<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-1/A
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 8)
------------------
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. II
(Name of Subject Company)
------------------------
SHURGARD STORAGE CENTERS, INC.
(Bidder)
LIMITED PARTNERSHIP UNITS
(Title of Class of Securities)
------------------------
448933-101
(CUSIP Number of Class of Securities)
------------------------
KRISTIN H. STRED, ESQ.
SENIOR VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
SHURGARD STORAGE CENTERS, INC.
1201 THIRD AVENUE
SUITE 2200
SEATTLE, WASHINGTON 98101
(206) 624-8100
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidder)
COPIES TO:
JEFFERY T. PERO, ESQ.
WILLIAM J. CERNIUS, ESQ.
LATHAM & WATKINS
650 TOWN CENTER DRIVE
TWENTIETH FLOOR
COSTA MESA, CALIFORNIA 92626
(714) 540-1235
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<PAGE>
14D-1
<TABLE>
<CAPTION>
CUSIP NO.
<S> <C> <C>
1 NAME OF REPORTING PERSON AND S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
SHURGARD STORAGE CENTERS, INC. (91-1603837)
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) / /
3 SEC USE ONLY
4 SOURCES OF FUNDS
BK
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(e) OR / /
2(f)
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
APPROXIMATELY 2,038 UNITS
8 CHECK IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES / /
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7) APPROXIMATELY 1.8%
10 TYPE OF REPORTING PERSON -- CO
</TABLE>
<PAGE>
This Amendment No. 8 to the Tender Offer Statement on Schedule 14D-1 (the
"Schedule 14D-1") relates to a tender offer by Shurgard Storage Centers, Inc., a
Delaware corporation (the "Purchaser"), to purchase up to 49,000 units of
limited partnership interest (the "Units") in IDS/ Shurgard Income Growth
Partners, L.P. II, a Washington limited partnership (the "Partnership"), at $222
per Unit, net to the seller in cash and without interest, upon the terms of and
subject to the conditions set forth in the Offer to Purchase dated July 2, 1996,
as supplemented by the Purchaser's letter to Unitholders dated July 16, 1996 and
the Supplement to Offer to Purchase dated August 26, 1996 (the "Supplement to
Offer to Purchase"), a copy of which is attached hereto as Exhibit 99.19, and in
the related Letter of Transmittal (which together constitute the "Offer"). This
Amendment No. 8 is being filed by the Purchaser.
3
<PAGE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
Item 1 is hereby amended to add the following additional information:
(c) The information set forth in "MARKET PRICES OF UNITS" of the Supplement
to the Offer to Purchase is incorporated herein by reference.
(d) The information set forth in SCHEDULE VIII of the Supplement to the
Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
Item 2 is hereby amended to add the following additional information:
(d) The information set forth in SCHEDULE I of the Supplement to Offer to
Purchase is incorporated herein by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
Item 3 is hereby amended to add the following additional information:
(a)-(b) The information set forth on the Cover Page and in the SUMMARY,
"SPECIAL CONSIDERATIONS," "BACKGROUND AND PURPOSES OF THE TRANSACTION --
Background of the Transaction" and "INTERESTS OF CERTAIN PERSONS" of the
Supplement to Offer to Purchase is incorporated herein by reference.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
Item 5 is hereby amended to add the following additional information:
(a)-(g) The information set forth on the Cover Page and in "BACKGROUND AND
PURPOSES OF THE TRANSACTION" of the Supplement to Offer to Purchase is
incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
Item 7 is hereby amended to add the following additional information:
The information set forth in "BACKGROUND AND PURPOSES OF THE TRANSACTION --
Background of the Transaction" is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
Item 9 is hereby amended to add the following additional information:
The information set forth in "BACKGROUND AND PURPOSES OF THE TRANSACTION --
The Purchaser" and SCHEDULE VII of the Supplement to the Offer to Purchase is
incorporated herein by reference.
ITEM 10. ADDITIONAL INFORMATION.
Item 10 is hereby amended to add the following additional information:
(a) The information set forth in the SUMMARY, "SPECIAL CONSIDERATIONS" and
"INTERESTS OF CERTAIN PERSONS" of the Supplement to Offer to Purchase is
incorporated herein by reference.
(e) The information set forth in "-- Section 11 THE OFFER" ("Miscellaneous")
is incorporated herein by reference.
(f) The information set forth in the Supplement to Offer to Purchase, a copy
of which is attached hereto as Exhibit 99.19, is incorporated herein by
reference.
4
<PAGE>
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
Item 11 is hereby amended to add the following additional information:
<TABLE>
<S> <C>
99.19 Supplement to Offer to Purchase dated August 26, 1996.
99.20 Letter to Unitholders dated August 26, 1996.
99.21 Text of Press Release dated August 26, 1996.
</TABLE>
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
Dated: August 26, 1996
SHURGARD STORAGE CENTERS, INC.
By: /s/ HARRELL L. BECK
-----------------------------------
Name: Harrell L. Beck
Title: Senior Vice President,
Chief
Financial Officer and
Treasurer
5
<PAGE>
SUPPLEMENT TO
OFFER TO PURCHASE FOR CASH
UP TO 49,000 UNITS OF LIMITED PARTNERSHIP INTEREST
OF
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. II
AT
$222 NET PER UNIT
BY
SHURGARD STORAGE CENTERS, INC.
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 6:00 P.M., NEW
YORK CITY TIME, ON MONDAY, SEPTEMBER 9, 1996, UNLESS EXTENDED.
------------------------
SHURGARD STORAGE CENTERS, INC. (THE "PURCHASER") IS OFFERING TO PURCHASE UP
TO 49,000 UNITS OF LIMITED PARTNERSHIP INTEREST (THE "UNITS") IN IDS/SHURGARD
INCOME GROWTH PARTNERS L.P. II (THE "PARTNERSHIP") AT A NET CASH PRICE PER UNIT
OF $222 (THE "OFFER PRICE"). THIS OFFER IS NOT CONDITIONED UPON A MINIMUM NUMBER
OF UNITS BEING VALIDLY TENDERED, BUT IT IS SUBJECT TO CERTAIN TERMS AND
CONDITIONS DESCRIBED IN THE OFFER TO PURCHASE. SEE "THE OFFER" -- SECTION 7
("CERTAIN CONDITIONS OF THE OFFER"). IF MORE THAN 49,000 UNITS (APPROXIMATELY
43% OF THE OUTSTANDING UNITS) ARE VALIDLY TENDERED, THE PURCHASER WILL ACCEPT
ONLY 49,000 UNITS AND WILL PURCHASE UNITS FROM TENDERING UNITHOLDERS ON A PRO
RATA BASIS AS DESCRIBED IN THE OFFER TO PURCHASE.
Following the completion of the purchase of Units pursuant to this Offer,
the remaining Unitholders will be notified of a special meeting of Unitholders
(the "Special Meeting") to be held to consider and vote upon approval of the
merger of the Partnership with and into the Purchaser (the "Merger"). If the
Merger is approved by the requisite vote of the Unitholders and certain other
conditions to the Merger are satisfied or waived, (i) the Partnership will merge
into the Purchaser and cease to exist as a separate legal entity and (ii) each
Unit, other than Units held by the Purchaser (including Units purchased in this
Offer), which will be cancelled, and Units, if any, held by Unitholders who
perfect dissenters' rights, will be converted into the right to receive between
8.00 and 9.98 shares of Class A Common Stock of the Purchaser ("REIT Shares"),
depending upon the average closing price of the REIT Shares on the New York
Stock Exchange during a designated period prior to the Special Meeting. All REIT
Shares will be aggregated for each Unitholder and cash will be issued in lieu of
any fractional REIT Shares. If the average closing price used to determine the
number of REIT Shares issuable in the Merger is less than $21.50 per REIT Share,
the Purchaser may provide additional cash consideration. See "The Acquisition
Agreement."
In evaluating the matters described herein, Unitholders should consider the
following, among other factors:
- The general partner of the Partnership, the Purchaser and their affiliates
have significant conflicts of interest in connection with this Offer and
the Merger, and no unaffiliated representatives were appointed to
negotiate the terms of this Offer and the Merger on behalf of the
Partnership. The conflicts of interest arise, among other things, from the
fact that certain representatives of the general partner are also officers
of the Purchaser. See "Special Considerations."
- As a result of this Offer, the Purchaser may hold the largest, or one of
the largest, equity positions in the Partnership, and therefore may be in
a position to influence the policies and affairs of the Partnership and
the vote on approval of the Merger. See "Special Considerations."
- If the average price of REIT Shares for the designated period used to
determine the number of REIT Shares issuable in the Merger is less than
$22.25 per share or if the market price of REIT Shares decreases after
determination of the number of REIT Shares to be issued in the Merger and
prior to the issuance of REIT Shares, the market value of the REIT Shares
received in the Merger may be lower than the Offer Price. See "Special
Considerations."
(CONTINUED ON NEXT PAGE)
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF THIS TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
August 26, 1996
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
-The Merger, if consummated, may affect the level of distributions made to
Unitholders who become stockholders of the Purchaser, with the potential
that, depending upon the number of REIT Shares issued in the Merger, some
Unitholders may receive following the Merger smaller distributions than
they would have received if the Merger had not been consummated and they
had remained Unitholders. See "Fairness of the Transaction; Position of the
General Partner."
-Certain valuations of the Partnerships (as defined in the Offer to
Purchase) performed by Alex. Brown were above the aggregate consideration
to be issued in the Transaction and Additional Transactions (each as
defined in the Offer to Purchase) while other valuations of the
Partnerships that Alex. Brown performed were below the aggregate
consideration to be issued in the Transaction and Additional Transactions.
In particular, the valuation of the Partnerships Alex. Brown performed in
its analysis of publicly-traded REITs resulted in a higher valuation than
the consideration to be issued in the Transaction and Additional
Transactions whereas the valuation of the Partnerships it performed in its
analysis of selected real estate acquisitions resulted in a lower valuation
than the consideration to be issued in the Transaction and Additional
Transactions. See "Appraisal; Opinions of Financial Advisors -- Opinion of
the Purchaser's Financial Advisor."
THE GENERAL PARTNER OF THE PARTNERSHIP IS SHURGARD ASSOCIATES L.P. II (THE
"GENERAL PARTNER"). THE GENERAL PARTNER HAS APPROVED THIS OFFER AND THE MERGER
AND HAS DETERMINED THAT THE TERMS OF THIS OFFER AND THE MERGER ARE FAIR TO THE
UNITHOLDERS. THE GENERAL PARTNER RECOMMENDS THAT THOSE UNITHOLDERS WHO DESIRE
IMMEDIATE LIQUIDITY TENDER THEIR UNITS PURSUANT TO THIS OFFER AND THAT ALL OTHER
UNITHOLDERS RETAIN THEIR UNITS AND, INSTEAD, PARTICIPATE IN THE MERGER. THERE
CAN BE NO ASSURANCE, HOWEVER, THAT THE MERGER WILL BE CONSUMMATED.
------------------------
IMPORTANT
Any Unitholder desiring to tender all or any portion of his or her Units
should complete and sign the Letter of Transmittal in accordance with the
instructions in the Letter of Transmittal, and mail or deliver it with any other
required documents to the Depositary at the address set forth on the back cover
of the Offer to Purchase.
Questions and requests for assistance or additional copies of the Offer to
Purchase, the Letter of Transmittal and this Supplement may be directed to the
Information Agent at its address and telephone number set forth on the back
cover of the Offer to Purchase. Unitholders may also contact brokers, dealers,
commercial banks and trust companies for assistance concerning this Offer.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Introduction............................................................................................... 1
Incorporation of Certain Documents By Reference............................................................ 1
Cautionary Statement....................................................................................... 1
Summary.................................................................................................... 1
Special Considerations..................................................................................... 2
Background and Purposes of the Transaction................................................................. 4
Fairness of the Transaction; Position of the General Partner............................................... 10
Appraisal; Opinions of Financial Advisors.................................................................. 14
Market Prices of Units..................................................................................... 17
Interests of Certain Persons............................................................................... 18
The Offer.................................................................................................. 18
</TABLE>
<TABLE>
<S> <C> <C>
Schedule I -- Directors and Executive Officers of Shurgard Storage Centers, Inc.,
Shurgard General Partner, Inc. and the Individual General Partners of
Shurgard Associates L.P. II
Schedule V -- Consolidated Financial Statements of IDS/Shurgard Income Growth Partners
L.P. II
Schedule VI -- Management's Discussion and Analysis of Financial Condition and Results
of Operations of the Partnership
Schedule VII -- Pro Forma Consolidated Financial Statements
Schedule VIII -- Partnership Distributions
Schedule IX -- Property Information
</TABLE>
i
<PAGE>
INTRODUCTION
The Purchaser hereby amends and supplements the Offer to Purchase dated July
2, 1996, as supplemented by the Purchaser's letter to Unitholders dated July 16,
1996 (the "Offer to Purchase"). Except as set forth in this Supplement, the
Offer continues to be governed by the terms and conditions set forth in the
Offer to Purchase and the related Letter of Transmittal, and the information
contained therein continues to be important to each Unitholder's decision with
respect to the Offer. Accordingly, this Supplement should be carefully read in
conjunction with the Offer to Purchase and the related Letter of Transmittal,
which have been previously mailed to Unitholders. Capitalized terms not defined
herein have the meanings set forth in the Offer to Purchase.
Procedures for tendering Units are set forth in the Section entitled "The
Offer" of the Offer to Purchase. Tendering Unitholders should continue to use
the Letter of Transmittal circulated with the Offer to Purchase. By tendering
Units, Unitholders assign to the Purchaser all rights to cash distributions made
subsequent to July 2, 1996 with respect to those Units.
UNITHOLDERS WHO HAVE VALIDLY TENDERED UNITS AND NOT WITHDRAWN THEIR TENDERS
NEED TAKE NO FURTHER ACTION TO VALIDLY TENDER THOSE UNITS.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THE FIRST PARAGRAPH OF THE SECTION ENTITLED "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS
FOLLOWS:
The following documents filed with the Commission by the Purchaser (File No.
0-23466) are incorporated by reference in this Offer to Purchase:
(i) the Purchaser's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1996 and June 30, 1996;
(ii) the Purchaser's Annual Report on Form 10-K for the year ended
December 31, 1995;
(iii) the Purchaser's Proxy Statement for 1996 Annual Meeting of
Stockholders;
(iv) the description of the Purchaser's Class A Common Stock, par value
$.001 per share, contained in the Purchaser's Registration Statement on Form
8-A, as amended, dated April 19, 1995; and
(v) the description of the Preferred Share Purchase Rights contained in
the Purchaser's Registration Statement on Form 8-A, as amended, dated April
19, 1995.
CAUTIONARY STATEMENT
THE SECTION ENTITLED "CAUTIONARY STATEMENT" IS HEREBY DELETED.
SUMMARY
THE SECTION ENTITLED "SUMMARY -- CONFLICTS OF INTEREST" IS HEREBY AMENDED
AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
CONFLICTS OF INTEREST
The General Partner of the Partnership has substantial conflicts of interest
in the Transaction because (i) Charles K. Barbo, the Chairman of the Board,
President and Chief Executive Officer and a stockholder of the Purchaser, is an
individual general partner of the General Partner and the sole shareholder and
director of the corporate general partner of the General Partner, (ii) Arthur W.
Buerk, a stockholder of the Purchaser, is an individual general partner of the
General Partner, (iii) certain executive officers of the Purchaser are executive
officers of the corporate general partner of the General Partner, (iv) pursuant
to the terms of the Partnership's Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement"), the General Partner will receive 5%
of the
1
<PAGE>
Merger Consideration in exchange for its general partner interest ("GP
Interest") in the Partnership and (v) the Purchaser is a limited partner of the
General Partner and manages the Partnership's properties pursuant to the
Management Services Agreement between the Purchaser and the Partnership (the
"Management Services Agreement"). In addition, pursuant to the terms of the
Contingent Share Agreement (as defined in "Fairness of the Transaction; Position
of the General Partner -- Factors Considered by the General Partner -- Fairness
in View of Conflicts of Interest"), assuming the REIT Share Price is within the
Share Price Range, Charles K. Barbo, Arthur W. Buerk and certain executive
officers of the Purchaser will receive REIT Shares in connection with the Merger
with a value of $73,500, $44,700 and $17,200, respectively. See "Background and
Purposes of the Transaction -- Relationships" and "Interests of Certain
Persons."
Under the Partnership Agreement and related Management Services Agreement,
the Partnership currently pays compensation, fees and distributions to the
General Partner and its affiliates. Specifically, the General Partner is
entitled to receive 5% of the Partnership's cash distributions, profits and
losses and the percentage increases to 20% once Unitholders have received a
specified return on their capital contributions to the Partnership. For the
years ended December 31, 1993, 1994 and 1995 and the six months ended June 30,
1996, the General Partner received distributions of $94,664, $95,610, $98,448
and $49,224, respectively. The General Partner will receive, in exchange for its
general partner interest in the Partnership, 5% of the Merger Consideration
which, assuming the REIT Share Price is within the Share Price Range, results in
the General Partner receiving REIT Shares with an aggregate value of $1,343,000,
of which Charles K. Barbo and Arthur W. Buerk will be entitled to REIT Shares
with a value of $135,700 and $133,000, respectively. As the property manager,
the Purchaser is entitled to receive 6% of gross revenues received from
operations of the Partnership's properties, plus a monthly advertising fee of
$75 per property, as well as reimbursement for certain out-of-pocket expenses
incurred in the management of the Partnership's assets. For the years ended
December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996, the
Purchaser received property management and advertising fees totaling $224,321,
$249,459, $265,453 and $138,729, respectively. In addition, the Purchaser was
reimbursed by the Partnership for certain expenses it incurred as property
manager. An affiliate of IPSC received from the Purchaser a quarterly fee of
$12,000 for each quarter commencing July 1, 1994 and ending June 30, 1996 as
reimbursement for expenses in connection with the rendering of certain
administrative services. The IPSC affiliate will be reimbursed by the Purchaser
for expenses incurred in connection with the provision of certain administrative
services with respect to the Transaction, which the IPSC affiliate does not
expect to exceed $50,000. See "Interests of Certain Persons -- Payments for
Administrative Services."
If the Merger is consummated, all of the assets of the Partnership will be
acquired by the Purchaser and, because the Purchaser is self-administered, the
acquired assets will be managed by employees of the Purchaser and the General
Partner and its affiliates will receive no property management or advertising
fees. The General Partner and its affiliates will be entitled to receive
dividends on the REIT Shares they each receive as a result of the Merger on the
same basis as all other stockholders of the Purchaser.
SPECIAL CONSIDERATIONS
THE SECTION ENTITLED "SPECIAL CONSIDERATIONS -- CONFLICTS OF INTEREST" IS
HEREBY RESTATED IN ITS ENTIRETY AS FOLLOWS:
CONFLICTS OF INTEREST. The General Partner has substantial conflicts of
interest with respect to the Transaction because (i) Charles K. Barbo, the
Chairman of the Board, President and Chief Executive Officer and a stockholder
of the Purchaser, is an individual general partner of the General Partner and
the sole shareholder and director of the corporate general partner of the
General Partner, (ii) Arthur W. Buerk, a stockholder of the Purchaser, is an
individual general partner of the General Partner, (iii) certain executive
officers of the Purchaser are executive officers of the corporate general
partner of the General Partner, (iv) the General Partner will be entitled to 5%
of the Merger Consideration pursuant to the terms of the Partnership Agreement
and (v) the Purchaser is a limited partner
2
<PAGE>
of the General Partner and the manager of the Partnership's properties pursuant
to the Management Services Agreement. In addition, pursuant to the terms of the
Contingent Share Agreement, assuming the REIT Share Price is within the Share
Price Range, Charles K. Barbo, Arthur W. Buerk and certain executive officers of
the Purchaser will receive REIT Shares in connection with the Merger with a
value of $73,500, $44,700 and $17,200, respectively. As general partners of the
General Partner, Messrs. Barbo and Buerk control the day-to-day affairs of the
Partnership. See "Interests of Certain Persons." For certain limitations on the
authority of the general partners of the General Partner to enter into the
Acquisition Agreement, see "The Acquisition Agreement -- IPSC Consent."
Under the Partnership Agreement and related Management Services Agreement,
the Partnership currently pays compensation, fees and distributions to the
General Partner and its affiliates. Specifically, the General Partner is
entitled to receive 5% of the Partnership's cash distributions, profits and
losses and the percentage increases to 20% once Unitholders have received a
specified return on their capital contributions to the Partnership. For the
years ended December 31, 1993, 1994 and 1995 and the six months ended June 30,
1996, the General Partner received distributions of $94,664, $95,610, $98,448
and $49,224, respectively. The General Partner will receive, in exchange for its
general partner interest in the Partnership, 5% of the Merger Consideration
which, assuming the REIT Share Price is within the Share Price Range, results in
the General Partner receiving REIT Shares with an aggregate value of $1,343,000,
of which Charles K. Barbo and Arthur W. Buerk will be entitled to REIT Shares
with a value of $135,700 and $133,000, respectively. As the property manager,
the Purchaser is entitled to receive 6% of gross revenues received from
operations of the Partnership's properties, plus a monthly advertising fee of
$75 per property, as well as reimbursement for certain out-of-pocket expenses
incurred in the management of the Partnership's assets. For the years ended
December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996, the
Purchaser received property management and advertising fees totaling $224,321,
$249,459, $265,453 and $138,729, respectively. In addition, the Purchaser was
reimbursed by the Partnership for certain expenses it incurred as property
manager. An affiliate of IPSC received from the Purchaser a quarterly fee of
$12,000 for each quarter commencing July 1, 1994 and ending June 30, 1996 as
reimbursement for expenses in connection with the rendering of certain
administrative services. The IPSC affiliate will be reimbursed by the Purchaser
for expenses incurred in connection with the provision of certain administrative
services with respect to the Transaction, which the IPSC affiliate does not
expect to exceed $50,000. See "Interests of Certain Persons -- Payments for
Administrative Services."
If the Merger is consummated, all of the assets of the Partnership will be
acquired by the Purchaser and, because the Purchaser is self-administered, the
acquired assets will be managed by employees of the Purchaser and the General
Partner and its affiliates will receive no property management or advertising
fees. The General Partner and its affiliates will be entitled to receive
dividends on the REIT Shares they each receive as a result of the Merger on the
same basis as all other stockholders of the Purchaser.
THE SECTION ENTITLED "SPECIAL CONSIDERATIONS -- INVESTMENT OBJECTIVES OF THE
PURCHASER" IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
INVESTMENT OBJECTIVES OF THE PURCHASER. The Purchaser is making this Offer
with a view to further expanding its portfolio of self storage properties. There
is a conflict between the desire of the Purchaser to purchase Units at a low
price and the desire of the Unitholders to sell their Units at a high price. The
Offer Price was determined based upon the Net Asset Value of the Partnership,
which Net Asset Value was, in turn, based primarily upon the independently
appraised values of the Partnership's real estate portfolio.
3
<PAGE>
BACKGROUND AND PURPOSES OF THE TRANSACTION
THE SECTION ENTITLED "BACKGROUND AND PURPOSES OF THE TRANSACTION -- THE
PARTNERSHIP" IS HEREBY AMENDED BY ADDING THE FOLLOWING PARAGRAPH IMMEDIATELY
AFTER THE THIRD PARAGRAPH OF THAT SECTION:
The General Partner of the Partnership is a limited partnership of which
Charles K. Barbo, Arthur W. Buerk and SGPI are the general partners. The
business address, current principal occupation or employment, five-year
employment history and citizenship of Mr. Barbo, Mr. Buerk and the executive
officers and directors of SGPI are set forth in Schedule I to this Offer to
Purchase.
THE SECTION ENTITLED "BACKGROUND AND PURPOSES OF THE TRANSACTION -- THE
PARTNERSHIP" IS HEREBY AMENDED BY REPLACING THE FIFTH PARAGRAPH AND THE TABLE IN
THAT SECTION WITH THE FOLLOWING:
The following sets forth certain financial information for the Partnership
which is derived from the historical financial statements of the Partnership.
The unaudited financial data for the six months ended June 30, 1995 and 1996
include all adjustments (consisting only of normally recurring accruals) that
the Partnership considers necessary for a fair presentation of operating results
for those interim periods. Results for the unaudited interim periods are not
necessarily indicative of results for the full year. This information should be
read in conjunction with the Financial Statements of the Partnership and
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Partnership included as Schedules V and VI, respectively, to
this Supplement.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Rental revenue................................................ $ 3,618 $ 4,038 $ 4,309 $ 2,065 $ 2,255
Interest Income............................................... 4 20 11 4 10
Earnings...................................................... 1,094 1,340 1,461 618 467
Earnings per Unit (1)......................................... 9.03 11.06 12.06 5.10 3.86
Distributions to Unitholders.................................. 1,799 1,817 1,871 935 935
Distributions per Unit (1).................................... 15.62 15.78 16.25 8.13 8.13
OTHER DATA:
Cash flows provided by (used by):
Operating activities........................................ 1,751 2,211 2,501 1,086 1,101
Investing activities........................................ (810) (430) (861) (722) (11)
Financing activities........................................ (684) (2,017) (1,570) (602) (1,102)
Funds from operations (2)..................................... $ 1,983 $ 2,234 $ 2,370 $ 1,063 $ 1,211
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................................................... $ 25,866 $ 25,685 $ 25,197
Note payable................................................................... 2,938 3,338 3,301
Partners' equity............................................................... 22,467 21,959 21,442
</TABLE>
- ------------------------
(1) Earnings per Unit and Distributions per Unit are based on earnings and
distributions, respectively, allocated to Unitholders divided by the number
of Units outstanding during the period (approximately 115,110 Units for all
periods shown).
(2) Funds from operations ("FFO"), as promulgated by the National Association of
Real Estate Investment Trusts in its March 1995 White Paper on Funds from
Operations, is defined as net income (calculated in accordance with
generally accepted accounting principles ("GAAP")) excluding gains or losses
from debt restructuring and sales of real estate, plus depreciation of
rental real estate and amortization of intangible assets exclusive of
deferred financing costs, plus or minus certain nonrecurring revenue and
expenses. Contributions to FFO from unconsolidated
4
<PAGE>
entities in which the reporting entity holds an active interest are to be
reflected in FFO on the same basis. The Partnership believes FFO is a
meaningful disclosure as industry investors use FFO as a supplemental
measure to compare the operational performance of equity REITs. FFO is not a
substitute for net cash provided by operating activities or net income
computed in accordance with GAAP, nor should it be considered an alternative
indication of the Partnership's operating performance or liquidity.
FFO for each of the periods presented is calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Earnings.................................. $ 1,094 $ 1,340 $ 1,461 $ 618 $ 467
Depreciation and amortization............. 894 903 919 450 464
Deferred financing costs.................. (5) (9) (10) (5) (5)
Transaction costs......................... -- -- -- -- 285
--------- --------- --------- --------- ---------
Funds from operations................... $ 1,983 $ 2,234 $ 2,370 $ 1,063 $ 1,211
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
THE SECTION ENTITLED "BACKGROUND AND PURPOSES OF THE TRANSACTION -- THE
PURCHASER" IS HEREBY AMENDED BY REPLACING THE FIFTH PARAGRAPH AND TABLE IN THAT
SECTION WITH THE FOLLOWING:
The following sets forth selected financial information of the Purchaser
which is derived from the historical consolidated financial statements of the
Purchaser. Selected unaudited financial data for the six months ended June 30,
1995 and 1996 include all adjustments (consisting only of normally recurring
accruals) that the Purchaser considers necessary for a fair presentation of
consolidated operating results for those interim periods. Results for the
interim periods are not necessarily indicative of results for the full year.
This information should be read in conjunction with the Purchaser's consolidated
financial statements and other financial information incorporated by reference
in the Offer to Purchase. See "Incorporation by Reference." Certain pro forma
financial information with respect to the Offer, the Additional Offers, the
Merger and the Additional Mergers is set forth in Schedule VII to this
Supplement.
<TABLE>
<CAPTION>
PURCHASER (2)
PREDECESSOR (1) --------------------------------------------------
---------------------- SIX MONTHS ENDED JUNE
YEAR ENDED JAN. 1 TO YEAR ENDED DEC. 31, 30,
DEC. 31, MARCH 1, ------------------------ ------------------------
1993 1994 1994 1995 1995 1996
----------- --------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue................................. $72,346 $ 12,368 $ 66,921 $ 96,771 $ 45,475 $ 51,142
Net income.................................... 18,284 34,286 17,821 29,572 11,992 15,114
Net income per common share (3)............... 34.11 63.97 1.05 1.43 .66 .65
Dividends declared per common share (3)....... 59.57 732.05 1.02 2.38(4) 1.36(5) .47(6)
OTHER DATA:
Cash flows provided by (used by):
Operating activities........................ $35,049 $ 5,116 $ 29,309 $ 46,113 $ 20,602 $ 23,070
Investing activities........................ (5,582 ) 62,962 (115 ) (86,311 ) (60,699 ) (31,802 )
Financing activities........................ (30,269 ) (589) 99,021 32,719 33,947 6,797
Funds from operations (7)..................... 39,657 5,980 29,759 45,788 19,574 25,078
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- ----------------------
1994 1995 1995 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets...................................................... $ 494,590 $ 610,394 $ 585,901 $ 631,562
Total borrowings.................................................. 167,137 142,840 132,391 171,140
</TABLE>
- --------------------------
(1) The Predecessor information reflects the combination of the 17 partnerships
included in the Consolidation.
5
<PAGE>
(2) The Purchaser was inactive from January 1 through March 1, 1994.
(3) Predecessor "per share" information is earnings and distributions per
original $1,000 investment. Distributions for the period from January 1,
1994 to March 1, 1994 include the liquidating distributions made in
connection with the Consolidation.
(4) Includes the special dividend of $0.10 declared in November 1995 and the
dividend of $0.46 per share declared in December 1995 based on financial
results for the quarter ended December 31, 1995.
(5) Includes the dividend of $0.44 per share declared in January 1995 based on
financial results for the quarter ended December 31, 1996, the dividend of
$0.46 per share declared in May 1995 for the quarter ended March 31, 1995
and the dividend of $0.46 per share declared in May 1995 based on financial
results for the quarter ended June 30, 1995.
(6) A dividend of $0.47 per share relating to the financial results for the
quarter ended March 31, 1996 was declared in April 1996.
(7) FFO, as promulgated by the National Association of Real Estate Investment
Trusts in its March 1995 White Paper on Funds from Operations, is defined as
net income (calculated in accordance with GAAP) excluding gains or losses
from debt restructuring and sales of real estate, plus depreciation of
rental real estate and amortization of intangible assets exclusive of
deferred financing costs. Contributions to FFO from unconsolidated
entitities in which the reporting entity holds an active interest are to be
reflected in FFO on the same basis. The Purchaser believes FFO is meaningful
disclosure as industry investors use FFO as a supplemental measure to
compare the operational performance of equity REITs. FFO is not a substitute
for net cash provided by operating activities or net income computed in
accordance with GAAP, nor should it be considered an alternative indication
of the Purchaser's operating performance or liquidity.
FFO for each of the periods presented is calculated as follows:
<TABLE>
<CAPTION>
PURCHASER
PREDECESSOR -----------------------------------------------
------------------------- SIX MONTHS ENDED
YEAR ENDED JAN. 1 TO YEAR ENDED DEC. 31, JUNE 30,
DEC. 31, MARCH 1, ---------------------- -------------------
1993 1994 1994 1995 1995 1996
---------- --------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.............................. $ 18,284 $34,286 $ 17,821 $ 29,572 $ 11,992 $ 15,114
Depreciation and amortization........... 14,017 2,406 11,452 17,559 8,142 10,524
Deferred financing costs................ (55) (9) (694) (1,120) (560) (560)
Nonrecurring items...................... 7,411(1) (30,703)(2) 1,180(2) (232)(4) -- --
---------- --------- -------- -------- -------- --------
Funds from operations............... $ 39,657 $ 5,980 $ 29,759 $ 45,788 $ 19,574 $ 25,078
---------- --------- -------- -------- -------- --------
---------- --------- -------- -------- -------- --------
</TABLE>
------------------------------
(1) Litigation, hostile takeover and consolidation expenses.
(2) Litigation, hostile takeover and consolidation expenses of $12,180 less
$48,223 of gains in consolidation plus incentive management fees of
$5,340.
(3) Extraordinary loss on retirement of debt.
(4) Gain on condemnation.
THE THIRD PARAGRAPH OF THE SECTION ENTITLED "BACKGROUND AND PURPOSES OF THE
TRANSACTION -- BACKGROUND OF THE TRANSACTION" IS HEREBY AMENDED AND RESTATED IN
ITS ENTIRETY AS FOLLOWS:
In the fall of 1994, the General Partner and the general partners of the
Other Partnerships (collectively, the "General Partners") began considering the
termination of the Partnership and the Other Partnerships (collectively, the
"Partnerships") through an acquisition of the Partnerships by the Purchaser. The
representatives of the General Partners who considered the Partnerships'
termination and the acquisition of the Partnerships' assets by the Purchaser
were also executive officers of the Purchaser. The representatives of the
General Partners and the Purchaser recognized that an acquisition might require
the consent of IPSC under the terms of the partnership agreements of the General
Partners. Consequently, on September 22, 1994, a representative of the Purchaser
sent IPSC a letter discussing potential advantages and disadvantages of an
acquisition of the Partnerships by the
6
<PAGE>
Purchaser for the appraised values of the Partnerships, whereby the limited
partners of the Partnerships would receive either cash or REIT Shares in
exchange for their limited partnership interests. The letter presented
preliminary analyses of the value of the Partnership's properties of $24.6
million to $27.2 million, resulting in a net asset value of $20.9 million to
$23.4 million and a net asset value per Unit of $182 to $203. For purposes of
the letter, net asset value was comprised of the sum of the Purchaser's internal
valuation of the Partnership's properties and the book value of the
Partnership's non-real estate assets less the sum of the Partnership's
liabilities and estimated transaction costs. The analyses were based upon the
Partnership's 1994 budgeted net operating income adjusted based upon the
Partnership's actual performance when compared against budget through July 1994,
capitalization rates ranging from 10.5% to 9.5% and selling costs of 5% of
property value. The letter invited IPSC to contact the Purchaser concerning how
or if IPSC and the Purchaser might wish to proceed. At the time the initial
letter was sent to IPSC in 1994, the Purchaser and Shurgard Incorporated, the
manager of the Purchaser at that time, were negotiating the terms of the merger
of Shurgard Incorporated into the Purchaser (the "Management Company Merger")
which was completed in March 1995. Although representatives of the Purchaser and
the Partnerships had occasional discussions with representatives of IPSC
concerning the business of the Partnerships during this period, they did not
pursue a potential transaction due to the Purchaser's representatives'
involvement in the Management Company Merger.
THE SECTION ENTITLED "BACKGROUND AND PURPOSES OF THE TRANSACTION --
BACKGROUND OF THE TRANSACTION" IS HEREBY SUPPLEMENTED BY ADDING THE FOLLOWING
PARAGRAPHS IMMEDIATELY FOLLOWING THE FIFTH PARAGRAPH OF THAT SECTION:
The letter noted the following benefits of a merger: Unitholders
participating in the merger would acquire stock in an infinite life entity with
a larger asset base, greater diversification, larger market capitalization than
all three Partnerships combined and the ability to grow through increasing cash
flows from its existing portfolio, as well as through new investments; the
merger would permit Unitholders to exchange their illiquid Units for shares of a
publicly traded entity which they could liquidate at the time of their own
choosing; the merger would permit Unitholders to take advantage of the
then-current market for REIT securities which more fully reflected the
underlying net asset value of REITs (such as the Purchaser) with the ability to
grow; the merger would permit Unitholders to benefit from the increasing
strength of the self-storage industry over the past several years; while the
merger would be a taxable event, the then-current tax liability would be
minimal, but would increase the longer the merger was delayed, assuming no
change in other factors; and the merger would avoid certain of the costs
associated with a liquidation of the Partnership's properties, such as real
estate broker fees and transfer taxes.
The letter outlined a merger which would contain the following elements: the
ability of Unitholders to exchange their Units for cash or stock of the
Purchaser, based on the net asset value of the Partnership; net asset value
would be determined based upon an appraisal of the Partnership's real estate
assets as adjusted for the Partnership's other assets and liabilities; upon
completion of the merger, the Partnership would make a liquidating cash
distribution to partners in order to reconcile to the Partnership's net asset
value; the number of shares to be received by Unitholders would be determined
based upon the average closing price of REIT Shares for the 20 trading days
preceding the week prior to the special meeting of the Unitholders; the merger
would require the approval of a majority of Unitholders; any Unitholder who did
not vote or did not specify either cash or stock would receive stock in the
merger; consummation of the merger with respect to the Partnership would not be
dependent upon consummation of the mergers with respect to the Other
Partnerships; and the solicitation period with respect to the merger would be 30
to 45 days.
The letter presented preliminary analyses of the value of the Partnership's
properties of $26.6 million to $28.0 million, resulting in a net asset value of
$22.8 million to $24.1 million and a net asset value per Unit of $190 to $200.
For purposes of the letter, net asset value was comprised of the sum of the
Purchaser's internal valuation of the Partnership's properties and the book
value of the
7
<PAGE>
Partnership's non-real estate assets less the sum of the Partnership's
liabilities and estimated transaction costs. The analyses were based upon the
Partnership's 1995 budgeted net operating income adjusted based upon the
Partnership's actual performance when compared against budget through June 1995,
capitalization rates of 10.5% to 10% and Partnership transaction costs of 1.5%
of net asset value. In addition, the letter compared the distributions received
by Unitholders for the first quarter of 1995 with the estimated dividends that
would be received by Unitholders exchanging their Units for shares based upon
the Purchaser's then-current distribution rate of $.46 per share, assuming a
share price of $23. Based upon these assumptions, dividends would range from 9%
below to 2% above then-current Partnership distributions. The letter also
contained an analysis of the taxable gain per Unit as a result of the
transaction based upon the Partnership's 1994 tax return. The letter also noted
that the anticipated total transaction costs would be from 2% to 3% of net asset
value and proposed that the costs be shared by the Partnerships and the
Purchaser.
The letter included consideration of the liquidation of the Partnerships'
assets, concluding that it was a less than optimal time to liquidate the
Partnerships' portfolios. This conclusion was based upon then-current general
market conditions and performance of the properties owned and managed by the
Purchaser. The letter noted the general deterioration of the real estate market
which had affected property values and decreased sales activities, the reduced
sources of traditional real estate financing and the oversupply in the real
estate market caused by overbuilding and sales of troubled properties acquired
by financial institutions. Although conditions had been improving more recently,
these developments had resulted in a reduced market for sale and financing of
commercial real estate. The letter noted that, during the same time period, the
financial performance of the properties owned and managed by the Purchaser had
improved and, assuming that development of new facilities did not
disproportionately impact the Partnerships, the Partnerships' financial
performance was anticipated to improve. The letter noted that the Unitholders'
net proceeds available for reinvestment after liquidation would be significantly
reduced as a result of real estate commissions and other sales expenses. Based
upon these considerations, Mr. Barbo concluded that it was not the appropriate
time to liquidate the Partnerships' portfolios; however, a merger of the
Partnerships with the Purchaser would provide Unitholders with an opportunity to
participate in the benefits of publicly traded REITs in general and the
Purchaser in particular.
The letter also discussed the benefits and detriments of a continuation of
the operation of the Partnership and concluded that, while the Partnerships were
performing well and it was anticipated that distributions and cash flow from
operations would continue to improve, continuation would not provide Unitholders
with the benefits of the merger. In addition, the letter noted that it was
anticipated that the Purchaser's cash flow and funds from operations would
improve at a faster rate than the Partnerships' as a result of greater asset
diversification and acquisition and development activities.
THE FIRST SENTENCE OF THE TWELFTH PARAGRAPH IN THE SECTION ENTITLED
"BACKGROUND AND PURPOSES OF THE TRANSACTION -- BACKGROUND OF THE TRANSACTION" IS
HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
On March 25, 1996, in connection with preliminary discussions relating to a
potential business transaction which were subsequently terminated, the Purchaser
and Public Storage, Inc. ("PS") entered into a customary confidentiality and
standstill agreement whereby PS agreed that it would not acquire any interest in
the Purchaser or any of the Purchaser's affiliates (including the Partnerships)
for a period of two years without the Purchaser's consent (preventing PS from
making a competing tender offer for units of limited partnership interest in the
Partnerships or proposing an alternative transaction with the Partnerships
without the permission of the Purchaser).
THE THIRTEENTH PARAGRAPH IN THE SECTION ENTITLED "BACKGROUND AND PURPOSES OF
THE TRANSACTION -- BACKGROUND OF THE TRANSACTION" IS HEREBY AMENDED AND RESTATED
IN ITS ENTIRETY AS FOLLOWS:
From late March 1996 through May 1996, representatives of the Purchaser and
the Partnerships discussed the possibility of the Purchaser's acquisition of the
Partnerships. During this time, the
8
<PAGE>
parties discussed the possibility of structuring the acquisition as a cash
tender offer followed by a merger of the Partnerships into the Purchaser in
which limited partners of the Partnerships would receive REIT Shares in exchange
for their limited partnership interests. The parties viewed a two-step
transaction (a partial cash tender offer followed by a stock merger) as being
more desirable than a one-step cash-election merger transaction. Completion of a
merger would be subject to a number of conditions (including the approval of
limited partners of each of the Partnerships and registration of the REIT
Shares) that would not be conditions to a cash tender offer. Thus, the two-step
transaction would provide limited partners of the Partnerships with an
opportunity to obtain liquidity for a portion of their limited partnership
interests more quickly than waiting for completion of the merger. In addition,
the Purchaser favored a two-step transaction because it believed that such
structure might enable it to acquire an ownership position in the Partnerships
more quickly than would be the case in a one-step merger and would enable the
Purchaser to acquire Units that it could then vote in favor of a second-step
merger. During the last week of May 1996, the Special Committee proposed to the
Partnerships that the Purchaser acquire the Partnerships for a price equal to
each of their respective net asset values pursuant to a cash tender offer for up
to a designated percentage of outstanding units of limited partnership interest
followed by a merger in which limited partners of the Partnerships would receive
REIT Shares with a value equal to the respective per unit net asset value of the
Partnership. The value attributable to a REIT Share was proposed to be the
average of the closing prices for a REIT Share on the NYSE during a designated
future period (the "Average Price"). The parties discussed the provision in each
Partnership's partnership agreement which prohibits the transfer of any unit of
limited partnership interest if the proposed transfer would cause the
Partnership to terminate for federal income tax purposes due to a sale or
exchange of 50% or more of the total interest in the Partnership's capital and
profits in a 12 month period. See "Certain Federal Income Tax Consequences -- No
Constructive Termination of the Partnership." The parties concluded that they
should set the percentage of limited partnership interests that would be sought
in the first step tender offer so that if the offer were fully subscribed, the
number of limited partnership interests sold to the Purchaser would not result
in a termination of any of the Partnerships and thus the limited partnership
interests could be transferred to the Purchaser in accordance with the terms of
the partnership agreements.
THE FIRST SENTENCE OF THE FIRST PARAGRAPH IN THE SECTION ENTITLED
"BACKGROUND AND PURPOSES OF THE TRANSACTION -- PURPOSES AND STRUCTURE OF THE
TRANSACTION" IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
This Offer is being made and the Merger will be proposed for approval (i) to
enable the Purchaser to acquire the entire equity interest in the Partnership
and (ii) to give Unitholders an opportunity to (a) liquidate their Units for
cash subject to the proration provisions of this Offer if greater than 49,000
Units are tendered (see "The Offer" -- Section 1 ("Terms of the Offer")) or (b)
continue to own an equity interest in a portfolio of properties, including the
Partnership's properties, through an acquisition of REIT Shares.
THE THIRD SENTENCE OF THE SECOND PARAGRAPH IN THE SECTION ENTITLED
"BACKGROUND AND PURPOSES OF THE TRANSACTION -- PURPOSES AND STRUCTURE OF THE
TRANSACTION" IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
Because the Partnership Agreement prohibits the transfer of any Unit if the
proposed transfer would cause the Partnership to terminate for federal tax
purposes due to a sale or exchange of 50% or more of the total interest in the
Partnership's capital and profits in a 12 month period, the maximum percentage
of Units sought by the Purchaser in the Offer was set to prevent a termination
of the Partnership under those circumstances.
9
<PAGE>
FAIRNESS OF THE TRANSACTION; POSITION OF THE GENERAL PARTNER
THE SECTION ENTITLED "FAIRNESS OF THE TRANSACTION; POSITION OF THE GENERAL
PARTNER -- RECOMMENDATION OF THE GENERAL PARTNER" IS HEREBY AMENDED AND RESTATED
IN ITS ENTIRETY AS FOLLOWS:
RECOMMENDATION OF THE GENERAL PARTNER
Based upon its analysis of the Transaction, the General Partner has
concluded that the Offer Price and the Merger Consideration constitute fair
consideration to Unitholders and that the terms of this Offer and the Merger,
when considered as a whole, are fair to the Unitholders. The General Partner
formed this conclusion notwithstanding the fact that no independent
representative was engaged by the General Partner to negotiate the terms of the
Transaction on behalf of the Unitholders and that the Partnership Agreement does
not require a majority vote of unaffiliated Unitholders to approve the
Transaction. The factors considered by the General Partner in its analysis of
the fairness of the Offer and the Merger are set forth below. Charles K. Barbo
and SGPI, each an affiliate of the Partnership, have adopted the analysis of the
General Partner as set forth in this Offer to Purchase.
The General Partner recommends that those Unitholders who desire immediate
liquidity tender their Units pursuant to this Offer and that all other
Unitholders retain their Units and, instead, participate in the Merger. There
can be no assurance that the approval of the Merger by the holders of a majority
of the Units will be received or that the other conditions to the Merger will be
satisfied or waived, and that the Merger will be consummated. If the Merger is
not consummated, those Unitholders who do not tender their Units in this Offer
will continue to have an economic interest in the Partnership. The General
Partner has significant conflicts of interest in this transaction, which
conflicts arise, among other things, from the fact that certain representatives
of the General Partner are also officers of the Purchaser. See "Special
Considerations."
THE THIRD PARAGRAPH OF THE SECTION ENTITLED "FAIRNESS OF THE TRANSACTION;
POSITION OF THE GENERAL PARTNER -- FACTORS CONSIDERED BY THE GENERAL PARTNER --
DETERMINATION OF MERGER CONSIDERATION" IS HEREBY AMENDED BY ADDING THE FOLLOWING
SENTENCE IMMEDIATELY AFTER THE LAST SENTENCE OF THAT PARAGRAPH:
Unitholders should note that although the Stanger Fairness Opinions do not
address the fairness of the Merger Consideration if the actual REIT Share Price
is less than $22.25, the General Partner believes the method for determining the
Merger Consideration is fair if the REIT Share Price is between $22.25 and
$21.50 for the reasons stated in clause (iv) of the previous sentence and is
fair if the REIT Share Price is less than $21.50 because the General Partner may
withdraw its recommendation in favor of the Merger or terminate the Acquisition
Agreement if the Purchaser does not agree to pay the Additional Consideration.
THE SECTION ENTITLED "FAIRNESS OF THE TRANSACTION; POSITION OF THE GENERAL
PARTNER -- FACTORS CONSIDERED BY THE GENERAL PARTNER -- FAIRNESS IN VIEW OF
CONFLICTS OF INTEREST" IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS
FOLLOWS:
FAIRNESS IN VIEW OF CONFLICTS OF INTEREST. Charles K. Barbo, the Chairman
of the Board, President and Chief Executive Officer and a stockholder of the
Purchaser, is an individual general partner of the General Partner and the sole
shareholder and director of the corporate general partner of the General
Partner. Arthur W. Buerk, a stockholder of the Purchaser, is an individual
general partner of the General Partner, and the Purchaser is a limited partner
of the General Partner. The General Partner will receive 5% of the Merger
Consideration in exchange for its interest as the General Partner of the
Partnership. See "Interests of Certain Persons -- General Partner's Interest."
In connection with the merger of Shurgard Incorporated with the Purchaser in
1995, the Purchaser agreed to deliver REIT Shares as additional consideration
for that merger under certain circumstances upon the liquidation of the assets
of certain partnerships sponsored by Shurgard Incorporated, including the
Partnership and the Other Partnerships (the "Contingent Share Agreement"). The
Purchaser entered into the Contingent Share Agreement because the Purchaser had
concluded that it would be difficult at the time of the Management Company
Merger to value
10
<PAGE>
Shurgard Incorporated's interests in certain limited partnerships (including the
Partnerships). Accordingly, Shurgard Incorporated shareholders did not receive
any consideration with respect to such interests at the time of the Management
Company Merger, but instead are entitled to receive additional consideration at
a future valuation date or when the Purchaser receives proceeds from the sale of
such interests. If any of the Merger and the Additional Mergers is consummated,
certain executive officers and other members of the Purchaser's management will
receive REIT Shares pursuant to the Contingent Share Agreement. See "Interests
of Certain Persons -- Contingent Share Agreement."
The General Partner did not engage independent representatives of the
Unitholders to negotiate, review and approve the terms of the Transaction and
the terms of the Transaction are not the results of arms' length negotiations.
The General Partner believes that its recommendation results from a
determination that the Transaction is more attractive to Unitholders than any
alternatives considered by the General Partner, and that this determination
results from the General Partner's discharge of its fiduciary duties to the
Unitholders and is not affected by the conflicts of interest described above.
The General Partner has based its conclusion regarding the fairness of the
Transaction to Unitholders on the factors discussed in this "Fairness of the
Transaction; Position of the General Partner" section. The General Partner
believes that the analysis was performed in a good faith exercise of its
fiduciary duty, unaffected by these conflicts of interest.
THE SECOND PARAGRAPH OF THE SECTION ENTITLED "FAIRNESS OF THE TRANSACTION;
POSITION OF THE GENERAL PARTNER -- FACTORS CONSIDERED BY THE GENERAL PARTNER --
COMPARISON OF CERTAIN BENEFITS AND DETRIMENTS OF ALTERNATIVES TO THE TRANSACTION
- -- LIQUIDATION OF THE PARTNERSHIP" IS HEREBY AMENDED BY ADDING THE FOLLOWING
SENTENCE IMMEDIATELY AFTER THE LAST SENTENCE OF THAT PARAGRAPH:
While Unitholders could purchase REIT Shares in the public market using the
proceeds of liquidation, the number of REIT Shares they would be able to
purchase would be less than the number of REIT Shares they would receive in the
Merger because the Partnership would incur more expenses in a liquidation than
in the Merger and because Unitholders would typically incur brokerage
commissions in connection with their purchase of the REIT Shares in the public
market.
THE LAST TWO PARAGRAPHS OF THE SECTION ENTITLED "FAIRNESS OF THE
TRANSACTION; POSITION OF THE GENERAL PARTNER -- FACTORS CONSIDERED BY THE
GENERAL PARTNER -- COMPARISON OF CERTAIN BENEFITS AND DETRIMENTS OF ALTERNATIVES
TO THE TRANSACTION -- LIQUIDATION OF THE PARTNERSHIP" ARE HEREBY AMENDED AND
RESTATED IN THEIR ENTIRETY AS FOLLOWS:
The transaction costs associated with the Merger are expected to be
significantly less than those which would be incurred in a liquidation of the
Partnership's assets, primarily because the Partnership would incur brokerage
fees and real estate transfer taxes if the properties were liquidated and would
likely be responsible for 100% of those expenses rather than sharing the
transaction costs with the acquiror as provided in the Acquisition Agreement.
See "The Acquisition Agreement -- Fees and Expenses." The General Partner
estimates that the brokerage fees would be approximately 2% of the appraised
value of the Partnership's properties (or approximately $600,000) and that the
transfer taxes would total approximately $180,000. If the Merger is consummated,
the Partnership will effectively dispose of all of its assets and liabilities in
a single transaction, which will minimize the liquidation costs. If the assets
of the Partnership were liquidated over time, not only is it likely that higher
transaction costs would be incurred, but distributions to the Unitholders from
the Partnership's cash flow from operations may be reduced since the
Partnership's fixed costs, such as general and administrative expenses, would
not be proportionately reduced with the liquidation of assets.
The General Partner favors the Transaction over liquidation of the
Partnership's assets because this Offer permits those Unitholders desiring
immediate liquidity to obtain cash, while permitting the remaining Unitholders
to participate in the Merger which, if consummated, will enable them to
participate in acquisition and development opportunities existing in the real
estate market through equity ownership in the Purchaser. Unlike the Partnership,
which is not in a position to take advantage of external growth opportunities
since it has already committed its capital and is not authorized to raise
additional funds or reinvest net sale or refinancing proceeds for new
investments, the
11
<PAGE>
Purchaser not only may reinvest net sale or refinancing proceeds but also may
raise additional capital through the sale of debt or equity securities, allowing
the Purchaser to take advantage of investment opportunities for acquisition or
development that may be available. In addition, the estimated transaction costs
associated with the Transaction are significantly less than those which would be
incurred in a liquidation of the Partnership's assets on a single transaction or
multiple transaction basis.
THE SECTION ENTITLED "FAIRNESS OF THE TRANSACTION; POSITION OF THE GENERAL
PARTNER -- FACTORS CONSIDERED BY THE GENERAL PARTNER -- COMPARISON OF CERTAIN
BENEFITS AND DETRIMENTS OF ALTERNATIVES TO THE TRANSACTION -- CONTINUATION OF
THE PARTNERSHIP" IS HEREBY AMENDED BY ADDING THE FOLLOWING PARAGRAPH IMMEDIATELY
AFTER THE THIRD PARAGRAPH OF THAT SECTION:
One of the significant differences between the Partnership and the Purchaser
is that the Partnership is a finite life entity and the Purchaser is an infinite
life entity. Continuing the Partnership would preserve Unitholders' investment
in a finite life entity, with the eventual liquidation of that investment
resulting from a sale of the assets of the Partnership. In contrast, the
Purchaser does not expect to dispose of its investments within any specific time
periods and, in any event, plans to retain the net sale proceeds for future
investments. Stockholders are expected to achieve liquidity for their
investments by trading REIT Shares in the public market and not through the
liquidation of the Purchaser's assets. The REIT Shares may trade at a discount
from, or premium to, the liquidation value of the Purchaser's properties.
THE THIRD PARAGRAPH AND TABLE IN THE SECTION ENTITLED "FAIRNESS OF THE
TRANSACTION; POSITION OF THE GENERAL PARTNER -- COMPARISON OF TRANSACTION
CONSIDERATION TO ALTERNATIVES -- GENERAL" ARE HEREBY AMENDED AND RESTATED IN
THEIR ENTIRETY AS FOLLOWS:
The estimated values presented in the following table are based upon certain
assumptions that relate, among other things, to (i) the REIT Share Price as of
the date of the Merger being within the Share Price Range, (ii) projections as
to the Partnership's future revenues, expenses, cash flow and other significant
financial matters, (iii) the capitalization rates that will be used by
prospective buyers when the Partnership's assets are liquidated, (iv) selling
costs, (v) appropriate discount rates to apply to expected cash flows in
computing the present value of the cash flows and (vi) the manner of sale of the
Partnership's properties. Actual results may vary from those set forth below
based on numerous factors, including interest rate fluctuations, tax law
changes, supply and demand for self storage facilities, the manner in which the
properties are sold and changes in availability of capital to finance
acquisitions of self storage properties. Each Unit in the following table
represents an original investment of $250.
<TABLE>
<CAPTION>
ESTIMATED LIQUIDATION
VALUE PER UNIT
SECONDARY ESTIMATED GOING ASSUMING PARTNERSHIP
MARKET PRICE CONCERN VALUE ASSETS SOLD AT:
MERGER PER UNIT (2) PER UNIT (3) ------------------------
OFFER PRICE CONSIDERATION -------------------- -------------------- APPRAISED NET BOOK
PER UNIT PER UNIT (1) HIGH LOW HIGH LOW VALUE (4) VALUE (5)
- ----------- ------------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 222 $ 222 $ 185 $ 162 $ 218 $ 203 $ 217 $ 183
</TABLE>
- ------------------------------
(1) Assumes the REIT Share Price is within the Share Price Range. The Merger
Consideration is payable in REIT Shares, cash in lieu of any fractional REIT
Shares and, in certain circumstances, additional cash consideration. See
"The Acquisition Agreement -- The Merger."
(2) The secondary market prices are those reported to Stanger for the first
calendar quarter of 1996. See "Market Prices of Units."
(3) The going concern value estimates are based upon a number of assumptions
regarding the future net operating income and cash distributions of the
Partnership and assume a disposition of the Partnership's assets at the end
of 2000. See "-- Going Concern Value." The per Unit going concern value
estimates were calculated based upon the General Partner's aggregate high
and low going concern value estimates for Unitholders of $25,126,033 and
$23,385,941, respectively.
12
<PAGE>
(4) Estimated Liquidation Value at Appraised Value is based primarily upon the
Appraisal and adjustments for non-real estate assets and liabilities and
estimated selling costs. See "-- Liquidation Value." The per Unit
liquidation value at Appraised Value estimate was calculated based upon the
General Partner's aggregate liquidation value at Appraised Value estimate
for Unitholders of $24,957,589.
(5) Estimated Liquidation Value at Net Book Value is computed as of March 31,
1996 less estimated selling costs. See "-- Liquidation Value." The aggregate
net book value of $21,011,081 represents the value of the Partnership's
equity as of March 31, 1996 allocable to Unitholders computed in accordance
with GAAP, less selling costs equal to 4% of the book value of the
Partnership's real estate assets.
THE SECOND PARAGRAPH OF THE SECTION ENTITLED "FAIRNESS OF THE TRANSACTION;
POSITION OF THE GENERAL PARTNER -- COMPARISON OF TRANSACTION CONSIDERATION TO
ALTERNATIVES -- GOING CONCERN VALUE" IS HEREBY AMENDED AND RESTATED IN ITS
ENTIRETY AS FOLLOWS:
The General Partner has presented two estimates of the going concern value
of the Partnership on a per Unit basis, which estimates are based on the
five-year property cash flows beginning in 1996 used by Stanger in preparing the
Appraisal, adjusted for general and administrative expenses (which are assumed
to increase at the rate of 3.5% per year), debt service payments and principal
amortization, and to reflect the allocation of the Partnership's value among
Unitholders and the General Partner in accordance with the Partnership
Agreement. The 1996 beginning property cash flow used in performing the going
concern value analysis was $2,923,000, and that amount was increased for
purposes of the analysis by a compound annual rate of approximately 3.5% over
the projection period. The going concern value was established by computing the
present value of the projected distributions with respect to the Units,
discounted at the rate of 13.25% per annum under the conservative scenario and
at the rate of 12.25% per annum under the more favorable scenario. In
determining the going concern value of the Partnership, the General Partner
assumed that the Partnership's non-real estate assets and liabilities on
December 31, 2000 are the same as those on December 31, 1995, adjusted for
principal amortization of $933,428 (including a balloon payment due in 1997 of
$470,000), resulting in an excess of non-real estate liabilities over non-real
estate assets of $2,182,284. In determining the discount rates deemed
appropriate for the going concern analysis, the General Partner considered,
among other factors, the rates of return generally required by real estate
investors, the discount rates utilized in the Appraisal, and the amount and
maturities of debt encumbering the properties and the refinancing risks related
thereto. Under the conservative scenario, the Partnership's assets are sold at
the end of 2000 for an all-cash purchase price of $32,933,333, which is
sufficient to yield the buyer a 10.5% return based on projected property cash
flows for 2001 of approximately $3,458,000. Under the more favorable scenario,
it is assumed that the Partnership's assets are sold at the end of 2000 for an
all-cash purchase price of $34,580,000, which is sufficient to yield the buyer a
10% return based upon projected property cash flows in 2001 of approximately
$3,458,000.
THE SECTION ENTITLED "FAIRNESS OF THE TRANSACTION; POSITION OF THE GENERAL
PARTNER -- COMPARISON OF TRANSACTION TO ALTERNATIVES -- GOING CONCERN VALUE" IS
HEREBY AMENDED BY ADDING THE FOLLOWING AFTER THE THIRD PARAGRAPH OF THAT
SECTION:
Set forth below is a chart showing the calculation of the Partnership's cash
flows used to calculate the going concern value based upon the assumptions
described above.
<TABLE>
<CAPTION>
GENERAL AND UNITHOLDERS'
PROPERTY ADMINISTRATIVE DEBT PRINCIPAL SHARE OF NET
YEAR CASH FLOW EXPENSES SERVICE AMORTIZATION CASH FLOW
- ----------------------------------------- ----------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
1996..................................... $ 2,923,000 $ (159,200) $ (274,700) $ (78,207) $ 2,290,348
1997..................................... 3,051,000 (164,772) (239,851) (554,856) 1,986,945
1998..................................... 3,146,000 (170,539) (218,645) (92,071) 2,531,508
1999..................................... 3,259,000 (176,508) (210,817) (99,899) 2,633,187
2000..................................... 3,358,000 (182,686) (202,321) (108,395) 2,721,368
----------- ------------- ----------- ------------ -------------
TOTAL.................................... $15,737,000 $ (853,705) $(1,146,334) $ (933,428) $12,163,357
----------- ------------- ----------- ------------ -------------
----------- ------------- ----------- ------------ -------------
</TABLE>
The Partnership does not as a matter of course make public forecasts or
projections as to future performance or earnings. However, in performing its
going concern analysis, the General Partner
13
<PAGE>
prepared the above projections relating to the Partnership's future cash flows.
THE PROJECTIONS WERE PREPARED SOLELY FOR INTERNAL USE AND NOT WITH A VIEW TO
PUBLIC DISCLOSURE OR COMPLIANCE WITH PUBLISHED GUIDELINES OF THE COMMISSION
REGARDING PROJECTIONS OR THE GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS AND ARE INCLUDED IN THIS
OFFER TO PURCHASE ONLY BECAUSE SUCH INFORMATION WAS MADE AVAILABLE TO STANGER
AND ALEX. BROWN. In addition, because the estimates and assumptions underlying
these projections are inherently subject to significant economic and competitive
uncertainties and contingencies, which are beyond the Partnership's control,
there can be no assurance that the projections will be realized. Actual results
may be higher or lower than those set forth above. Deloitte & Touche LLP, the
Partnership's independent auditor, has not examined, compiled or otherwise
applied procedures to the financial projections presented above, and,
accordingly, does not express an opinion or any other form of assurance on the
financial projections.
THE SECTION ENTITLED "FAIRNESS OF THE TRANSACTION; POSITION OF THE GENERAL
PARTNER -- THE SPECIAL COMMITTEE -- RECOMMENDATION OF THE GENERAL PARTNER" IS
HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
RECOMMENDATION OF THE GENERAL PARTNER. The Special Committee considered the
conclusions as to fairness of the General Partner and adopted the analysis
underlying those conclusions for purposes of reaching its own conclusion that
the Transaction is fair to Unitholders. See "-- Recommendation of the General
Partner," "-- Factors Considered by the General Partner" and "-- Comparison of
Transaction Consideration to Alternatives." The General Partner has significant
conflicts of interest in this transaction, which conflicts arise, among other
things, from the fact that certain representatives of the General Partner are
also officers of the Purchaser. See "Special Considerations."
THE SECTION ENTITLED "FAIRNESS OF THE TRANSACTION; POSITION OF THE GENERAL
PARTNER -- THE SPECIAL COMMITTEE -- PREMIUM OVER RECENT MARKET PRICES" IS HEREBY
AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
PREMIUM OVER RECENT MARKET PRICES. The Special Committee considered the
fact that the Offer Price and the Merger Consideration (assuming the REIT Share
Price remains within the Share Price Range) represents a premium of more than
19% over the highest sales price in the secondary market of the Unit known to
the General Partner between January 1, 1992 and the end of the first quarter of
1996. See "Market Prices of Units."
APPRAISAL; OPINIONS OF FINANCIAL ADVISORS
THE FOURTH PARAGRAPH OF THE SECTION ENTITLED "APPRAISAL; OPINIONS OF
FINANCIAL ADVISORS -- REAL ESTATE PORTFOLIO APPRAISAL BY STANGER -- INCOME
APPROACH" IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY TO READ AS FOLLOWS:
Stanger then capitalized, at terminal capitalization rates ranging from
10.0% to 10.25% the estimated net operating income of each property for the 12
months ending December 31, 2006, to determine the property's residual value. The
residual value was discounted after deducting appropriate sales expenses to a
present value using the same discount rate applied to the stream of annual cash
flows. The discount rates utilized, ranging from 12.0% to 12.25%, were based on
current acquisition criteria among self storage facility investors,
commercial/industrial property investors' target rates for return and the
historical spread in rates of return between real estate and other investments.
Stanger then correlated the values resulting from each method (direct
capitalization and discounted cash flow) to arrive at a final income approach
valuation. The indicated aggregate value of the portfolio of properties based on
the income approach valuation was $30,520,000, after adjustment for any deferred
maintenance items.
14
<PAGE>
THE SECTION ENTITLED "APPRAISAL; OPINIONS OF FINANCIAL ADVISORS -- REAL
ESTATE PORTFOLIO APPRAISAL BY STANGER -- SALES COMPARISON APPROACH" IS HEREBY
AMENDED AND RESTATED IN ITS ENTIRETY TO READ AS FOLLOWS:
SALES COMPARISON APPROACH. Stanger compiled transaction data involving
properties similar in type to the Partnership's properties by interviewing
sources in local markets to identify recent sales of self storage or
office/storage properties, reviewing publicly available information on
acquisitions of self storage properties, reviewing information provided by
management, and contacting industry sources. Using this data, Stanger performed
a comparable sales analysis based upon price per square foot. A probable range
of value per square foot was estimated for each property based on the
relationship between observed sales prices per square foot and net operating
income per square foot. Price per square foot as estimated by this analysis was
multiplied by the rentable square footage of each property to derive an
estimated range of value. The indicated aggregate value of the portfolio of
properties based on the sales comparison approach was $30,460,000 after
adjustment for any deferred maintenance items.
Stanger reconciled the estimated values resulting from the sales comparison
approach and the income approach for each property, and the resulting values
were summed to determine the estimated value of the Partnership's entire
portfolio. Stanger adjusted the value conclusion for each property to reflect
any deferred maintenance items associated with the properties. In determining a
final value of the portfolio of properties, Stanger also reconciled the
indicated aggregate portfolio values based on the income approach and the sales
comparison approach. In determining a final conclusion as to value, the income
approach was given primary consideration by Stanger because properties such as
those owned by the Partnership are typically purchased and sold based upon their
income characteristics. Stanger gave the sales comparison approach secondary
consideration.
THE SECTION ENTITLED "APPRAISAL; OPINIONS OF FINANCIAL ADVISORS -- REAL
ESTATE PORTFOLIO APPRAISAL BY STANGER -- COMPENSATION AND MATERIAL
RELATIONSHIPS" IS HEREBY AMENDED BY ADDING THE FOLLOWING IMMEDIATELY AFTER THE
LAST SENTENCE IN THAT PARAGRAPH:
The General Partner has adopted the Appraisal in forming its conclusions
regarding the fairness of the Transaction to Unitholders.
THE SECTION ENTITLED "APPRAISAL; OPINIONS OF FINANCIAL ADVISORS -- OPINIONS
OF THE PARTNERSHIP'S FINANCIAL ADVISOR -- APPRAISAL" IS HEREBY AMENDED AND
RESTATED IN ITS ENTIRETY AS FOLLOWS:
APPRAISAL. In preparing its opinions, Stanger performed an independent
appraisal of the Partnership's portfolio of properties. During the course of the
Appraisal, Stanger performed site inspections of each property owned by the
Partnership, conducted inquiries into local market conditions affecting each
property, reviewed historical and budgeted operating statements for each
property, conducted interviews with Partnership and property management
personnel, reviewed the acquisition criteria in use in the marketplace by major
self storage property investors and owners and other real estate investors,
reviewed information concerning transactions involving self storage properties,
and estimated the market value of the portfolio utilizing the income and sales
comparison approaches to value See "-- Real Estate Portfolio Appraisal by
Stanger." Stanger observed that the Offer Price equals the pro rata interest per
Unit in the Appraised Value as adjusted by the General Partner for non-real
estate assets and liabilities of the Partnership, estimated Transaction costs to
be borne by the Partnership and the Unitholders' share of the resulting Net
Asset Value according to the provisions of the Partnership Agreement. Stanger
believes that the Net Asset Value of the Partnership, which is based primarily
on the appraised value of the Partnership's portfolio of properties, is a
reasonable basis for determining the consideration offered in the transaction.
15
<PAGE>
THE THIRD PARAGRAPH IN THE SECTION ENTITLED "APPRAISAL; OPINIONS OF
FINANCIAL ADVISORS -- OPINIONS OF THE PARTNERSHIP'S FINANCIAL ADVISOR -- REVIEW
OF LIQUIDATION ANALYSIS" IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS
FOLLOWS:
Stanger observed that the Offer Price and the Merger Consideration exceeded
the estimated liquidation value per Unit by approximately $5. The fact that the
Offer Price and Merger Consideration exceed the estimated value which would be
received by Unitholders in a liquidation of the Partnership supports Stanger's
conclusion as to the fairness of the Offer Price and the Merger Consideration.
THE SECOND PARAGRAPH IN THE SECTION ENTITLED "APPRAISAL; OPINIONS OF
FINANCIAL ADVISORS -- OPINIONS OF THE PARTNERSHIP'S FINANCIAL ADVISOR -- REVIEW
OF GOING CONCERN ANALYSIS" IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS
FOLLOWS:
Stanger observed that the estimated going concern values resulting from the
above analyses ranged from $218 to $203 per Unit compared with the Offer Price
of $222 per Unit. The fact that the Offer Price and the Merger Consideration
exceed the estimated value per Unit of continuing to operate the Partnership as
a going concern supports Stanger's conclusion as to the fairness of the Offer
Price and the Merger Consideration.
THE THIRD PARAGRAPH IN THE SECTION ENTITLED "APPRAISAL; OPINIONS OF
FINANCIAL ADVISORS -- OPINIONS OF THE PARTNERSHIP'S FINANCIAL ADVISOR -- REVIEW
OF TENDER OFFER AND SECONDARY MARKET PRICES" IS HEREBY AMENDED AND RESTATED IN
ITS ENTIRETY AS FOLLOWS:
Stanger also observed that, based on prices reported to Stanger by various
firms active in the informal secondary market for partnership interests, the
highest selling price reported for Units in the informal secondary market
between January 1, 1995 and the end of the first quarter of 1996 was $186 per
Unit compared with the Offer Price of $222 per Unit. Although prices in the
informal secondary market for partnership interests generally do not reflect the
full value of a partnership's assets (due in part to the discount a buyer would
ascribe to a minority interest), the fact that the Offer, if not followed by the
Merger, could result in the acquisition by the Purchaser of a minority interest
in the Partnership and that the Offer Price exceeds the selling prices reported
for Units in the informal secondary market, in a prior tender offer and in a
prior bulk purchase of Units by the Purchaser supports Stanger's conclusion as
to the fairness of the Offer Price.
THE SECTION ENTITLED "APPRAISAL; OPINIONS OF FINANCIAL ADVISORS -- OPINIONS
OF THE PARTNERSHIP'S FINANCIAL ADVISOR -- COMPENSATION AND MATERIAL
RELATIONSHIPS" IS HEREBY AMENDED BY ADDING THE FOLLOWING SENTENCE IMMEDIATELY
PRIOR TO THE LAST SENTENCE OF THAT SECTION:
The General Partner has adopted the Stanger Fairness Opinions in forming its
conclusions regarding the fairness of the Transaction to Unitholders.
THE SIXTH PARAGRAPH OF THE SECTION ENTITLED "APPRAISAL; OPINIONS OF
FINANCIAL ADVISORS -- OPINION OF THE PURCHASER'S FINANCIAL ADVISOR" IS HEREBY
AMENDED AND RESTATED IN ITS ENTIRETY TO READ AS FOLLOWS:
In connection with the delivery of the Alex. Brown Opinion, Alex. Brown
presented to the Special Committee a report summarizing the material analyses
performed and the material factors considered by Alex. Brown in connection with
rendering the Alex. Brown Opinion (the "Alex. Brown Report"). The following is a
summary of such material analyses and material factors as described in the Alex.
Brown Report and as presented to the Special Committee.
THE SECTION ENTITLED "APPRAISAL; OPINIONS OF FINANCIAL ADVISORS -- OPINION
OF THE PURCHASER'S FINANCIAL ADVISOR -- HISTORICAL FINANCIAL POSITION" IS HEREBY
AMENDED AND RESTATED IN ITS ENTIRETY TO READ AS FOLLOWS:
HISTORICAL FINANCIAL POSITION. Alex. Brown reviewed and analyzed for
informational purposes the historical and current financial condition of the
Purchaser and the Partnerships which included: (i) an assessment of the
Partnerships' recent financial statements; (ii) an analysis of the Purchaser's
16
<PAGE>
and the Partnerships' revenue, growth and operating performance trends; and
(iii) an assessment of the Partnerships' leverage, market share and access to
markets. Alex. Brown reviewed that information solely to provide a context for
its financial analyses and reached no conclusions based upon that information.
THE SECTION ENTITLED "APPRAISAL; OPINIONS OF FINANCIAL ADVISORS -- OPINION
OF THE PURCHASER'S FINANCIAL ADVISOR -- HISTORICAL STOCK PRICE PERFORMANCE" IS
HEREBY AMENDED AND RESTATED IN ITS ENTIRETY TO READ AS FOLLOWS:
HISTORICAL STOCK PRICE PERFORMANCE. Alex. Brown reviewed and analyzed the
daily closing per share market prices, trading volume, and 20 day moving average
stock price for the REIT Shares, from June 25, 1995 to June 25, 1996. This
information was presented to give the Special Committee background trading
information over the period indicated. Alex. Brown also reviewed and analyzed
information regarding the market prices and trading volume of the Partnerships'
units, on a quarterly basis from September 1995 to April 1996. Alex. Brown
reviewed that information solely to provide a context for its financial analyses
and reached no conclusions based upon that information.
THE SECTION ENTITLED "APPRAISAL; OPINIONS OF FINANCIAL ADVISORS -- OPINION
OF THE PURCHASER'S FINANCIAL ADVISOR -- REAL ESTATE MARKET AND ECONOMIC FACTORS"
IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY TO READ AS FOLLOWS:
REAL ESTATE MARKET AND ECONOMIC FACTORS. In rendering its opinion, Alex.
Brown considered, among other factors, the condition of the U.S. stock markets,
particularly in the real estate sector, and the current level of economic
activity. However, Alex. Brown did not reach any independent conclusion from the
consideration of those factors.
THE SECTION ENTITLED "APPRAISAL; OPINION OF FINANCIAL ADVISOR -- OPINION OF
THE PURCHASER'S FINANCIAL ADVISOR" IS HEREBY AMENDED TO ADD THE FOLLOWING
SENTENCE IMMEDIATELY PRIOR TO THE SECOND TO LAST PARAGRAPH OF THAT SECTION:
The foregoing description of the Alex. Brown Report is qualified by
reference to the full text of such report which has been filed with the
Commission as an exhibit to the Schedule 13E-3 and which is incorporated herein
by reference. Copies of the Alex. Brown Report will be made available for
inspection and copying at the principal executive offices of the Purchaser
during regular business hours by any interested Unitholder, or by his or her
representative who has been so designated in writing, and may be inspected and
copied, and obtained by mail, from the Commission as set forth in "Additional
Information."
MARKET PRICES OF UNITS
THE SECTION ENTITLED "MARKET PRICES OF UNITS -- VOLUME OF SALES" IS HEREBY
AMENDED BY REPLACING THE LAST LINE OF THE TABLE IN THAT SECTION WITH THE
FOLLOWING:
<TABLE>
<CAPTION>
% OF TOTAL
NO. OF UNITS UNITS NO. OF
PERIOD TRANSFERRED OUTSTANDING TRANSACTIONS
- ----------------------------------------------------------- --------------- --------------- -----------------
<S> <C> <C> <C>
Six months ended June 30, 1996............................. 638 0.554% 19
</TABLE>
THE SECTION ENTITLED "MARKET PRICES OF UNITS -- SECONDARY MARKET
INFORMATION" IS HEREBY SUPPLEMENTED BY ADDING THE FOLLOWING IMMEDIATELY AFTER
THE LAST LINE OF THE TABLE IN THAT SECTION:
<TABLE>
<CAPTION>
TRANSACTION PRICE
-----------------------------------------
REPORTING PERIOD LOW HIGH NUMBER OF UNITS
- --------------------------------------------------------------- --------- --------- -------------------
<S> <C> <C> <C>
Quarter 2...................................................... $ 165.00 $ 186.00 68
</TABLE>
17
<PAGE>
INTERESTS OF CERTAIN PERSONS
THE SECTION ENTITLED "INTERESTS OF CERTAIN PERSONS -- GENERAL PARTNER'S
INTEREST" IS HEREBY SUPPLEMENTED BY REPLACING THE FIFTH SENTENCE OF THE FIRST
PARAGRAPH OF THAT SECTION WITH THE FOLLOWING SENTENCE:
Accordingly, the General Partner has been limited to receiving 5% of
Partnership cash distributions resulting in the receipt of such distributions by
the General Partner of $94,664, $95,610 and $98,448 for the years ended December
31, 1993, 1994 and 1995, respectively, and $49,224 for the six months ended June
30, 1996.
THE SECTION ENTITLED "INTERESTS OF CERTAIN PERSONS -- PROPERTY MANAGEMENT
SERVICES" IS HEREBY AMENDED BY REPLACING THE SECOND SENTENCE OF THE FIRST
PARAGRAPH OF THAT SECTION WITH THE FOLLOWING SENTENCE:
The Purchaser (or the Predecessor under the Management Services Agreement)
received from the Partnership in payment of these property management and
advertising fees $224,321, $249,459 and $265,453 for the years ended December
31, 1993, 1994 and 1995, respectively, and $138,729 for the six months ended
June 30, 1996.
THE OFFER
THE FIRST PARAGRAPH OF THE SECTION ENTITLED "THE OFFER" -- SECTION 7
("CERTAIN CONDITIONS OF THE OFFER") IS HEREBY AMENDED AND RESTATED IN ITS
ENTIRETY AS FOLLOWS:
7. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provisions
of this Offer and subject to the applicable rules of the Securities and Exchange
Commission, the Purchaser will not be required to accept for purchase any Units,
may postpone the acceptance for purchase of Units tendered and may terminate or
amend this Offer if prior to the Expiration Date any of the following shall
occur or the Purchaser shall have learned of the occurrence of any such events:
THE SECTION ENTITLED "THE OFFER" -- SECTION 11 ("MISCELLANEOUS") IS HEREBY
AMENDED TO ADD THE FOLLOWING PARAGRAPHS IMMEDIATELY FOLLOWING THE SECOND
PARAGRAPH OF THAT SECTION:
PENDING LITIGATION. On July 16, 1996, Irving and Roberta B. Schuman (the
"Plaintiffs"), unitholders of the Partnership, filed a purported class and
derivative action complaint (the "Complaint") on behalf of themselves and all
other unitholders of the Partnerships and derivatively on behalf of the
Partnerships in the Superior Court of the State of Washington in and for the
County of King naming the Purchaser, Charles K. Barbo, Arthur W. Buerk, Shurgard
Associates L.P., Shurgard Associates L.P. II, Shurgard Associates L.P. III,
Shurgard General Partner, Inc. and certain other individuals (each of whom have
since been dismissed as a Defendant) as Defendants and the Partnerships as
Nominal Defendants.
In the Complaint, the Plaintiffs asserted claims for breach of fiduciary
duty, aiding and abetting a breach of fiduciary duty, breach of contract and
fraud against each of the Defendants for their actions taken in connection with
the Transaction. The Plaintiffs seek monetary damages and equitable relief,
including an order enjoining the consummation of the Offers, or alternatively,
an order requiring the Defendants to issue disclosures to correct allegedly
false and misleading statements and omissions of material facts in all documents
prepared, filed with the SEC, issued or disseminated to the unitholders of the
Partnerships by Defendants in connection with the Offers.
The Defendants intend to vigorously defend the lawsuit.
EXCEPT AS AMENDED OR SUPPLEMENTED HEREBY, ALL PROVISIONS OF THE OFFER REMAIN
UNAFFECTED.
SHURGARD STORAGE CENTERS, INC.
18
<PAGE>
SCHEDULE I OF THE OFFER TO PURCHASE IS HEREBY AMENDED AND RESTATED IN ITS
ENTIRETY AS FOLLOWS:
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF
SHURGARD STORAGE CENTERS, INC., SHURGARD GENERAL PARTNER, INC.
AND THE INDIVIDUAL GENERAL PARTNERS OF
SHURGARD ASSOCIATES L.P. II
The following table sets forth the name, business address, principal
occupation or employment at the present time and during the last five years, and
the name, principal business and address of any corporation or other
organization in which such occupation or employment is or was conducted, of the
directors and executive officers of the Purchaser and SGPI and the individual
general partners of the General Partner, all of whom are citizens of the United
States. Except as otherwise noted, the address of each such corporation or
organization listed and the business address of each person listed is 1201 Third
Avenue, Suite 2200, Seattle, Washington 98101. Except as otherwise noted, the
principal business of each corporation or organization listed is real estate
investment and each person listed has had the principal occupation or employment
listed for more than the past five years.
<TABLE>
<CAPTION>
COMPANY/ADDRESS/
NAME DESCRIPTION OF BUSINESS OFFICE AND DATE OF ELECTION
- ---------------- ----------------------------------------------- -----------------------------------------------
<S> <C> <C>
Charles K. Barbo Shurgard Storage Centers, Inc. Director (1995-present); Chairman of the Board,
President and Chief Executive Officer
(1995-present)
Shurgard General Partner, Inc. Chairman of the Board; President (1992-present)
Shurgard Incorporated Chairman of the Board and Chief Executive
Officer (1972-1995)
Shurgard Associates L.P. General Partner
Shurgard Associates L.P. II General Partner
Shurgard Associates L.P. III General Partner
Arthur W. Buerk Shurgard General Partner, Inc. Director (1979-1996); President (1983-1992)
Shurgard Associates L.P. General Partner
Shurgard Associates L.P. II General Partner
Shurgard Associates L.P. III General Partner
Northwestern Trust Co-Chairman (1995-1996); President (1993-1995)
1201 Third Avenue, Suite 2000
Seattle, WA 98101
(banking)
Manus Services Corp. President (1992)
1130 Rainier
Seattle, WA 98140
(marketing)
Shurgard Incorporated President (1983-1991)
Harrell L. Beck Shurgard Storage Centers, Inc. Director (1993-present); President (1993-1995);
Chief Financial Officer, Treasurer
(1993-present); Senior Vice President
(1995-present)
Shurgard General Partner, Inc. Treasurer (1992-present)
Shurgard Incorporated Chief Financial Officer (1990-1995)
Michael Rowe Shurgard Storage Centers, Inc. Executive Vice President (1993-present); Chief
Operating Officer (March 19, 1996-present)
Shurgard General Partner, Inc. Vice President (1994-present); Treasurer
(1991-1992)
Shurgard Incorporated Director of Storage Operations (1987-1993)
Kristin H. Stred Shurgard Storage Centers, Inc. Secretary (1993-present); Senior Vice President
(1995-present)
Shurgard General Partner, Inc. Secretary (1993-present)
Shurgard Incorporated Secretary and General Counsel (1992-1995)
The Boeing Company Attorney (1991-1992)
(aerospace and defense)
</TABLE>
Schedule I - Page 1
<PAGE>
<TABLE>
<CAPTION>
COMPANY/ADDRESS/
NAME DESCRIPTION OF BUSINESS OFFICE AND DATE OF ELECTION
- ---------------- ----------------------------------------------- -----------------------------------------------
<S> <C> <C>
David K. Grant Shurgard Storage Centers, Inc. Executive Vice President (1993-present);
Director of European Operations (May 14,
1996-present)
Shurgard Incorporated Director of Real Estate Investments (1985-1995)
Donald W. Lusk Shurgard Storage Centers, Inc. Director (1994-present)
Lusk Consulting Group President
P.O. Box 3235
Redmond, WA 98087
(General management consulting)
Wendell J. Smith Shurgard Storage Centers, Inc. Director (1994-present)
W.J.S. & Associates Founder
1301 Gary Way
Carmichael, CA 95608
(advisory and consulting services)
Howard Johnson Shurgard Storage Centers, Inc. Director (1996-present)
Howard Johnson & Company Chairman, President and Chief Executive Officer
375 Park Avenue
New York, NY 10152
(independent consulting)
Greenlaw Grupe Shurgard Storage Centers, Inc. Director (1996-present)
The Grupe Company Chairman and Chief Executive Officer
3255 W. March Lane, 4th Floor
Stockton, CA 95219
Mark Hall Shurgard General Partner, Inc. Vice President (February, 1996-present)
Shurgard Storage Centers, Inc. Regional Vice President (1993-present)
Shurgard Incorporated Regional Vice President (1993-1995)
Northwest Regional Manager (1991-1993)
</TABLE>
Schedule I - Page 2
<PAGE>
SCHEDULE V IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
SCHEDULE V
FINANCIAL STATEMENTS OF
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. II
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1995
-------------- -------------- JUNE 30, 1996
--------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents...................................... $ 384,867 $ 455,167 $ 443,848
Storage centers, net........................................... 25,126,512 24,965,503 24,547,472
Other assets................................................... 174,768 155,712 132,055
Amortizable assets, less accumulated amortization of $279,821,
$350,718 and $386,166......................................... 179,874 108,977 73,529
-------------- -------------- --------------
Total Assets............................................... $ 25,866,021 $ 25,685,359 $ 25,196,904
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND PARTNERS' EQUITY (DEFICIT):
Liabilities:
Accounts payable and other accrued expenses.................. $ 169,033 $ 256,049 $ 249,883
Accrued transaction costs.................................... 204,352
Construction payable......................................... 173,572
Unearned rent and tenant deposits............................ 118,132 132,881
Line of credit............................................... 470,000 470,000
Notes payable................................................ 2,938,331 2,867,661 2,830,930
-------------- -------------- --------------
Total Liabilities.......................................... 3,399,068 3,726,591 3,755,165
Partners' equity (deficit):
Limited partners............................................. 22,623,217 22,140,440 21,649,262
General partner.............................................. (156,264) (181,672) (207,523)
-------------- -------------- --------------
Total Partners' Equity..................................... $ 22,466,953 21,958,768 21,441,739
-------------- -------------- --------------
Total Liabilities and Partners' Equity..................... $ 25,866,021 $ 25,685,359 $ 25,196,904
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See notes to financial statements.
Schedule V - Page 1
<PAGE>
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental.............................. $ 3,617,849 $ 4,037,720 $ 4,308,603 $ 2,064,659 $ 2,255,157
Interest Income..................... 3,549 19,765 11,044 3,773 9,659
------------- ------------- ------------- ------------- -------------
Total Revenue..................... 3,621,398 4,057,485 4,319,647 2,068,432 2,264,816
EXPENSES:
Operating........................... 786,459 875,926 943,532 465,686 505,508
Property management fees............ 217,121 242,259 258,253 123,879 135,129
Depreciation........................ 814,883 832,554 848,364 415,166 428,531
Real estate taxes................... 337,741 327,337 324,450 180,558 173,888
Interest............................ 166,036 237,962 254,026 135,522 139,275
Transaction costs................... 285,182
Amortization........................ 78,580 70,835 70,897 35,449 35,448
Administrative...................... 126,103 130,467 159,326 94,305 94,392
------------- ------------- ------------- ------------- -------------
Total Expenses.................... 2,526,923 2,717,340 2,858,848 1,450,565 1,797,353
EARNINGS.............................. $ 1,094,475 $ 1,340,145 $ 1,460,799 $ 617,867 $ 467,463
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
EARNINGS PER UNIT OF LIMITED
PARTNERSHIP INTEREST................. $ 9.03 $ 11.06 $ 12.06 $ 5.10 $ 3.86
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
DISTRIBUTIONS PER UNIT OF LIMITED
PARTNERSHIP INTEREST................. $ 15.62 $ 15.78 $ 16.25 $ 8.13 $ 8.13
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See notes to financial statements.
Schedule V - Page 2
<PAGE>
STATEMENTS OF PARTNERS' EQUITY [DEFICIT]
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNER TOTAL
-------------- ------------ --------------
<S> <C> <C> <C>
Balance, January 1, 1993........................................... $ 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
Distributions...................................................... (1,870,536) (98,448) (1,968,984)
Earnings........................................................... 1,387,759 73,040 1,460,799
-------------- ------------ --------------
Balance, December 31, 1995......................................... 22,140,440 (181,672) 21,958,768
Distributions (unaudited).......................................... (935,268) (49,224) (984,492)
Earnings (unaudited)............................................... 444,090 23,373 467,463
-------------- ------------ --------------
Balance, June 30, 1996 (unaudited)................................. $ 21,649,262 $ (207,523) $ 21,441,739
-------------- ------------ --------------
-------------- ------------ --------------
</TABLE>
See notes to financial statements.
Schedule V - Page 3
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------------- -----------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Earnings................................. $ 1,094,475 $ 1,340,145 $ 1,460,799 $ 617,867 $ 467,463
Adjustments to reconcile earnings to net
cash provided by operating activities:
Transaction costs...................... 285,182
Depreciation and amortization.......... 893,463 903,389 919,261 450,615 463,979
Changes in operating accounts:
Other assets......................... (22,696) (41,692) 19,056 33,631 23,657
Accounts payable and other accrued
expenses............................ (212,815) (1,861) 87,016 (21,765) (133,880)
Unearned rent and tenant deposits.... (1,796) 11,414 14,749 5,282 (5,167)
-------------- -------------- -------------- ------------- --------------
Net cash provided by operating
activities.............................. 1,750,631 2,211,395 2,500,881 1,085,630 1,101,234
INVESTING ACTIVITIES:
Construction of and improvements to
storage centers......................... (809,619) (430,410) (860,927) (722,275) (10,500)
-------------- -------------- -------------- ------------- --------------
FINANCING ACTIVITIES:
Proceeds from (payments on) line of
credit.................................. 1,250,000 (1,250,000) 470,000 415,000
Payment of loan costs.................... (2,671) (38,021)
Payment on notes payable................. (38,555) (66,982) (70,670) (32,205) (36,731)
Proceeds from notes payable.............. 1,250,000
Distributions to partners................ (1,893,255) (1,912,188) (1,968,984) (984,492) (984,492)
Payment of transaction costs............. (80,830)
-------------- -------------- -------------- ------------- --------------
Net cash used in financing activities.... (684,481) (2,017,191) (1,569,654) (601,697) (1,102,053)
-------------- -------------- -------------- ------------- --------------
(Decrease) increase in cash and cash
equivalents............................... 256,531 (236,206) 70,300 (238,342) (11,319)
Cash and cash equivalents at beginning of
year...................................... 364,542 621,073 384,867 384,867 455,167
-------------- -------------- -------------- ------------- --------------
Cash and cash equivalents at end of year... $ 621,073 $ 384,867 $ 455,167 $ 146,525 $ 443,848
-------------- -------------- -------------- ------------- --------------
-------------- -------------- -------------- ------------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during year for interest....... $ 166,036 $ 237,962 $ 254,026 $ 135,522 $ 139,275
-------------- -------------- -------------- ------------- --------------
-------------- -------------- -------------- ------------- --------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES:
Liabilities incurred in connection with
the improvement and construction of
storage centers......................... $ -- $ 173,572 $ -- $ -- $ --
-------------- -------------- -------------- ------------- --------------
-------------- -------------- -------------- ------------- --------------
</TABLE>
See notes to financial statements.
Schedule V - Page 4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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, to
serve as a vehicle for investments in and ownership of a professionally managed
real estate portfolio consisting of self storage properties which provide
month-to-month leases for business and personal use. 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 June 30, 1996, there were approximately 3,990 limited partners in the
Partnership. There were approximately 115,100 units of limited partnership
interest outstanding at a contribution of $250 per unit.
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 revenue and expenses during the
reporting period. Actual results can differ from those estimates.
The interim financial statements included in this report are unaudited. In
the opinion of the Company, all adjustments necessary for a fair presentation of
such financial statements have been included. Such adjustments consisted only of
normal recurring items. Interim results are not necessarily indicative of
results for a full year.
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.
LITIGATION: The Partnership has a policy of accruing for probable losses,
which if any, could be material to the future financial position or results of
operations. As of June 30, 1996, there are currently no known probable losses,
therefore, no such accruals have been made.
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, 1995 and
six months ended June 30, 1995 and 1996).
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,
1995 and six months ended June 30, 1995 and 1996).
VALUATION OF LONG LIVED ASSETS: The Partnership, using its best estimates
based on reasonable and supportable assumptions and projections, reviews storage
centers and other assets for impairment whenever events or changes in
circumstances have indicated that the carrying amounts of its assets might not
be recoverable. Impaired assets are reported at the lower of cost or fair value.
At June 30, 1996, no assets had been written down.
Schedule V - Page 5
<PAGE>
NOTE B -- STORAGE CENTERS
Storage centers consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1995
-------------- -------------- JUNE 30, 1996
--------------
(UNAUDITED)
<S> <C> <C> <C>
Land......................................... $ 5,848,181 $ 6,014,514 $ 6,014,514
Building..................................... 22,381,990 22,762,245 22,772,745
Equipment.................................... 732,213 872,980 872,980
-------------- -------------- --------------
28,962,384 29,649,739 29,660,239
Less accumulated depreciation................ (3,835,872) (4,684,236) (5,112,767)
-------------- -------------- --------------
$ 25,126,512 $ 24,965,503 $ 24,547,472
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
Construction in progress was $625,437 at December 31, 1994 and is included
in building.
NOTE C -- TRANSACTIONS WITH AFFILIATES
In connection with the management of both the storage centers and the
Partnership, the Partnership has paid or accrued management expenses,
reimbursements and a monthly property management fee equal to 6% of the
properties gross revenue to Shurgard Storage Centers, Inc., an affiliate of the
general partner. On March 24, 1995 Shurgard Incorporated merged with Shurgard
Storage Centers, Inc. Prior to the merger date such fees were paid to Shurgard
Incorporated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- ----------- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Partnership management expenses and
reimbursement at cost................... $ 83,700 $ 64,800 $ 54,700 $ 27,800
Property management fees................. 217,121 242,259 258,253 135,129
</TABLE>
NOTE D -- NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995
------------- ------------- JUNE 30, 1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to a commercial bank. Secured by
real estate and payable in monthly installments
of $15,056, including principal and interest at
8%, due October 1999. The note reprices in
September 1997 and can be fixed for various
periods at the Partnership's option............. $ 1,713,603 $ 1,668,337 $ 1,644,338
Note payable to a commercial bank. Secured by
real estate and payable in monthly installments
of $10,837, including principal and interest at
8.25%, due March 2001. The note reprices in
September 1996 and can be fixed for various
periods at the Partnership's option............. 1,224,728 1,199,324 1,186,592
------------- ------------- -------------
$ 2,938,331 $ 2,867,661 $ 2,830,930
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Schedule V - Page 6
<PAGE>
Based on the borrowing rates currently available to the Partnership for bank
loans with similar terms and average maturities, the fair value of the fixed
rate long-term debt which matures October, 1999 is estimated to be $1,765,000.
The note maturing March 2001 reprices to market every six months, accordingly,
the recorded value approximates fair value.
The approximate maturities of principal on these notes payable over the next
five years are as follows:
<TABLE>
<S> <C>
1996................................. $ 78,207
1997................................. 84,856
1998................................. 92,071
1999................................. 99,899
2000................................. 108,395
thereafter........................... 2,404,233
-----------
$ 2,867,661
-----------
-----------
</TABLE>
On May 1, 1995, the Partnership obtained an $850,000 non-revolving line of
credit with interest rate of prime plus one half percent (9% at December 31,
1995), maturing May 1, 1997. During the year, the Partnership drew $470,000 on
the line of credit in order to fund the Chesapeake expansion.
NOTE E -- LEASE
The Partnership leases retail space at the Kennydale storage center 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:
<TABLE>
<S> <C>
1996................................. $ 131,818
1997................................. 136,948
1998................................. 137,938
1999................................. 126,084
2000................................. 126,084
2001 to 2003......................... 378,252
-----------
$ 1,037,124
-----------
-----------
</TABLE>
Schedule V - Page 7
<PAGE>
INDEPENDENT AUDITORS' REPORT
General Partner 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 1995, and the related
statements of earnings, partners' equity (deficit), and cash flows for each of
the three years in the period ended December 31, 1995. 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
1995, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Seattle, Washington
March 1, 1996
Schedule V - Page 8
<PAGE>
SCHEDULE VI IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
SCHEDULE VI
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. II
RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1996, AND 1995
REVENUE: The Partnership's rental revenue for the six months ended June 30,
1996 increased $190,500 compared to the same period in 1995. Additionally,
earnings from operations also increased $132,600 for the six months ended June
30, 1996 compared to the same period in 1995. These increases resulted primarily
from a 5.5% increase in the average rental rate per square foot as well as the
increase in revenue from storage center expansions. Chesapeake, Sterling Heights
and T.C. Jester storage centers contributed the largest revenue gains in the
Partnership. Occupancies for the Partnership remained stable at an average of
94% at June 30, 1996 and 1995.
EXPENSES: Total expenses for the six months ended June 30, 1996 rose 4.4%
compared to the same period in 1995. Operating and administrative expenses for
the six months ended June 30, 1996 increased 7.1% compared to the same period in
1995 primarily due to increased personnel costs due to additional hours worked
by store managers and increased salaries. Additionally, real estate taxes
decreased by 3.7% for the six months ended June 30, 1996 compared to the same
period in 1995 largely due to a lower tax assessment at the Orange storage
center.
RESULTS OF OPERATIONS -- YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
REVENUE: The Partnership's rental revenue rose $271,000 and $420,000 in
1995 and 1994, respectively. These increases resulted primarily from the rise in
the average rental rate per square foot from $7.78 in 1993 to $8.08 in 1994 to
$8.59 in 1995 as well as storage center expansions. Additionally, earnings
increased $120,000 in 1995 and $246,000 in 1994. The average occupancy for all
of the Partnership's storage centers was 87%, 90%, and 91% at December 31, 1995,
1994 and 1993, respectively. Although the average occupancy for the Partnership
decreased three percentage points during 1995, total revenue increased as a
result of the Partnership seeking to maximize revenue by adjusting rents to
match demand. Store managers evaluate their store's rental rates, based on unit
demand, unit availability and competitors' rental rates. The Partnership trains
its store managers in revenue optimization and empowers them to adjust marginal
rental rates based on their "on the ground" analysis of demand and availability
at their particular store. In addition, the use of month-to-month leases,
combined with customer turnover, allows rents to be quickly adjusted to match
current demand in a flexible manner.
EXPENSES: Operating expenses increased $68,000 in 1995 after an $89,000
increase in 1994. Operating expenses for 1995 rose primarily due to increased
hours worked by store managers, higher postage and supply costs, increased
payout of tenant claims and foreclosure expenses and the increase in utility
expense at the Chesapeake storage center due to the new expansion. 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.
Real estate expense decreased each year from 1993 to 1995. The slight
decrease in 1995 was due to a tax refund received in 1995 as a result of the
successful real estate tax appeal of the Sterling Heights storage center's 1994
assessed value. The decrease in real estate taxes in 1994 was 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. The Partnership does
not expect to be able to continue to decrease real estate taxes in the future.
Additionally, interest expense rose $16,000 and $72,000 in 1995 and 1994,
respectively. The increase in 1995 was due to additional borrowings on the
Partnership's line of credit to fund the Chesapeake expansion as well as the
slight rise in interest rates from 8.125% at December 31, 1994 to
Schedule VI - Page 1
<PAGE>
8.5% at December 31, 1995 on the commercial bank note totaling $1,200,000. The
increase in 1994 was due to the Partnership borrowing on their line of credit to
finance the expansion of Newport News North which was subsequently refinanced.
Administrative expenses rose $29,000 in 1995 after a slight increase in
1994. The 1995 increase was primarily due to the increase in printing costs for
the Partnership's quarterly and annual reports.
LIQUIDITY AND CAPITAL RESOURCES -- SIX MONTHS ENDED JUNE 30, 1996 AND 1995
TRANSACTION COSTS: On July 1, 1996, the Partnership entered into a merger
agreement with the Purchaser and two affiliated Partnerships whereby: (1) the
Purchaser would commence a cash tender offer for up to 49,000 Units of the
Partnership and (2) following completion of the tender offer, the Partnership
would seek the requisite approval by the limited partners to merge into the
Purchaser. Upon consummation of the merger all limited partners would receive
stock in the Purchaser.
In connection with this transaction, the Partnership is expected to incur
approximately $630,100 in costs. As of June 30, 1996, transaction costs totaling
approximately $285,200 have been posted as expenses on the Partnership's books
(of which approximately $80,800 has already been paid). In the event that the
merger is not consummated, the Partnership will bear certain expenses as defined
in the merger agreement.
Due to this transaction, Partnership distributions have been temporarily
suspended. Upon completion of the merger, a final cash distribution will be made
from the Partnership in an amount, if any, by which the Partnership's Closing
Net Asset Value exceeds its Net Asset Value as defined in the merger agreement.
This distribution will be received only by those who were partners immediately
prior to the merger.
INVESTING ACTIVITIES: Capital improvements for the six months ended June
30, 1996, totalled $10,500, which includes pavement work at the Chesapeake and
Kennydale storage centers. The Partnership invested approximately $688,000 for
the six months ended June 30, 1995 to expand the Chesapeake center.
FINANCING ACTIVITIES: As of May 1, 1995 the Partnership converted the
$1,500,000 line of credit to an $850,000 non-revolving line of credit with an
interest rate of prime plus one half percent maturing May 1, 1997. For the six
months ended June 30, 1995, the Partnership drew $415,000 on the line of credit
in order to fund the Chesapeake buildout.
DISTRIBUTIONS TO PARTNERS: The annualized distribution rate was 6.50% for
the six months ended June 30, 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES -- YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
CASH FROM OPERATIONS: Cash from operations increased by $460,800 from 1993
to 1994 and $289,500 from 1994 to 1995, reflecting the increase in earnings.
These fluctuations reflect changes in earnings adjusted by the timing of certain
expense payments and payments due to affiliates. Management believes that cash
balances and cash flow from operations will be adequate to support the future
operating needs of the Partnership.
INVESTING ACTIVITIES: During 1994 and 1995 the Partnership invested
approximately $1,200,000 to expand the Chesapeake storage center. This project
entailed the construction of two, one-story buildings adding approximately
26,000 square feet of storage space, as well as the addition of 2,400 square
feet of RV parking. The new expansion opened the beginning of April 1995 and is
currently 76% occupied. The expenditures during 1994 and 1995 were primarily
funded from operating cash flow and cash reserves; the remaining costs were
funded 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.
Additionally, investments in the remaining storage centers have been
$69,000, $51,000, and $47,000 in 1995, 1994, and 1993, respectively. In 1995,
investments included pavement work at the Sterling Heights and Bellefield
storage centers as well as security upgrades at the Orange storage
Schedule VI - Page 2
<PAGE>
center. The majority of improvement in 1994 were security upgrades at the Orange
and Sterling Heights storage centers. During 1993 improvements included new
pavement at the Bellefield and Sterling Heights storage centers as well as new
doors installed at the Orange storage center. Planned improvements for 1996
total approximately $91,000 and are expected to be funded from operations of the
Partnership.
FINANCING ACTIVITIES: On May 1, 1995, the Partnership obtained an $850,000
non-revolving line of credit with interest rate of prime plus one half percent,
maturing May 1, 1997. During 1995, the Partnership drew $470,000 on the line of
credit in order to fund the Chesapeake expansion. The Partnership intends to pay
off or refinance this line of credit from operating cash flow over the next two
years. Additionally, in 1994, the Partnership converted its $1,250,000 line of
credit into a seven year note which will mature in March of 2001.
DISTRIBUTIONS TO PARTNERS: Annualized distribution rates were 6.5%, 6.31%
and 6.25% for 1995, 1994 and 1993, respectively.
Schedule VI - Page 3
<PAGE>
SCHEDULE VII IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
SCHEDULE VII
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma consolidated balance sheets as of June 30, 1996 set
forth the effect of the Transaction and Additional Transactions as if such had
occurred on June 30, 1996. The following pro forma consolidated statements of
income for the six months ended June 30, 1996 set forth the effect of the
Transaction and Additional Transactions as if such had occurred on January 1,
1995. The following pro forma consolidated statements of income for the year
ended December 31, 1995 set forth the effect of certain material transactions of
the Purchaser not related to the Transaction or Additional Transactions and the
effect of the Transaction and Additional Transactions as if such had occurred on
January 1, 1995. The Transaction and Additional Transactions will be accounted
for under the purchase method of accounting for business combinations. The
purchase price of the Transaction and Additional Transactions will be allocated
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) IDS1 IDS2 IDS3 TOTAL
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Storage centers, at appraised value.............................. $ 40,370 $ 30,520 $ 50,890 $ 121,780
Cash, cash equivalents and other assets.......................... 1,004 576 889 2,469
Accounts payable and other liabilities........................... (1,307) (1,403) (1,797) (4,507)
Notes payable.................................................... -- (2,831) (10,333) (13,164)
--------- --------- ---------- -----------
Total purchase price........................................... $ 40,067 $ 26,862 $ 39,649 $ 106,578
--------- --------- ---------- -----------
--------- --------- ---------- -----------
</TABLE>
These pro forma consolidated financial statements are presented in two
scenarios: (a) the purchase by the Purchaser through the Offer and the
Additional Offers of 29,640, 23,022 and 23,843 of the outstanding units of IDS1,
IDS2 and IDS3, respectively (representing approximately 20% of the total
outstanding units) and (b) the purchase by the Purchaser of 65,000, 49,000 and
52,000 of the outstanding units of IDS1, IDS2 and IDS3, respectively
(representing the maximum number of units that may be acquired by the Purchaser
through the Offer and the Additional Offers). The pro forma consolidated
financial statements assume that all of the Partnerships participate in the
Mergers.
The pro forma consolidated financial statements are not necessarily
indicative of what the Purchaser's actual financial position or results of
operations would have been as of the date or for the periods indicated, nor do
they purport to represent the Purchaser's financial position or results of
operations as of or for any future period. The pro forma consolidated financial
statements should be read in conjunction with all financial statements included
elsewhere herein or incorporated by reference in this Offer to Purchase.
Schedule VII - Page 1
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
20% TENDER ASSUMPTION
JUNE 30, 1996
<TABLE>
<CAPTION>
PURCHASER
PURCHASER PURCHASER PRE-MERGER IDS1 IDS2 IDS3
(IN THOUSANDS) HISTORICAL ADJUSTMENTS (1) PRO FORMA HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS (5)
--------- ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Storage centers, net.......... $549,658 $-- $549,658 $28,270 $24,547 $33,979 $ 37,068
Other real estate
investments.................. 25,127 20,072(2) 45,199 -- -- -- (22,521)
Cash, cash equivalents and
other assets................. 56,777 1,358(3) 58,135 1,137 650 1,152 (790)
--------- ----------- ---------- ---------- ---------- ---------- -----------
Total assets.............. $631,562 $21,430 $652,992 $29,407 $25,197 $35,131 $ 13,757
--------- ----------- ---------- ---------- ---------- ---------- -----------
--------- ----------- ---------- ---------- ---------- ---------- -----------
Accounts payable and other
liabilities.................. $ 57,881 -- $ 57,881 $ 710 $ 924 $ 917 $ 1,545
Notes payable................. 132,250 21,430(4) 153,680 -- 2,831 10,333 --
--------- ----------- ---------- ---------- ---------- ---------- -----------
Total liabilities......... 190,131 21,430 211,561 710 3,755 11,250 1,545
--------- ----------- ---------- ---------- ---------- ---------- -----------
Minority interest............. 2,561 -- 2,561 2,449 -- -- (2,449)
Stockholders' equity.......... 438,870 -- 438,870 26,248 21,442 23,881 14,661
--------- ----------- ---------- ---------- ---------- ---------- -----------
Total liabilities and
stockholders' equity..... $631,562 $21,430 $652,992 $29,407 $25,197 $35,131 $ 13,757
--------- ----------- ---------- ---------- ---------- ---------- -----------
--------- ----------- ---------- ---------- ---------- ---------- -----------
<CAPTION>
PURCHASER
POST-MERGER
(IN THOUSANDS) PRO FORMA
-----------
<S> <C>
Storage centers, net.......... $673,522
Other real estate
investments.................. 22,678
Cash, cash equivalents and
other assets................. 60,284
-----------
Total assets.............. $756,484
-----------
-----------
Accounts payable and other
liabilities.................. $ 61,977
Notes payable................. 166,844
-----------
Total liabilities......... 228,821
-----------
Minority interest............. 2,561
Stockholders' equity.......... 525,102
-----------
Total liabilities and
stockholders' equity..... $756,484
-----------
-----------
</TABLE>
- ----------------------------------
(1) Purchaser Adjustments reflect the purchase of 29,640, 23,022 and 23,843
Units of IDS1, IDS2 and IDS3, for $257, $222 and $308 per unit, respectively
("Tendered Units"), as if such occurred on January 1, 1995.
(2) Amount reflects Purchaser's acquisition of the Tendered Units.
(3) Amount reflects funds borrowed to pay the unpaid amount of the Purchaser's
estimated costs of $2,300,000 related to the Mergers and the Offers.
(4) Amount reflects the additional debt incurred to finance the purchase of the
Tendered Units and the Purchaser's estimated transaction costs.
(5) Adjustments by Partnerships are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) IDS1 IDS2 IDS3 ADJUSTMENTS
- ----------------------------------------------------------------- --------- --------- --------- -----------
<S> <C> <C> <C> <C>
Storage centers, net............................................. $ 14,184(a) $ 5,973 $ 16,911 $ 37,068(c)
Other real estate investments.................................... (10,066) (5,111) (7,344) (22,521)(d)
Cash, cash equivalents and other assets.......................... (126) (207) (457) (790)(e)
Accounts payable and other liabilities........................... 515 345 685(b) 1,545(f)
Minority interest................................................ (2,449) -- -- (2,449)(g)
Stockholders' equity............................................. 5,926 310 8,425 14,661(h)
</TABLE>
-----------------------------------------
(a) Adjustment includes only 70% of the step-up to market value of SJP
II's storage centers as the remaining 30% was owned by the Purchaser
prior to the Mergers and will continue to be carried at the Purchaser's
historical cost.
(b) Historical amount has been adjusted to include $176,000 of estimated
costs to complete the expansion of Dobson Ranch, the market value of
which was included in the Appraisal.
(c) Amount reflects market value of self storage centers based on the
Appraisals.
(d) Historical amounts have been adjusted to eliminate the Tendered Units
and the Purchaser's 30% interest in SJP II.
(e) Historical assets have been reduced to eliminate (i) amortizable
assets which were specifically excluded from the calculation of Net
Asset Value per the Acquisition Agreement, and (ii) cash that would be
payable to Unitholders at the time of the Mergers as liquidating
distributions of $113,000, $134,000 and $196,000 for IDS1, IDS2 and
IDS3, respectively. The actual amounts of such liquidating distributions
may be greater than or less than pro forma amounts depending upon the
actual amount of transaction costs incurred by each Partnership and the
Partnerships' results of operations prior to the consummation of the
Mergers.
(f) Historical amounts have been adjusted to include estimated
liabilities for unaccrued Partnership transaction costs. See "The Offer"
-- Section 10 ("Fees and Expenses").
(g) Amount reflects elimination of minority interest related to the
Purchaser's 30% interest in SJP II.
(h) Amount reflects step-up to Net Asset Value less the value of the
Tendered Units.
Schedule VII - Page 2
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF NET INCOME
20% TENDER ASSUMPTION
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PURCHASER
(IN THOUSANDS, EXCEPT SHARE PURCHASER PURCHASER PRE-MERGER IDS1 IDS2 IDS3
DATA) HISTORICAL ADJUSTMENTS (1) PRO FORMA HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS (5)
---------- ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental revenue................ $ 48,513 $-- $ 48,513 $ 3,278 $ 2,255 $ 3,673 $ --
Revenue from other real estate
investments.................. 895 591(2) 1,486 -- -- -- (733)
Property management revenue... 1,734 -- 1,734 -- -- -- (673)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Total revenue............. 51,142 591 51,733 3,278 2,255 3,673 (1,406)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Operating expense............. 14,192 -- 14,192 757 506 919 4
Property management fees...... -- -- -- 197 135 219 (551)
Depreciation and
amortization................. 10,399 38(3) 10,437 520 464 667 81
Real estate taxes............. 4,190 -- 4,190 252 174 273 --
General and administrative.... 2,244 -- 2,244 136 94 113 (53)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Total expenses............ 31,025 38 31,063 1,862 1,373 2,191 (519)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Income from operations........ 20,117 553 20,670 1,416 882 1,482 (887)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Transaction expenses.......... -- -- -- (425) (285) (421) 1,131
Minority interest in income... (57) -- (57 ) (142) -- -- 142
Interest and other income..... 302 -- 302 18 9 15 --
Interest expense.............. (5,248) (883)(4) (6,131 ) -- (139) (432) 8
---------- ----------- ---------- ---------- ---------- ---------- -----------
Total other income
(expense)................ (5,003) (883) (5,886 ) (549) (415) (838) 1,281
---------- ----------- ---------- ---------- ---------- ---------- -----------
Net income (loss)............. $ 15,114 $(330) $ 14,784 $ 867 $ 467 $ 644 $ 394
---------- ----------- ---------- ---------- ---------- ---------- -----------
---------- ----------- ---------- ---------- ---------- ---------- -----------
Net income per share.......... $ 0.65 $(0.01) $ 0.64
---------- ----------- ----------
---------- ----------- ----------
Weighted average number of
shares....................... 23,199,023 23,199,023 1,276,768 856,513 1,274,965 3,408,246
---------- ---------- ---------- ---------- ---------- -----------
---------- ---------- ---------- ---------- ---------- -----------
Weighted average number of
units........................ 148,202 115,110 119,215 382,527
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
<CAPTION>
PURCHASER
(IN THOUSANDS, EXCEPT SHARE POST-MERGER
DATA) PRO FORMA
-----------
<S> <C>
Rental revenue................ $ 57,719
Revenue from other real estate
investments.................. 753
Property management revenue... 1,061
-----------
Total revenue............. 59,533
-----------
Operating expense............. 16,378
Property management fees...... --
Depreciation and
amortization................. 12,169
Real estate taxes............. 4,889
General and administrative.... 2,534
-----------
Total expenses............ 35,970
-----------
Income from operations........ 23,563
-----------
Transaction expenses.......... --
Minority interest in income... (57)
Interest and other income..... 344
Interest expense.............. (6,694)
-----------
Total other income
(expense)................ (6,407)
-----------
Net income (loss)............. $ 17,156
-----------
-----------
Net income per share.......... $ 0.64
-----------
-----------
Weighted average number of
shares....................... 26,607,269
-----------
-----------
Weighted average number of
units........................ --
-----------
-----------
</TABLE>
- ----------------------------------
(1) Purchaser Adjustments recognize the acquisition of the Tendered Units as if
such had occurred on January 1, 1995.
(2) Amount reflects the Purchaser's 20% interest in the Partnerships' earnings
allocated to the Unitholders.
(3) Amounts reflects amortization of transaction costs of $2.3 million on a
straight-line basis over 30 years.
(4) Amount reflects interest at 8.25% per annum on additional debt incurred to
finance the acquisition of the Tendered Units and the transaction costs.
Schedule VII - Page 3
<PAGE>
(5) Adjustments by Partnership are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA) IDS1 IDS2 IDS3 TOTAL
- ------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue from other real estate investments................... $ (388) $ (143) $ (202) $ (733)(a)
Property management revenue.................................. (244) (168) (261) (673)(b)
Operating expense............................................ 3 1 -- 4(c)
Property management fees..................................... (197) (135) (219) (551)(d)
Depreciation and amortization................................ 75 (37) 43 81(e)
General and administrative................................... (20) (14) (19) (53)(f)
Transaction expenses......................................... 425 285 421 1,131(g)
Minority interest in income.................................. 142 -- -- 142(h)
Interest expense............................................. -- 3 5 8(i)
Weighted average number of shares............................ 1,276,768 856,513 1,274,965 3,408,246(j)
Weighted average number of units............................. 148,203 115,110 119,215 382,527
- ----------------------------------
(a) Historical amounts have been adjusted to eliminate the Purchaser's 20% interest related to the
Tendered Units and the Purchaser's 30% interest in the earnings of SJP II.
(b) Amount reflects elimination of property management fees, advertising fees (at $900 per year per
storage center), the Purchaser's interest in the General Partners and administrative reimbursements
paid to the Purchaser by the Partnerships.
(c) Amount represents elimination of advertising fees paid by the Partnerships to the Purchaser.
(d) Amount reflects elimination of property management fees paid by the Partnerships to the Purchaser.
(e) Amount reflects the change in depreciation of storage centers. Depreciation on a new basis of
$97,424 will be recognized on a straight line basis over five to 30 years. Amortization of
amortizable assets has been eliminated as such assets are not included in Net Asset Value.
(f) Amount reflects elimination of administrative reimbursements paid by the Partnerships to the
Purchaser.
(g) Amount reflects elimination of transaction expenses as such costs have been included in the
calculation of Net Asset Value.
(h) Amount reflects the elimination of the Purchaser's 30% minority interest in the earnings of SJP II.
(i) Amount reflects the refinancing of the debt of the Partnerships at 8.25% per annum.
(j) Weighted average number of shares to be issued to each Partnership, assuming a $25.00 share price,
is calculated as follows:
</TABLE>
<TABLE>
<CAPTION>
IDS1 IDS2 IDS3
---------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value.............................................. $40,066,700 $26,861,846 $39,649,643
Less value of Tendered Units................................. (7,617,480) (5,110,884) (7,343,644)
Purchaser's interest in General Partner...................... (530,000) (338,125) (431,875)
---------- ---------- ----------
Consideration allocable to Unitholders participating in the
Merger....................................................... $31,919,220 $21,412,837 $31,874,124
DIVIDED BY DIVIDED BY DIVIDED BY
Assumed share price.......................................... 25.00 25.00 25.00
---------- ---------- ----------
Weighted average number of shares allocable to Unitholders
participating in the Mergers................................. 1,276,768 856,513 1,274,965
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Schedule VII - Page 4
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF NET INCOME
20% TENDER ASSUMPTION
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PURCHASER
(IN THOUSANDS, EXCEPT SHARE PURCHASER PURCHASER PRE-MERGER IDS1 IDS2 IDS3
DATA) HISTORICAL ADJUSTMENTS (1) PRO FORMA HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS (10)
---------- ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental revenue................ $ 92,397 $ 1,984 $ 94,381 $ 6,465 $ 4,309 $ 7,225 $ --
Revenue from other real estate
investments.................. 1,396 1,111(2) 2,507 -- -- -- (1,375)
Property management revenue... 2,978 802(3) 3,780 -- -- -- (1,424)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Total revenue............. 96,771 3,897 100,668 6,465 4,309 7,225 (2,799)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Operating expense............. 26,171 23(4) 26,194 1,493 944 1,800 24
Property management fees...... -- 388 258 433 (1,079)
Depreciation and
amortization................. 17,410 733(5) 18,143 1,114 919 1,505 (75)
Real estate taxes............. 7,596 131(6) 7,727 466 324 506 --
General and administrative.... 4,859 684(7) 5,543 216 159 170 (223)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Total expenses............ 56,036 1,571 57,607 3,677 2,604 4,414 (1,353)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Income from operations........ 40,735 2,326 43,061 2,788 1,705 2,811 (1,446)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Minority interest in income... -- -- -- (264) -- -- 264
Interest and other income..... 885 (368)(8) 517 109 10 35
Interest expense.............. (12,038) 24(9) (12,014 ) (130) (254) (961) 220
---------- ----------- ---------- ---------- ---------- ---------- -----------
Total other income
(expense)................ (11,153) (344) (11,497 ) (285) (244) (926) 484
---------- ----------- ---------- ---------- ---------- ---------- -----------
Net (loss) income............. $ 29,582 $ 1,982 $ 31,564 $ 2,503 $ 1,461 $ 1,885 $ (962)
---------- ----------- ---------- ---------- ---------- ---------- -----------
---------- ----------- ---------- ---------- ---------- ---------- -----------
Net income per share.......... $ 1.43 $ 0.79 $ 1.36
---------- ----------- ----------
---------- ----------- ----------
Weighted average number of
shares....................... 20,675,536 2,518,385 23,193,921 1,276,768 856,513 1,274,965 3,408,246
---------- ----------- ---------- ---------- ---------- ---------- -----------
---------- ----------- ---------- ---------- ---------- ---------- -----------
Weighted average number of
units........................ 148,202 115,110 119,215 382,527
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
<CAPTION>
PURCHASER
(IN THOUSANDS, EXCEPT SHARE POST-MERGER
DATA) PRO FORMA
-----------
<S> <C>
Rental revenue................ $ 112,380
Revenue from other real estate
investments.................. 1,132
Property management revenue... 2,356
-----------
Total revenue............. 115,868
-----------
Operating expense............. 30,455
Property management fees...... --
Depreciation and
amortization................. 21,606
Real estate taxes............. 9,023
General and administrative.... 5,865
-----------
Total expenses............ 66,949
-----------
Income from operations........ 48,919
-----------
Minority interest in income... --
Interest and other income..... 671
Interest expense.............. (13,139 )
-----------
Total other income
(expense)................ (12,468 )
-----------
Net (loss) income............. $ 36,451
-----------
-----------
Net income per share.......... $ 1.37
-----------
-----------
Weighted average number of
shares....................... 26,602,167
-----------
-----------
Weighted average number of
units........................
</TABLE>
- ----------------------------------
(1) This column details adjustments related to the recognition of the
acquisition of the Tendered Units as if such had occurred on January 1, 1995
and the effect of the following transactions as if such had occurred on
January 1, 1995:
(i) the merger of Shurgard Incorporated which occurred in March 1995 and
was accounted for as a purchase;
(ii) the acquisition of Shurgard Evergreen Limited Partnership ("Evergreen")
which occurred in May 1995 and was accounted for as a purchase.
Evergreen owned 7 storage centers directly and an interest in 3
additional stores through a joint venture;
(iii) the sale of approximately 4.9 million shares of common stock of the
Purchaser which occurred in June and July 1995; and
(iv) the acquisition of four storage centers, one was purchased in March
1995; the others, in summer 1995.
Any additional net income resulting from the assumption of consummation of
these transactions on January 1, 1995 is assumed to have been distributed to
the Purchaser's stockholders during 1995.
(2) Amount reflects the Purchaser's 20% interest in the Partnerships' earnings
allocated to Unitholders.
(3) Amounts reflects increase in property management fees from the merger of
Shurgard Incorporated.
(4) Amount reflects increased operating expenses attributable to the acquisition
of storage centers.
(5) Amount reflects increased depreciation related to the acquisition of storage
centers which are being depreciated over an estimated useful life of 30
years and the amortization of $2.3 million of transaction costs over an
estimated useful life of 30 years.
(6) Amount reflects increased real estate taxes related to the acquisition of
storage centers.
(7) Amount reflects increased expenses related to the merger of Shurgard
Incorporated.
(8) Amount reflects decrease in investment income as a result of using cash to
finance the acquisitions described in (1) above.
Schedule VII - Page 5
<PAGE>
(9) Amount reflects reduction of interest expense as a result of cash provided
by the offering of common stock described in (1) above.
(10) Adjustments by Partnership are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA) IDS1 IDS2 IDS3 ADJUSTMENTS
- ----------------------------------------------------------- --------- --------- --------- -----------
<S> <C> <C> <C> <C>
Revenue from other real estate investments................. $ (740) $ (278) $ (357) $ (1,375)(a)
Property management revenue................................ (514) (359) (551) (1,424)(b)
Operating expense.......................................... 11 8 5 24(c)
Property management fees................................... 388 258 433 1,079(d)
Depreciation and amortization.............................. 75 (65) (85) (75)(e)
General and administrative................................. (77) (70) (76) (223)(f)
Minority interest in earnings.............................. 264 -- -- 264(g)
Interest expense........................................... 130 (18) 108 220(h)
Weighted average number of shares.......................... 1,276,768 856,513 1,274,965 3,408,246(i)
--------- --------- --------- -----------
--------- --------- --------- -----------
Weighted average number of units........................... 148,202 115,110 119,215 382,527
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
-----------------------------------------
(a) Historical amounts have been adjusted to eliminate the Purchaser's
20% interest related to the Tendered Units and the Purchaser's 30%
interest in the earnings of SJP II.
(b) Amount reflects elimination of property management fees, advertising
fees (at $900 per year per storage center), the Purchaser's interest in
the General Partners and administrative reimbursements paid to the
Purchaser by the Partnerships.
(c) Amount represents elimination of advertising fees paid by the
Partnerships to the Purchaser.
(d) Amount reflects elimination of property management fees paid by the
Partnerships to the Purchaser.
(e) Amount reflects the change in depreciation of storage centers.
Depreciation on a new basis of $97,424 will be recognized on a straight
line basis over five to 30 years. Amortization of amortizable assets has
been eliminated as such assets are not included in Net Asset Value.
(f) Amount reflects elimination of administrative reimbursements paid by
the Partnerships to the Purchaser.
(g) Amount reflects the elimination of the Purchaser's 30% minority
interest in the earnings of SJP II.
(h) Amount reflects the refinancing of the debt of the Partnerships at
8.25% per annum.
(i) Weighted average number of shares to be issued to each Partnership,
assuming a $25.00 share price, is calculated as follows:
<TABLE>
<CAPTION>
IDS1 IDS2 IDS3
---------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value.............................................. $40,066,700 $26,861,846 $39,649,643
Less value of Tendered Units................................. (7,617,480) (5,110,884) (7,343,644)
Purchaser's interest in General Partner...................... (530,000) (338,125) (431,875)
---------- ---------- ----------
Consideration allocable to Unitholders participating in the
Merger....................................................... $31,919,220 $21,412,837 $31,874,124
DIVIDED BY DIVIDED BY DIVIDED BY
Assumed share price.......................................... 25.00 25.00 25.00
---------- ---------- ----------
Weighted average number of shares allocable to Unitholders
participating in the Merger.................................. 1,276,768 856,513 1,274,965
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Schedule VII - Page 6
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
MAXIMUM TENDER ASSUMPTION
JUNE 30, 1996
<TABLE>
<CAPTION>
PURCHASER
PURCHASER PURCHASER PRE-MERGER IDS1 IDS2 IDS3
(IN THOUSANDS) HISTORICAL ADJUSTMENTS (1) PRO FORMA HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS (5)
--------- ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Storage centers, net.......... $549,658 $-- $549,658 $28,270 $24,547 $33,979 $ 37,068
Other real estate
investments.................. 25,127 43,599(2) 68,726 -- -- -- (46,048)
Cash, cash equivalents and
other assets................. 56,777 1,358(3) 58,135 1,137 650 1,152 (790)
--------- ----------- ---------- ---------- ---------- ---------- -----------
Total assets.............. $631,562 $44,957 $676,519 $29,407 $25,197 $35,131 $ (9,770)
--------- ----------- ---------- ---------- ---------- ---------- -----------
--------- ----------- ---------- ---------- ---------- ---------- -----------
Accounts payable and other
liabilities.................. $ 57,881 -- $ 57,881 $ 710 $ 924 $ 917 $ 1,545
Notes payable................. 132,250 44,957(4) 177,207 -- 2,831 10,333 --
--------- ----------- ---------- ---------- ---------- ---------- -----------
Total liabilities......... 190,131 44,957 235,088 710 3,755 11,250 1,545
--------- ----------- ---------- ---------- ---------- ---------- -----------
Minority interest............. 2,561 -- 2,561 2,449 -- -- (2,449)
Stockholders' equity.......... 438,870 -- 438,870 26,248 21,442 23,881 (8,866)
--------- ----------- ---------- ---------- ---------- ---------- -----------
Total liabilities and
stockholders' equity..... $631,562 $44,957 $676,519 $29,407 $25,197 $35,131 $ (9,770)
--------- ----------- ---------- ---------- ---------- ---------- -----------
--------- ----------- ---------- ---------- ---------- ---------- -----------
<CAPTION>
PURCHASER
POST-MERGER
(IN THOUSANDS) PRO FORMA
-----------
<S> <C>
Storage centers, net.......... $673,522
Other real estate
investments.................. 22,678
Cash, cash equivalents and
other assets................. 60,284
-----------
Total assets.............. $756,484
-----------
-----------
Accounts payable and other
liabilities.................. $ 61,977
Notes payable................. 190,371
-----------
Total liabilities......... 252,348
-----------
Minority interest............. 2,561
Stockholders' equity.......... 501,575
-----------
Total liabilities and
stockholders' equity..... $756,484
-----------
-----------
</TABLE>
- ----------------------------------
(1) Purchaser adjustments reflect the purchase of 65,000, 49,000 and 52,000
Units of IDS1, IDS2 and IDS3, for $257, $222 and $308 per unit, respectively
("Maximum Tendered Units"), as if such occurred on January 1, 1995.
(2) Amount reflects Purchaser's acquisition of the Tendered Units.
(3) Amount reflects funds borrowed to pay the unpaid amount of the Purchaser's
estimated costs of $2,300,000 related to the Mergers and the Offers.
(4) Amount reflects the additional debt incurred to finance the purchase of the
Tendered Units and the Purchaser's estimated transaction costs.
(5) Adjustments by Partnership are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) IDS1 IDS2 IDS3 ADJUSTMENTS
- ---------------------------------------------------------------- --------- --------- --------- -----------
<S> <C> <C> <C> <C>
Storage centers, net............................................ $ 14,184(a) $ 5,973 $ 16,911 $ 37,068(c)
Other real estate investments................................... (19,154) (10,878) (16,016) (46,048)(d)
Cash, cash equivalents and other assets......................... (126) (207) (457) (790)(e)
Accounts payable and other liabilities.......................... 515 345 685(b) 1,545(f)
Minority interest............................................... (2,449) -- -- (2,449)(g)
Stockholders' equity............................................ (3,162) (5,457) (247) (8,866)(h)
</TABLE>
-----------------------------------------
(a) Adjustment includes only 70% of the step-up to market value of SJP
II's storage centers as the remaining 30% was owned by the Purchaser
prior to the Mergers and will continue to be carried at the Purchaser's
historical cost.
(b) Historical amount has been adjusted to include $176,000 of estimated
costs to complete the expansion of Dobson Ranch, the market value of
which was included in the Appraisal.
(c) Amount reflects market value of self storage centers based on the
Appraisals.
(d) Historical amounts have been adjusted to eliminate the Maximum
Tendered Units and the Purchaser's 30% interest in SJP II.
(e) Historical assets have been reduced to eliminate (i) amortizable
assets which were specifically excluded from the calculation of Net
Asset Value per the Acquisition Agreement, and (ii) cash that would be
payable to Unitholders at the time of the Mergers as liquidating
distributions of $113,000, $134,000 and $196,000 for IDS1, IDS2 and
IDS3, respectively. The actual amounts of such liquidating distributions
may be greater than or less than pro forma amounts depending upon the
actual amount of transaction costs incurred by each Partnership and the
Partnerships' results of operations prior to the consummation of the
Mergers.
(f) Historical amounts have been adjusted to include estimated
liabilities for unaccrued Partnership transaction costs. See "The Offer"
-- Section 10 ("Fees and Expenses").
(g) Amount reflects elimination of minority interest related to the
Purchaser's 30% interest in SJP II.
(h) Amount reflects step-up to Net Asset Value less the value of the
Maximum Tendered Units.
Schedule VII - Page 7
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF NET INCOME
MAXIMUM TENDER ASSUMPTION
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PURCHASER
(IN THOUSANDS, EXCEPT SHARE PURCHASER PURCHASER PRE-MERGER IDS1 IDS2 IDS3
DATA) HISTORICAL ADJUSTMENTS (1) PRO FORMA HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS (5)
---------- ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental revenue................ $ 48,513 $-- $ 48,513 $ 3,278 $ 2,255 $ 3,673 $ --
Revenue from other real estate
investments.................. 895 1,285(2) 2,180 -- -- -- (1,427)
Property management revenue... 1,734 -- 1,734 -- -- -- (673)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Total revenue............. 51,142 1,285 52,427 3,278 2,255 3,673 (2,100)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Operating expense............. 14,192 -- 14,192 757 506 919 4
Property management fees...... -- -- -- 197 135 219 (551)
Depreciation and
amortization................. 10,399 38(3) 10,437 520 464 667 81
Real estate taxes............. 4,190 -- 4,190 252 174 273 --
General and administrative.... 2,244 -- 2,244 136 94 113 (53)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Total expenses............ 31,025 38 31,063 1,862 1,373 2,191 (519)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Income from operations........ 20,117 1,247 21,364 1,416 882 1,482 (1,581)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Transaction expenses.......... -- -- -- (425) (285) (421) 1,131
Minority interest in income... (57) -- (57 ) (142) -- -- 142
Interest and other income..... 302 -- 302 18 9 15 --
Interest expense.............. (5,248) (1,854)(4) (7,102 ) -- (139) (432) 8
---------- ----------- ---------- ---------- ---------- ---------- -----------
Total other income
(expense)................ (5,003) (1,854) (6,857 ) (549) (415) (838) 1,281
---------- ----------- ---------- ---------- ---------- ---------- -----------
Net income (loss)............. $ 15,114 $ (607) $ 14,507 $ 867 $ 467 $ 644 $ (300)
---------- ----------- ---------- ---------- ---------- ---------- -----------
---------- ----------- ---------- ---------- ---------- ---------- -----------
Net income per share.......... $ 0.65 $ (0.03) $ 0.63
---------- ----------- ----------
---------- ----------- ----------
Weighted average number of
shares....................... 23,199,023 23,199,028 23,199,023 913,268 625,828 928,070 2,467,166
---------- ----------- ---------- ---------- ---------- ---------- -----------
---------- ----------- ---------- ---------- ---------- ---------- -----------
Weighted average number of
units........................ 148,202 115,110 119,215 382,527
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
<CAPTION>
PURCHASER
(IN THOUSANDS, EXCEPT SHARE POST-MERGER
DATA) PRO FORMA
-----------
<S> <C>
Rental revenue................ $ 57,719
Revenue from other real estate
investments.................. 753
Property management revenue... 1,061
-----------
Total revenue............. 59,533
-----------
Operating expense............. 16,378
Property management fees...... --
Depreciation and
amortization................. 12,169
Real estate taxes............. 4,889
General and administrative.... 2,534
-----------
Total expenses............ 35,970
-----------
Income from operations........ 23,563
-----------
Transaction expenses.......... --
Minority interest in income... (57)
Interest and other income..... 344
Interest expense.............. (7,665)
-----------
Total other income
(expense)................ (7,378)
-----------
Net income (loss)............. $ 16,185
-----------
-----------
Net income per share.......... $ 0.63
-----------
-----------
Weighted average number of
shares....................... 25,666,189
-----------
-----------
Weighted average number of
units........................
</TABLE>
- ----------------------------------
(1) Purchaser Adjustments recognize the acquisition of the Maximum Tendered
Units as if such had occurred on January 1, 1995.
(2) Amount reflects the Purchaser's 20% interest in the Partnership's earnings
allocated to the Unitholders.
(3) Amounts reflects amortization of transaction costs of $2.3 million on a
straight-line basis over 30 years.
(4) Amount reflects interest at 8.25% per annum on additional debt incurred to
finance the acquisition of the Maximum Tendered Units and the transaction
costs.
Schedule VII - Page 8
<PAGE>
(5) Adjustments by Partnership are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA) IDS1 IDS2 IDS3 TOTAL
- ------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue from other real estate investments................... $ (681) $ (305) $ (441) $ (1,427)(a)
Property management revenue.................................. (244) (168) (261) (673)(b)
Operating expense............................................ 3 1 -- 4(c)
Property management fees..................................... (197) (135) (219) (551)(d)
Depreciation and amortization................................ 75 (37) 43 81(e)
General and administrative................................... (20) (14) (19) (53)(f)
Transaction expenses......................................... 425 285 421 1,131(g)
Minority interest in earnings................................ 142 -- -- 142(h)
Interest expense............................................. -- 3 5 8(i)
Weighted average number of shares............................ 913,268 625,828 928,070 2,467,166(j)
Weighted average number of units............................. 148,203 115,110 119,215 382,527
- ----------------------------------
(a) Historical amounts have been adjusted to eliminate the Purchaser's 20% interest related to the
Maximum Tendered Units and the Purchaser's 30% interest in the earnings of SJP II.
(b) Amount reflects elimination of property management fees, advertising fees (at $900 per year per
storage center), the Purchaser's interest in the General Partners and administrative reimbursements
paid to the Purchaser by the Partnerships.
(c) Amount represents elimination of advertising fees paid by the Partnerships to the Purchaser.
(d) Amount reflects elimination of property management fees paid by the Partnerships to the Purchaser.
(e) Amount reflects the change in depreciation of storage centers. Depreciation on a new basis of
$97,424 will be recognized on a straight line basis over five to 30 years. Amortization of
amortizable assets has been eliminated as such assets are not included in Net Asset Value.
(f) Amount reflects elimination of administrative reimbursements paid by the Partnerships to the
Purchaser.
(g) Amount reflects elimination of transaction expenses as such costs have been included in the
calculation of Net Asset Value.
(h) Amount reflects the elimination of the Purchaser's 30% minority interest in the earnings of SJP II.
(i) Amount reflects the refinancing of the debt of the Partnerships at 8.25% per annum.
(j) Weighted average number of shares to be issued to each Partnership, assuming a $25.00 share price,
is calculated as follows:
</TABLE>
<TABLE>
<CAPTION>
IDS1 IDS2 IDS3
---------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value.............................................. $40,066,700 $26,861,846 $39,649,643
Less value of Maximum Tendered Units......................... (16,705,000) (10,878,000) (16,016,000)
Purchaser's interest in General Partner...................... (530,000) (338,125) (431,875)
---------- ---------- ----------
Consideration allocable to Unitholders participating in the
Merger....................................................... $22,831,700 $15,645,721 $23,201,768
DIVIDED BY DIVIDED BY DIVIDED BY
Assumed share price.......................................... 25.00 25.00 25.00
---------- ---------- ----------
Weighted average number of shares allocable to Unitholders
participating in the Mergers................................. 913,268 625,828 928,070
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Schedule VII - Page 9
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF NET INCOME
MAXIMUM TENDER ASSUMPTION
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PURCHASER
(IN THOUSANDS, EXCEPT SHARE PURCHASER PURCHASER PRE-MERGER IDS1 IDS2 IDS3
DATA) HISTORICAL ADJUSTMENTS (1) PRO FORMA HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS (10)
---------- ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental revenue................ $ 92,397 $ 1,984 $ 94,381 $ 6,465 $ 4,309 $ 7,225 $ --
Revenue from other real estate
investments.................. 1,396 2,416(2) 3,812 -- -- -- (2,680)
Property management revenue... 2,978 802(3) 3,780 -- -- -- (1,424)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Total revenue............. 96,771 5,202 101,973 6,465 4,309 7,225 (4,104)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Operating expense............. 26,171 23(4) 26,194 1,493 944 1,800 24
Property management fees...... -- 388 258 433 (1,079)
Depreciation and
amortization................. 17,410 733(5) 18,143 1,114 919 1,505 (75)
Real estate taxes............. 7,596 131(6) 7,727 466 324 506 --
General and administrative.... 4,859 684(7) 5,543 216 159 170 (223)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Total expenses............ 56,036 1,571 57,607 3,677 2,604 4,414 (1,353)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Income from operations........ 40,735 3,631 44,366 2,788 1,705 2,811 (2,751)
---------- ----------- ---------- ---------- ---------- ---------- -----------
Minority interest in income... -- -- -- (264) -- -- 264
Interest and other income..... 885 (368)(8) 517 109 10 35
Interest expense.............. (12,038) (1,918)(9) (13,956 ) (130) (254) (961) 220
---------- ----------- ---------- ---------- ---------- ---------- -----------
Total other income
(expense)................ (11,153) (2,286) (13,439 ) (285) (244) (926) 484
---------- ----------- ---------- ---------- ---------- ---------- -----------
Net (loss) income............. $ 29,582 $ 1,345 $ 30,927 $ 2,503 $ 1,461 $ 1,885 $ (2,267)
---------- ----------- ---------- ---------- ---------- ---------- -----------
---------- ----------- ---------- ---------- ---------- ---------- -----------
Net income per share.......... $ 1.43 $ 0.53 $ 1.33
---------- ----------- ----------
---------- ----------- ----------
Weighted average number of
shares....................... 20,675,536 2,518,385 23,193,921 913,268 625,828 928,070 2,467,166
---------- ----------- ---------- ---------- ---------- ---------- -----------
---------- ----------- ---------- ---------- ---------- ---------- -----------
Weighted average number of
units........................ 148,202 115,110 119,215 382,527
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
<CAPTION>
PURCHASER
(IN THOUSANDS, EXCEPT SHARE POST-MERGER
DATA) PRO FORMA
-----------
<S> <C>
Rental revenue................ $ 112,380
Revenue from other real estate
investments.................. 1,132
Property management revenue... 2,356
-----------
Total revenue............. 115,868
-----------
Operating expense............. 30,455
Property management fees...... --
Depreciation and
amortization................. 21,606
Real estate taxes............. 9,023
General and administrative.... 5,865
-----------
Total expenses............ 66,949
-----------
Income from operations........ 48,919
-----------
Minority interest in income... --
Interest and other income..... 671
Interest expense.............. (15,081 )
-----------
Total other income
(expense)................ (14,410 )
-----------
Net (loss) income............. $ 34,509
-----------
-----------
Net income per share.......... $ 1.34
-----------
-----------
Weighted average number of
shares....................... 25,661,087
-----------
-----------
Weighted average number of
units........................
</TABLE>
- ----------------------------------
(1) This column details adjustments related to the recognition of the
acquisition of the Maximum Tendered Units as if such had occurred on January
1, 1995 and the effect of the following transactions as if such had occurred
on January 1, 1995:
(i) the merger of Shurgard Incorporated which occurred in March 1995 and
was accounted for as a purchase;
(ii) the acquisition of Shurgard Evergreen Limited Partnership ("Evergreen")
which occurred in May 1995 and was accounted for as a purchase.
Evergreen owned 7 storage centers directly and an interest in 3
additional stores through a joint venture;
(iii) the sale of approximately 4.9 million shares of common stock of the
Purchaser which occurred in June and July 1995; and
(iv) the acquisition of four storage centers, one was purchased in March
1995; the others, in summer 1995.
Any additional net income resulting from the assumption of consummation of
these transactions on January 1, 1995 is assumed to have been distributed to
the Purchaser's stockholders during 1995.
(2) Amount reflects the Purchaser's 20% interest in the Partnerships' earnings
allocated to Unitholders.
(3) Amounts reflects increase in property management fees from the merger of
Shurgard Incorporated.
(4) Amount reflects increased operating expenses attributable to the acquisition
of storage centers.
(5) Amount reflects increased depreciation related to the acquisition of storage
centers which are being depreciated over an estimated useful life of 30
years and the amortization of $2.3 million of transaction costs over an
estimated useful life of 30 years.
(6) Amount reflects increased real estate taxes related to the acquisition of
storage centers.
(7) Amount reflects increased expenses related to the merger of Shurgard
Incorporated.
(8) Amount reflects decrease in investment income as a result of using cash to
finance the acquisitions described in (1) above.
Schedule VII - Page 10
<PAGE>
(9) Amount reflects reduction of interest expense as a result of cash provided
by the offering of common stock described in (1) above.
(10) Adjustments by Partnership are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA) IDS1 IDS2 IDS3 ADJUSTMENTS
- ----------------------------------------------------------- --------- --------- --------- -----------
<S> <C> <C> <C> <C>
Revenue from other real estate investments................. $ (1,308) $ (591) $ (781) $ (2,680)(a)
Property management revenue................................ (514) (359) (551) (1,424)(b)
Operating expense.......................................... 11 8 5 24(c)
Property management fees................................... 388 258 433 1,079(d)
Depreciation and amortization.............................. 75 (65) (85) (75)(e)
General and administrative................................. (77) (70) (76) (223)(f)
Minority interest in earnings.............................. 264 -- -- 264(g)
Interest expense........................................... 130 (18) 108 220(h)
Weighted average number of shares.......................... 913,268 625,828 928,070 2,467,166(i)
--------- --------- --------- -----------
--------- --------- --------- -----------
Weighted average number of units........................... 148,202 115,110 119,215 382,527
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
-----------------------------------------
(a) Historical amounts have been adjusted to eliminate the Purchaser's
20% interest related to the Maximum Tendered Units and the Purchaser's
30% interest in the earnings of SJP II.
(b) Amount reflects elimination of property management fees, advertising
fees (at $900 per year per storage center), the Purchaser's interest in
the General Partners and administrative reimbursements paid to the
Purchaser by the Partnerships.
(c) Amount represents elimination of advertising fees paid by the
Partnerships to the Purchaser.
(d) Amount reflects elimination of property management fees paid by the
Partnerships to the Purchaser.
(e) Amount reflects the change in depreciation of storage centers.
Depreciation on a new basis of $97,424 will be recognized on a straight
line basis over five to 30 years. Amortization of amortizable assets has
been eliminated as such assets are not included in Net Asset Value.
(f) Amount reflects elimination of administrative reimbursements paid by
the Partnerships to the Purchaser.
(g) Amount reflects the elimination of the Purchaser's 30% minority
interest in the earnings of SJP II.
(h) Amount reflects the refinancing of the debt of the Partnerships at
8.25% per annum.
(i) Weighted average number of shares to be issued to each Partnership,
assuming a $25.00 share price, is calculated as follows:
<TABLE>
<CAPTION>
IDS1 IDS2 IDS3
---------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value.............................................. $40,066,700 $26,861,846 $39,649,643
Less value of Maximum Tendered Units......................... (16,705,000) (10,878,000) (16,016,000)
Purchaser's interest in General Partner...................... (530,000) (338,125) (431,875)
---------- ---------- ----------
Consideration allocable to Unitholders participating in the
Merger....................................................... $22,831,700 $15,645,721 $23,201,768
DIVIDED BY DIVIDED BY DIVIDED BY
Assumed share price.......................................... 25.00 25.00 25.00
---------- ---------- ----------
Weighted average number of shares allocable to Unitholders
participating in the Merger.................................. 913,268 625,828 928,070
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Schedule VII - Page 11
<PAGE>
SCHEDULE VIII IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
SCHEDULE VIII
PARTNERSHIP DISTRIBUTIONS
PARTNERSHIP DISTRIBUTIONS. The following table sets forth the distributions
paid per Unit (original purchase price $250 per Unit) in the periods indicated
below:
<TABLE>
<CAPTION>
YEAR DISTRIBUTION
- --------------------------------------------------------------------------------- -------------
<S> <C>
1990
First Quarter.................................................................. $ 1.31
Second Quarter................................................................. 4.13
Third Quarter.................................................................. 3.60
Fourth Quarter................................................................. 3.91
1991
First Quarter.................................................................. 3.91
Second Quarter................................................................. 3.91
Third Quarter.................................................................. 3.91
Fourth Quarter................................................................. 3.91
1992
First Quarter.................................................................. 3.91
Second Quarter................................................................. 3.91
Third Quarter.................................................................. 3.91
Fourth Quarter................................................................. 3.91
1993
First Quarter.................................................................. 3.91
Second Quarter................................................................. 3.91
Third Quarter.................................................................. 3.91
Fourth Quarter................................................................. 3.91
1994
First Quarter.................................................................. 3.91
Second Quarter................................................................. 3.91
Third Quarter.................................................................. 3.91
Fourth Quarter................................................................. 4.06
1995
First Quarter.................................................................. 4.06
Second Quarter................................................................. 4.06
Third Quarter.................................................................. 4.06
Fourth Quarter................................................................. 4.06
1996
First Quarter.................................................................. 4.06
Second Quarter................................................................. 4.06
</TABLE>
Schedule VIII - Page 1
<PAGE>
SCHEDULE IX IS HEREBY AMENDED AND RESTATED IN ITS ENTIRETY AS FOLLOWS:
SCHEDULE IX
PROPERTY INFORMATION
The following table sets forth certain information regarding each of the
Partnership's self storage centers, including occupancy at December 31, 1991,
1992, 1993, 1994, 1995 and June 30, 1996.
<TABLE>
<CAPTION>
NET RENTABLE
PROPERTY NAME PROPERTY LOCATION OWNED SINCE YEAR BUILT SQUARE FEET
- ------------------------------------------------------------------- ---------------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Orange Orange, CA 1989 1985 90,000
Sterling Heights Sterling Heights, MI 1988 1986 105,000
Newport News North Newport News, VA 1989 1986 59,000
Chesapeake Chesapeake, VA 1989 1986/1995 58,000
Leesburg Leesburg, VA 1989 1986 28,000
T.C. Jester Houston, TX 1990 1990 64,000
Bellefield Bellevue, WA 1990 1978/1986 67,000
Kennydale Renton, WA 1991 1991 67,000
------------
Total 538,000
<CAPTION>
OCCUPANCY AT
--------------------------------------------------
DEC. 31 DEC. 31 DEC. 31 DEC. 31
PROPERTY NAME ACREAGE 1991 1992 1993 1994
- ------------------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C>
Orange 2.8 89 92 91 92
Sterling Heights 8.9 92 92 95 88
Newport News North 3.8 * * * *
Chesapeake 5.2 * * * *
Leesburg 1.6 * * * *
T.C. Jester 2.8 72 73 92 92
Bellefield 2.9 90 89 92 93
Kennydale 2.8 28 74 91 91
-----
Total 30.8
<CAPTION>
DEC. 31 JUNE 30,
PROPERTY NAME 1995 1996
- ------------------------------------------------------------------- ----------- -------------
Orange 86 90
Sterling Heights 80 91
Newport News North * *
Chesapeake * *
Leesburg * *
T.C. Jester 87 88
Bellefield 93 97
Kennydale 87 96
Total
</TABLE>
- ------------------------------------------------
* These properties are individually less than 10% of historical cost of
total storage centers for the Partnership. The average occupancy of these
properties was 88%, 87% and 88% at December 31, 1993, 1994 and 1995,
respectively, and 96% at June 30, 1996.
The following table presents the average occupancy per net rentable square
foot and average rental rate per net rentable square foot for the Partnership's
properties for the years ended December 31, 1993, 1994 and 1995 and the six
months ended June 30, 1996.
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEAR ENDED DECEMBER 31, MONTHS ENDED
------------------------------------- JUNE 30,
1993 1994 1995 1996
----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Average occupancy................................................ 87% 91% 88% 89%
Average rate per square foot..................................... $ 7.78 $ 8.08 $ 8.59 $ 8.88
</TABLE>
Schedule IX - Page 1
<PAGE>
A Letter of Transmittal and any other required documents should be sent or
delivered by each Unitholder or his or her broker, dealer, commercial bank,
trust company or other nominee to the Depositary at one of its addresses set
forth below.
The Depositary for this Offer is:
GEMISYS CORPORATION
<TABLE>
<S> <C>
By Overnight/Hand Delivery: By Mail:
7103 S. Revere Parkway P.O. Box 3897
Englewood, CO 80112 Englewood, CO 80155-9756
</TABLE>
Any questions or requests for assistance or additional copies of this
Supplement, the Offer to Purchase and the Letter of Transmittal may be directed
to the Information Agent at its telephone number and location listed below. You
may also contact your broker, dealer, commercial bank or trust company for
assistance concerning this Offer.
The Information Agent for this Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, NY 10005
(212) 269-5550 (Call Collect)
or
1-800-207-2872 (Toll Free)
<PAGE>
[LOGO]
1201 Third Avenue, Suite 2200, Seattle, Washington 98101
IF YOU HAVE ANY QUESTIONS ABOUT THIS OFFER OR IF YOU NEED HELP IN COMPLETING THE
LETTER OF TRANSMITTAL, PLEASE CALL THE INFORMATION AGENT, D.F. KING & CO., INC.
AT (800) 207-2872.
August 26, 1996
Re: Cash Tender Offer for up to 49,000 Units of
IDS/Shurgard Income Growth Partners L.P. II
Dear Unitholder:
Shurgard Storage Centers, Inc., a Delaware corporation (the "Purchaser"),
has amended and supplemented its offer to purchase (the "Offer") up to 49,000
units of limited partnership interest (the "Units") in IDS/Shurgard Income
Growth Partners L.P. II, a Washington limited partnership (the "Partnership"),
at a net cash price per Unit of $222 (the "Offer Price"). The Offer is now made
upon the terms and subject to the conditions set forth in the Offer to Purchase
dated July 2, 1996, as amended by the Purchaser's letter to Unitholders dated
July 16, 1996 (the "July 16 Letter") and the enclosed Supplement to Offer to
Purchase (the "Supplement"), and in the related Letter of Transmittal.
The Supplement amends and supplements the following sections of the Offer to
Purchase: the cover page, "Incorporation of Certain Documents By Reference,"
"Cautionary Statement," "Summary," "Special Considerations," "Background and
Purposes of the Transaction," "Fairness of the Transaction; Position of the
General Partner," "Appraisal; Opinions of Financial Advisors," "Market Prices of
Units," "Interests of Certain Persons," "The Offer" -- Section 7 ("Certain
Conditions of the Offer") and -- Section 11 ("Miscellaneous") and Schedules I,
V, VI, VII, VIII and IX. Except as set forth in the Supplement, the Offer
continues to be governed by the terms and conditions set forth in the Offer to
Purchase, as amended by the July 16 Letter, and in the related Letter of
Transmittal, and the information contained therein continues to be important to
each Unitholder's decision with respect to the Offer. Accordingly, the
Supplement should be carefully read in conjunction with the Offer to Purchase,
the July 16 Letter and the Letter of Transmittal previously mailed to you.
If you wish to sell your Units and receive a net cash price of $222 per
Unit, please complete the Letter of Transmittal and return it to the address set
forth on the back cover of the Offer to Purchase and the Supplement before the
expiration date.
PLEASE NOTE THAT THE EXPIRATION DATE OF THE OFFER HAS BEEN EXTENDED TO 6:00
P.M., NEW YORK CITY TIME, ON MONDAY, SEPTEMBER 9, 1996.
UNITHOLDERS WHO HAVE VALIDLY TENDERED UNITS AND NOT WITHDRAWN THEIR TENDERS
NEED TAKE NO FURTHER ACTION TO VALIDLY TENDER THOSE UNITS.
We thank you for your prompt attention to this matter.
Very truly yours,
[CHARLES K. BARBO]
Charles K. Barbo
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SHURGARD STORAGE CENTERS, INC.
<PAGE>
PRESS RELEASE
[Letterhead]
CONTACT:
Jennifer Wall DeLise Keim
David Frank Harrell Beck
D.F. King & Co., Inc. Shurgard Storage Centers, Inc.
212/269-5550 206/624-8100
FOR IMMEDIATE RELEASE
SHURGARD EXTENDS OFFERS TO PURCHASE LIMITED PARTNERSHIP
UNITS IN THREE AFFILIATED SELF STORAGE LIMITED PARTNERSHIPS
SEATTLE, WASHINGTON, AUGUST 26, 1996...Shurgard Storage Centers,
Inc. ("Shurgard") (NYSE:SHU) announced today that it has extended its offers to
purchase (the "Offers") up to 65,000 limited partnership units in IDS/Shurgard
Income Growth Partners L.P. ("IDS1") for a net cash price of $257 per unit, up
to 49,000 limited partnership units in IDS/Shurgard Income Growth Partners L.P.
II("IDS2") for a net cash price of $222 per unit and up to 52,000 limited
partnership units in IDS/Shurgard Income Growth Partners L.P. III ("IDS3") for a
net cash price of $308 per unit. The Offers have been extended to provide
unitholders an opportunity to review the Supplements to the Offers to Purchase,
dated August 26, 1996. The Offers and withdrawal rights now will expire at 6:00
p.m., New York City time, Monday, September 9, 1996, unless extended.
Shurgard also announced that as of 6:00 p.m., New York City time, August
23, 1996 IDS1 unitholders had validly tendered and not withdrawn approximately
60,206 IDS1 limited partnership units (approximately 41% of the total
outstanding units). IDS2 unitholders had validly tendered and not withdrawn
approximately 33,666 IDS2 limited partnership units (approximately 29% of the
total outstanding units) and IDS3 unitholders had validly tendered and not
withdrawn approximately 47,734 IDS3 limited partnership units (approximately 40%
of the total outstanding units).
(MORE)
<PAGE>
Shurgard Storage Centers, Inc.
August 26, 1996
Page 2
The Offers are being made pursuant to an Acquisition Agreement, dated as of
July 1, 1996, between Shurgard and IDS1, IDS2, and IDS3 (the "Partnerships").
The Acquisition Agreement provided that, after completion of the Offers and
subject to the approval of the requisite vote of unitholders of each
Partnership, the Partnerships will be merged with and into Shurgard. If the
Merger is consummated, unitholders of the Partnerships who participate in the
Merger will receive shares of Shurgard Class A Common Stock in exchange for
their limited partnership units. The General Partners of each of the
Partnerships have recommended that those unitholders who desire immediate
liquidity tender their units in the Offers and that all other unitholders retain
their units and, instead, participate in the Merger.
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