets of IDS/Shurgard Income
Growth Partners L.P. II as of December 31, 1994 and 1993, and the related
statements of earnings, partners' equity (deficit), and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Partnership's management. 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 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, such financial statements present fairly, in all
material respects, the financial position of the Partnership as of December
31, 1994 and 1993, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1994 in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Seattle, Washington
February 6, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000843023
<NAME> IDS SHURGARD INCOME GROWTH PARTNERS LP II
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 384,867
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 28,962,384
<DEPRECIATION> 3,835,872
<TOTAL-ASSETS> 25,866,021
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 22,466,953
<TOTAL-LIABILITY-AND-EQUITY> 25,866,021
<SALES> 0
<TOTAL-REVENUES> 4,057,485
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,479,378
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237,962
<INCOME-PRETAX> 1,340,145
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,340,145
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,340,145
<EPS-PRIMARY> 11.06
<EPS-DILUTED> 11.06
</TABLE>
