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FORM 10-K/A
AMENDMENT NO. 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 $250
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For the fiscal year ended DECEMBER 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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For the transition period from to
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Commission file number 33-25729
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IDS/SHURGARD INCOME GROWTH PARTNERS L.P. II
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(Exact name of registrant as specified in its charter)
WASHINGTON 91-1436174
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(State of organization) (IRS Employer Identification No.)
1201 Third Avenue, Suite 2200, Seattle, Washington 98101
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (206) 624-8100
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
[ X ]
DOCUMENTS INCORPORATED BY REFERENCE
The Annual Report to Security Holders for the fiscal year ended
December 31, 1995 are incorporated by reference into Part II and III of this
Form 10-K.
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PART I
ITEM 1. BUSINESS.
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. The
General Partner is Shurgard Associates L.P. II. The Partnership will
terminate December 31, 2030, unless terminated at an earlier date.
The business of the Partnership is to acquire, develop and operate
storage centers. The Partnership has completed the acquisition and
development phase of the business; currently its focus being on the operation
of the storage centers. The principal investment objectives of the
Partnership are to provide the Limited Partners with regular quarterly cash
distributions which, for Taxable Limited Partners, are expected to be
partially tax-sheltered; to obtain long-term appreciation in the value of its
properties; and to preserve and protect the Limited Partners' capital. The
Partnership began operations during 1989, at which time it obtained
approximately $10.3 million in short-term financing for the purchase of two
existing storage facilities. The offering was completed in April 1990 with
total proceeds raised through the sale of limited partnership interests of
approximately $28.8 million. This enabled the Partnership to retire the
short-term loans and purchase an additional five existing storage centers and
one partially completed center. During 1992, the Partnership borrowed
approximately $1.8 million under a seven year note with a commercial bank to
pay off its $1.24 million line of credit, upon the completion of a storage
center. Additionally during 1993, the Partnership drew $1.25 million on a
line of credit to fund an expansion at an existing storage center. For more
information regarding the properties owned by the Partnership at December 31,
1995, see Item 2 below.
On March 24, 1995, Shurgard Incorporated was merged (the Merger) into
Shurgard Storage Centers, Inc. (SSCI). As a result of the Merger, SSCI
assumed all of Shurgard Incorporated's rights and obligations under the
Management Services Agreement and will manage the Partnership's properties on
the terms set forth in the Management Services Agreement.
SELF SERVICE STORAGE
Self service storage centers provide a low-cost alternative to
warehousing and other forms of storage. Storage customers vary from
individuals and professionals to small and large businesses. These customers
rent an enclosed space or "unit" to store various items, including household
goods, recreation vehicles, inventory and business records. Individual units
are secured by the customer's own lock and key and the property's security is
maintained through a computerized access system. Storage space is rented on a
month-to-month basis and the typical rental period for storage tenants is
less than two years. This short rental period makes it necessary for
management to continually re-lease available space in order to maximize
property revenues. The primary technique for renting available space is
through advertisements placed in local Yellow Pages and through signage at
the property site. In addition, the Partnership may utilize various
promotional programs to stimulate rental activities at a particular facility
or within specific market areas.
The Partnership's storage centers are designed to offer high-quality
storage space for personal and business use at a competitive price. Rental
rates reflect the comparative quality of the center (security, accessibility
and appearance), as well as the superior service provided by on-site
managers. Because storage leases are short term, any adjustments in rental
rates
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due to inflation or other market factors can become effective promptly based
on the manager's analysis of demand and availability at the particular store.
While rental income from leased space constitutes the primary source of
revenue from the properties, additional revenue is generated from incidental
services and products available at the storage centers. Management believes
that providing such ancillary services will become increasingly important as
competition forces operators to seek to differentiate their product. The
Partnership currently receives additional revenue from storage supplies sales
as well as truck rental operations.
PROPERTY MANAGEMENT
The Partnership entered into a Management Services Agreement with
Shurgard Incorporated which was assumed by SSCI in the Merger, whereby SSCI
manages the Partnership's properties for a monthly fee of 6% of the gross
revenues from operations of storage centers, plus $75 per month per facility
for rendering advertising services. Since SSCI manages the centers, all
on-site managers and associate managers are employees of SSCI. As of
February 6, 1996, there were 13 such employees on-site at the Partnership's
storage centers.
Under the Management Services Agreement, SSCI has granted the
Partnership the non-exclusive right to use the name, trademark and service
mark "Shurgard" in connection with the rental and operation of its
properties. The Management Services Agreement can be terminated without cause
by the Partnership with sixty days written notice. However, if the agreement
is so terminated, all rights to use the "Shurgard" name, trademark and
service mark are also terminated and any signs bearing the name "Shurgard"
are to be removed at the Partnership's expense. If the agreement is
terminated by SSCI for reasons other than the Partnership's breach thereof,
or SSCI is terminated for cause, the Partnership will maintain the right to
use the "Shurgard" name, trademark, service mark and related items until the
properties are sold or otherwise disposed of. However, such rights may not be
passed on to any subsequent purchaser of a property.
On March 25, 1996, in connection with preliminary discussions relating
to a potential business transaction (involving SSCI and not the Partnership)
which were subsequently terminated, SSCI and Public Storage, Inc. ("PS")
entered into a customary confidentiality and standstill agreement whereby PS
agreed that it would not acquire any interests in SSCI or any of SSCI's
affiliates (including the Partnership) for a period of two years without
SSCI's consent (preventing PS from making a tender offer for units of limited
partnership interest in the Partnership or proposing a transaction with the
Partnership without the permission of SSCI).
COMPETITION
Management considers occupancy levels in the 90% range to be "full", and
as such they believe significant future occupancy gains will be difficult to
obtain. Management anticipates that future increases in revenues from storage
centers currently owned by the Partnership to continue to be primarily the
result of rental rate increases, as they have been in the last two years. To
the extent that the existing properties continue to operate profitably, this
will likely stimulate further development and result in greater competition
between the newly developed and existing properties. The Partnership seeks to
maximize revenues by adjusting rents to match demand more flexibly. 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.
Entry into the self storage business through acquisition of existing
facilities is relatively easy for persons or institutions with the required
initial capital. Development of new self storage facilities is more
difficult, however, due to zoning, environmental and other regulatory
requirements. Management has seen recent increases in storage development,
but anticipates that this development will not begin to effect industry
occupancies until late 1996 or 1997. The Partnership competes with, among
others, national and regional storage
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operators and developers. Performance at any one location is generally most
influenced by competition within a five mile radius. The primary factors upon
which competition will be based are location, rental rates, suitability of
the property's design to prospective tenants' needs and the manner in which
the property is operated and marketed. The Partnership has established itself
within its markets as a quality operator, emphasizing customer service and
security.
Competition may be accentuated by any increase in availability of funds
for investment in real estate. Rising interest rates tend to decrease the
availability of funds and therefore can have a positive impact on
competition. The extent to which the Partnership is affected by competition
will depend in significant part on general market conditions.
DISPOSITION OF ASSETS
As originally stated, the Partnership plans to dispose of its interest
in its properties seven to nine years after acquisition or completion of the
properties' development, i.e., between 1996 and 2000. However, as originally
indicated, the actual time of the sale depends on a variety of factors not
capable of prediction, including future property values, availability of
credit worthy purchasers, existing financing opportunities, operating results
and the Partnership's assessment of the respective merits of the continued
operation or disposition of the properties.
The Partnership is currently conducting discussions with an affiliated
party regarding the possible acquisition of an interest in, or a merger with,
the Partnership. Whether and when the Partnership will reach agreement
regarding this potential acquisition will depend on a number of factors. There
can be no assurance that any agreement will be reached, or if reached, that the
transactions contemplated thereby will be consummated.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: October 15, 1996 IDS/SHURGARD INCOME GROWTH PARTNERS L.P. II
By: Shurgard Associates L.P. II, General Partner
By: Shurgard General Partner, Inc. General Partner
By: HARRELL BECK
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Harrell Beck, Treasurer
