FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended June 30, 1996 Commission file number 0-19197
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. III
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1435854
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201-3RD AVENUE, SUITE 2200, SEATTLE, WASHINGTON 98101
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code)206-624-8100
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
<TABLE>
BALANCE SHEETS
June 30, December 31,
Unaudited 1996 1995
------------- -------------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 693,347 $ 673,130
Storage centers, net 33,777,084 34,146,500
Other assets 196,886 250,621
Amortizable asset 261,313 364,101
Land held for resale 201,835 201,835
------------- -------------
Total Assets $ 35,130,465 $35,636,187
============= =============
Liabilities and Partners' Equity (Deficit):
Liabilities
Accounts payable and other accrued expenses $ 619,862 $ 476,306
Accrued transaction costs 295,932
Notes payable 10,333,498 10,745,854
------------- -------------
Total Liabilities 11,249,292 11,222,160
------------- -------------
Partners' equity (deficit)
Limited partners 24,012,429 24,518,638
General partner (131,256) (104,611)
------------- -------------
Total Partners' Equity (Deficit) 23,881,173 24,414,027
------------- -------------
Total Liabilities and Partners'
Equity (Deficit) $ 35,130,465 $35,636,187
============= =============
</TABLE>
<TABLE>
STATEMENTS OF EARNINGS
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- -------------------------
Unaudited 1996 1995 1996 1995
----------------------- ----------- -----------
<S> <C> <C> <C> <C>
Rental Revenues: $1,866,112 $1,790,074 $3,672,665 $3,510,447
Expenses:
Operating and administrative 525,272 481,839 1,032,100 979,833
Property management fees 111,357 107,396 219,450 210,619
Depreciation and amortization 326,191 396,345 666,793 795,788
Real estate taxes 138,210 129,649 273,031 255,982
----------- ----------- ----------- -----------
Total Expenses 1,101,030 1,115,229 2,191,374 2,242,222
----------- ----------- ----------- -----------
Earnings From Operations 765,082 674,845 1,481,291 1,268,225
----------- ----------- ----------- -----------
Other Income (Expenses)
Interest income 5,468 6,133 14,811 13,061
Interest expense (237,517) (245,624) (431,549) (459,663)
Transaction costs (420,945) (420,945)
----------- ----------- ----------- -----------
Total Other Income
(Expenses) (652,994) (239,491) (837,683) (446,602)
----------- ----------- ----------- -----------
Earnings $ 112,088 $ 435,354 $ 643,608 $ 821,623
=========== =========== =========== ===========
Earnings per unit of limited
partnership interest $ .89 $ 3.47 $ 5.13 $ 6.55
=========== =========== =========== ===========
Distributions per unit of limited
partnership interest $ 4.69 $ 4.69 $ 9.37 $ 9.37
=========== =========== =========== ===========
</TABLE>
<TABLE>
STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
-----------------------------
Unaudited 1996 1995
------------- ------------
<S> <C> <C>
Operating activities:
Earnings $ 643,608 $ 821,623
Adjustments to reconcile earnings to net cash
provided by operating activities:
Transaction costs 420,945
Depreciation and amortization 666,793 795,788
Changes in operating accounts:
Other assets 53,735 90,811
Accounts payable and other accrued expenses 143,556 97,231
------------- -------------
Net cash provided by operating activities 1,928,637 1,805,453
------------- -------------
Investing activities:
Improvements to storage centers (194,589) (37,034)
------------- -------------
Financing activities:
Proceeds from notes payable 1,274,000
Payments on notes payable (1,686,356) (476,616)
Distributions to partners (1,176,462) (1,176,462)
Payment of transaction costs (125,013)
------------- -------------
Net cash used in financing activities (1,713,831) (1,653,078)
------------- -------------
Increase in cash and cash equivalents 20,217 115,341
Cash and cash equivalents at beginning of year 673,130 602,285
------------- -------------
Cash and cash equivalents at end of period $ 693,347 $ 717,626
============= =============
Supplemental disclosures of cash flow information:
Cash paid during period for interest $ 413,167 $ 423,278
============= =============
</TABLE>
NOTES TO FINANCIAL STATEMENTS
Note A -- Financial Statements Preparation:
The interim financial statements are unaudited but reflect all
adjustments that are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. These
adjustments consist primarily of normal recurring accruals. The interim
financial statements should be read in conjunction with the audited
financial statements contained in the 1995 Annual Report. The results
of operations for interim periods will not necessarily be indicative of
the operating results for the fiscal year. Certain amounts have been
reclassified to conform to the current year presentation.
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.
Distributions and earnings per unit of limited partnership interest
are based on the total amounts distributed and allocated to limited
partners divided by the number of units outstanding during the period
(119,215 for the three and six months ended June 30, 1996 and 1995).
Note B -_ Notes Payable:
During 1996, the Partnership borrowed $1,274,000 on its bank note in
order to make final payments on the seller's notes that originated with
the purchase of certain northern California storage centers.
PART I ITEM 2 MANAGEMENTS' DISCUSSION AND ANALYSIS
Operating Results. The Partnership's earnings from operations
for the three and six months ended June 30, 1996 increased $90,200
and $213,000 respectively, over the same periods in 1995. Rental
revenue for the three and six months ended June 30, 1996 also
increased $76,000 and $162,200 over the same periods last year.
The increase resulted primarily from a 5% increase in the average
rental rate per square foot. During the month of March, the
Partnership lost its only tenant in the Castro Valley office
building representing approximately $5,000 per month in rent.
Management is currently making efforts to fill the office space.
Due in part to this office space vacancy, average occupancies
decreased eight percentage points from 90% at June 30,1995 to 82%
at June 30, 1996.
Total expenses decreased $14,200 and $50,800 for the three and
six months ended June 30, 1996, respectively, compared to the same
periods in 1995. The majority of this decrease is due to the drop
in amortization expense which does not affect the Partnership's
cash flow. Operating and administration expenses increased $43,400
and $ 52,300 for the three and six months ended June 30, 1996,
respectively, compared to the same periods in 1995 due to 1) an
increase in personnel costs associated with additional hours worked
by store managers and increased salaries, 2) an increase in
marketing costs in the Atlanta market reflecting increased yellow
page advertisement and 3) an increase in the Georgia state taxes.
Additionally, real estate taxes increased $8,600 and $17,000 for
the three and six months ended June 30, 1996, respectively, mainly
due to a tax assessment increase at the Gilbert storage center.
Subsequent to quarter end, a fire at the Tracy storage center
completely burned four units and effected approximately seventeen
additional units. All costs related to the fire are expected to be
covered under insurance after a $10,000 deductible.
Cash Activities. Capital improvements for the six months ended
June 30, 1996 totaled $194,600 which largely represents conversion
of existing storage units to climate controlled units at the Dobson
Ranch storage center, which will increase the revenue potential of
the property.
During 1996, the Partnership borrowed $1,274,000 on its bank note
in order to make final payments on the seller's notes that
originated with the purchase of certain northern California storage
centers.
On July 1, 1996, the Partnership entered into a merger
agreement with Shurgard Storage Centers, Inc. (SSCI) and two
affiliated Partnerships whereby: A) SSCI would commence a cash
tender offer for up to 52,000 Units of the Partnership and B)
following completion of the tender offer, the Partnership would
seek the requisite approval by the limited partners to merge into
SSCI. Upon consummation of the merger all limited partners would
receive stock in SSCI.
In connection with this transaction, the Partnership is
expected to incur approximately $930,100 in costs. As of June 30,
1996, transaction costs totaling approximately $420,900 have been
posted as expenses on the Partnership's books (of which
approximately $125,000 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, the
Partnership will make a final cash distribution equal to the
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.
PART II, ITEM 1 LEGAL PROCEEDINGS
On July 16, 1996, Irving and Roberta B. Schuman filed a
purported class and derivative action complaint in the Superior
Court of the State of Washington, King County naming the Shurgard
REIT, the General Partner of the Partnership, and certain other
individual and entities as defendants and the Partnership as a
nominal defendant.
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. The
plaintiffs seek monetary damages and equitable relief, including an
order enjoining the consummation of the Shurgard REIT's tender
offer for units of the Partnership (the Offer), 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 Limited Partners of the Partnership by the
defendants in connection with the Offer. The defendants believe
the lawsuit is without merit and intend to vigorously defend it.
SIGNATURE
Pursuant to the requirements 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.
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. III
Date: August 12, 1996 By: HARRELL BECK
--------------------------------------
Harrell Beck
Treasurer and Authorized Signatory
Shurgard General Partner, Inc.
General Partner
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 693,347
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 37,636,439
<DEPRECIATION> 3,859,355
<TOTAL-ASSETS> 35,130,465
<CURRENT-LIABILITIES> 915,794
<BONDS> 10,333,498
0
0
<COMMON> 0
<OTHER-SE> 23,881,173
<TOTAL-LIABILITY-AND-EQUITY> 35,130,465
<SALES> 0
<TOTAL-REVENUES> 3,672,665
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,191,374
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 431,549
<INCOME-PRETAX> 643,608
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 643,608
<EPS-PRIMARY> 5.13
<EPS-DILUTED> 5.13
</TABLE>
