<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 $250
--------------
For the fiscal year ended December 31, 1995
---------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
-------------------
For the transition period from to
--------------------- ---------------------
Commission file number 33-25729-01
----------------------------------------------------
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. III
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-1435854
- ----------------------- ---------------------------------
(State of organization) (IRS Employer Identification No.)
1201 Third Avenue, Suite 2200, Seattle, Washington 98101
--------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (206) 624-8100
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (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.
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
IDS/Shurgard Income Growth Partners L.P. III (the Partnership) was
organized under the laws of the State of Washington on November 15, 1988. The
General Partner is Shurgard Associates L.P. III. 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 was authorized to issue a total
of 160,000 units of limited partnership interest, at a stated cost of $250 per
unit. The offer was completed in March 1992 with total proceeds raised through
the sale of limited partnership interest of $29.8 million which enabled the
Partnership to purchase four existing storage centers in 1991, six facilities in
1992, four facilities during 1993, and three additional facilities during 1994.
All 1991 and 1992 acquisitions were purchased with cash; 1993 and 1994
acquisitions were funded with cash, an $8 million bank note, and $3.495 million
in seller's notes. 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 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.
<PAGE>
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 26
such employees of the Partnership.
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.
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 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
<PAGE>
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 five to ten years after acquisition or completion of its
development, i.e., between 1997 and 2002. 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
purchases, 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.
ITEM 2. PROPERTIES.
The following table lists each of the Partnership's storage centers at
December 31, 1995, the property location, the acquisition or completion date,
and the square foot occupancy at December 31, 1993, 1994 and 1995.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Rentable Acquisition/ Occupancy at Dec. 31,
Property location Square Completion
Footage Date 1993 1994 1995
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shurgard of Gilbert Phoenix, Arizona 64,235 4/91 * * *
- -------------------------------------------------------------------------------------------------------------------------------
Shurgard of Delray Beach Miami, Florida 77,378 12/91 * * *
- -------------------------------------------------------------------------------------------------------------------------------
Shurgard of Allen Blvd. Portland, Oregon 42,182 1/91 * * *
- -------------------------------------------------------------------------------------------------------------------------------
Shurgard of Windcrest San Antonio, Texas 86,239 12/91 * * *
- -------------------------------------------------------------------------------------------------------------------------------
Shurgard of Dobson Ranch Phoenix, Arizona 54,850 2/92 * * *
- -------------------------------------------------------------------------------------------------------------------------------
Shurgard of Norcross Atlanta, Georgia 61,800 3/92 * * *
- -------------------------------------------------------------------------------------------------------------------------------
Shurgard of Stone Mountain Atlanta, Georgia 61,150 3/92 * * *
- -------------------------------------------------------------------------------------------------------------------------------
Shurgard of Tucker Atlanta, Georgia 60,200 3/92 * * *
- -------------------------------------------------------------------------------------------------------------------------------
Shurgard of Forest Park Atlanta, Georgia 65,200 3/92 * * *
- -------------------------------------------------------------------------------------------------------------------------------
Shurgard of Rochester Detroit, Michigan 56,920 3/92 * * *
- -------------------------------------------------------------------------------------------------------------------------------
Shurgard of Castro Valley Castro Valley, California 69,108 8/93 96% 95% 91%
- -------------------------------------------------------------------------------------------------------------------------------
Shurgard of Newark Newark, California 61,905 8/93 * * *
- -------------------------------------------------------------------------------------------------------------------------------
Shurgard of San Leandro San Leandro, California 58,540 8/93 * * *
- -------------------------------------------------------------------------------------------------------------------------------
Shurgard of Tracy Tracy, California 69,217 8/93 * * *
- -------------------------------------------------------------------------------------------------------------------------------
Shurgard of Sacramento Sacramento, California 53,090 2/94 N/A * *
- -------------------------------------------------------------------------------------------------------------------------------
Shurgard of San Lorenzo San Lorenzo, California 54,075 2/94 N/A * *
- -------------------------------------------------------------------------------------------------------------------------------
Castro Valley Office Building Castro Valley, California 3,310 5/94 N/A * *
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* These properties are individually less than 10% of historical cost of storage
centers for the Partnership. The average occupancy of these projects was 93%,
92%, and 87% at December 31, 1993, 1994, and 1995 respectively.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Market information.
There is no established public market for the Partnership's units of
limited partnership interest.
Transfers of limited partner interests are restricted in certain
circumstances. Transfers which would result in the termination of the
Partnership under Section 708 of the Internal Revenue Code, transfers
of fractional units, and transfers which result in a limited partner
owning less than the minimum number of units are restricted. There is
a fee charged for transfers.
(b) Holders.
As of February 6, 1996, there was one general partner and
approximately 4,100 limited partners in the Partnership.
(c) Distributions.
During the fiscal years ended December 31, 1994 and 1995, the
Partnership distributed $17.81 and $18.75 per unit of limited
partnership interest. In February 1996, the Partnership distributed
$4.69 per unit of limited partnership interest. As of December 31,
1995, total distributions of $8,950,303 are greater than total
earnings on a basis consistent with generally accepted accounting
principles by $2,062,194. Therefore, the partners' original
investment has been reduced by that amount for financial reporting
purposes.
ITEM 6. SELECTED FINANCIAL DATA.
The information called for by this item is incorporated by reference of the
Annual Report to Security Holders for the fiscal year ended December 31, 1995, a
copy of which is filed as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE
RESULTS OF OPERATIONS.
The information called for by this item is incorporated by reference of the
Annual Report to Security Holders for the fiscal year ended December 31, 1995, a
copy of which is filed as Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information called for by this item is incorporated by reference of the
Annual Report to Security Holders for the fiscal year ended December 31, 1995, a
copy of which is filed as Exhibit 13.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Partnership's General Partner is Shurgard Associates L.P. III, a
Washington limited partnership. Shurgard Associates L.P. III is managed by the
directors and executive officers of Shurgard General Partner, Inc., the
Corporate General Partner, and by the Individual General Partners. SSCI and IDS
Partnership Services Corporation (IPSC), a Minnesota corporation, are limited
partners of Shurgard Associates L.P. III and, as such, do not control the day-
to-day affairs of the General Partner or, through the General Partner, the
Partnership. Management of the operation of Partnership's properties is
performed by SSCI pursuant to the Management Services Agreement.
The directors of Shurgard General Partner, Inc. have been elected to serve
until their successors are duly elected and qualified. As the sole shareholder
of Shurgard General Partner, Inc., Charles K. Barbo is in a position to control
the election of directors.
The directors and officers of Shurgard General Partner, Inc., are required
to devote only so much of their time to the Partnership's affairs as is
necessary or required for the effective conduct and operation of the
Partnership's business. The Individual General Partners devote their individual
time to the Partnership to the extent they deem advisable in view of the
participation of SSCI in Partnership affairs and such other factors as they
consider relevant.
The Individual General Partners of Shurgard Associates L.P. III and the
executive officers, directors and certain key personnel of Shurgard General
Partner, Inc., and SSCI are as follows:
<TABLE>
<CAPTION>
Name Age Company Office and Date of Election
- -------------------- --- ----------------------------------- ----------------------------------------
<S> <C> <C> <C>
Charles K. Barbo 54 Shurgard Associates L.P.III Individual General Partner (1987)
SSCI President, Chief Executive Officer, and
Chairman of the Board (March 1995-present)
Shurgard General Partner, Inc. President (1992-present),
Chairman of the Board (1983-present)
Arthur W. Buerk 60 Shurgard Associates L.P. III Individual General Partner (1987-present)
Shurgard General Partner, Inc. Director (1979-February 1996)
Donald B. Daniels 57 Shurgard General Partner, Inc. Vice President (1983-present),
Director (1979-present)
Kristin H. Stred 37 SSCI Senior Vice President, Secretary and General
Counsel (1994-present)
Shurgard General Partner, Inc. Secretary (1992-present)
Harrell L. Beck 39 SSCI Director, Senior Vice President, Chief Financial
Officer and Treasurer (1994-present)
Shurgard General Partner, Inc. Treasurer (1992-present)
Michael Rowe 39 SSCI Executive Vice President (1994-present)
Shurgard General Partner, Inc. Vice President (1992-present)
Mark Hall 38 Shurgard General Partner, Inc. Vice President (February 1996)
</TABLE>
<PAGE>
CHARLES K. BARBO has been involved as a principal in the real estate
investment industry since 1969. Mr. Barbo is one of the co-founders of Shurgard
Incorporated, which was organized in 1972 to provide property management
services for self service storage centers and other real estate and
commercial ventures. Mr. Barbo was also a co-founder of Shurgard General
Partner, Inc. Upon Mr. Buerk's resignation on January 1, 1992, Mr. Barbo
assumed the responsibilities of President of Shurgard Incorporated until
March 24, 1995 and Shurgard General Partner, Inc. Mr. Barbo is also a general
partner in a number of other public real estate partnerships. On March 24,
1995, Shurgard Incorporated merged into SSCI and Mr. Barbo was named the
Chairman of the Board, President and Chief Executive Officer of SSCI.
ARTHUR W. BUERK joined Shurgard Incorporated in 1977. During the ensuing
years, Mr. Buerk shared with Messrs. Barbo and Daniels (see below) the various
executive management functions within Shurgard Incorporated. Mr. Buerk served
as President of Shurgard Incorporated from 1979 to 1991 and Shurgard General
Partner, Inc. from 1983 to 1991. Effective January 1, 1992, Mr. Buerk resigned
as President of both Shurgard Incorporated and Shurgard General Partner, Inc. to
pursue other areas of interest. He served as a director of Shurgard General,
Inc. until February, 1996 and a director of Shurgard Incorporated until March
24, 1995. Mr. Buerk remains a general partner of Shurgard Associates L.P. III
and, is also a general partner in a number of other public real estate
partnerships.
DONALD B. DANIELS has been involved in the real estate investment industry
since 1971 and in the self service storage industry since 1974. Mr. Daniels is
one of the co-founders of Shurgard Incorporated. He is a director of Shurgard
General Partner, Inc. and was a director of Shurgard Incorporated until March
24,1995. Mr. Daniels is also a general partner in a number of other real estate
partnerships.
KRISTIN H. STRED joined Shurgard Incorporated in 1992. She currently
serves as Corporate General Counsel and Secretary of both Shurgard Incorporated
until March 24, 1995 and currently serves as Shurgard General Partner, Inc. Ms.
Stred served as a corporate attorney in the broadcasting and aerospace
industries from 1987 to 1992. On March 24, 1995, Ms. Stred was named Senior
Vice President of SSCI. She also serves as Secretary and General Counsel of
SSCI.
HARRELL BECK joined Shurgard Incorporated in April 1986 as the Eastern
Regional Operations Manager and, in 1990, he became the Chief Financial Officer.
Mr. Beck served as Treasurer of Shurgard Incorporated from 1992 until March 24,
1995. He currently serves as Director, Treasurer and CFO of SSCI as well as
Treasurer of Shurgard General Partner, Inc. On March 24, 1995, Mr. Beck was
named Senior Vice President of SSCI.
MICHAEL ROWE came to Shurgard Incorporated as Controller in 1982. In
1983, he became a Vice President and, in 1987, was named Director of
Operations of Shurgard Incorporated. Mr. Rowe served as Treasurer of
Shurgard Incorporated from 1983 to 1992 and Executive Vice President from
1993 until March 24, 1995. Mr. Rowe currently serves as Executive Vice
President of SSCI and Vice President of Shurgard General Partner, Inc.
MARK HALL joined Shurgard Incorporated in 1985 as Corporate Controller. In
1987 he became the South Western Regional Operations Manager. Prior to joining
Shurgard Incorporated, Mr. Hall worked for Touch Ross & Co. where he was
employed for approximately four years, during which time he provided services
primarily to clients in the real estate and service industries. He has a
Bachelor of Arts degree in Business Administration from the
<PAGE>
University of Washington. Mr. Hall currently serves as Vice President of Real
Estate Services for SSCI and Vice President of Shurgard General Partner, Inc.
Pursuant to Articles 16 and 17 of the Agreement of Limited Partnership, a
copy of which is filed as an exhibit to the Partnership's Registration
Statement, each of the general partners continues to serve until (i) death,
insanity, insolvency, bankruptcy or dissolution, (ii) withdrawal with the
consent of the other general partners (if any) and a majority vote of the
limited partners, or (iii) removal by a majority vote of the limited partners.
ITEM 11. EXECUTIVE COMPENSATION.
<TABLE>
<CAPTION>
Number of Capacities Cash
Persons in Group in which Served Compensation
---------------- --------------- ------------
<S> <C> <C>
1 General Partner $118,000*
</TABLE>
*The General Partner has a 5% interest in cash distributions made by the
Partnership, which is disproportionate to its share of the capital of the
Partnership, which is 0.007%. This amount represents that portion of cash
distributions made to the General Partner during the fiscal year ended
December 31, 1995 which is in excess of what a proportionate share of
distributions would have been.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
(a) Security ownership of certain beneficial owners as of February 6,
1996:
None owning more than 5% of the Partnership's voting securities.
(b) Security ownership of management as of February 6, 1996:
Shurgard Associates L.P. III owns 100% of the General Partner's
interest in IDS/Shurgard Income Growth Partners L.P. III
Security ownership is Shurgard Associates L.P. III as of
February 6, 1996 was as follows:
<TABLE>
<CAPTION>
Title of Name of Percent
Class Beneficial Owner of Class
--------- --------------------------------------- --------
<S> <C> <C>
General Shurgard General Partner, Inc.(1),(2) 0.2%
Partners' Charles K. Barbo(2) 9.9%
Interest Arthur W. Buerk(2) 9.9%
Shurgard Incorporated(3),(4) 40.0%
IDS Partnership Services Corporation(3) 40.0%
------
100.0%
------
------
</TABLE>
(1) Charles K. Barbo owns 100% of the stock of Shurgard General
Partner, Inc.
(2) Owner is a General Partner of Shurgard Associates L.P. III
(3) Owner is a Limited Partner of Shurgard Associates L.P. III
(4) On March 24, 1995, these interests were transferred from
Shurgard Incorporated to SSCI as a result of the Merger.
Although SSCI acquired through the Merger Shurgard
Incorporated's interest in the General Partner, substantially
all of the appreciation in the value of that interest during
the next five years will inure to the benefit of the former
shareholders of Shurgard Incorporated in the form of
additional shares of SSCI. As a consequence, most of the
future benefits to be derived from the interest in the
General Partner (except current operating cash flow and
appreciation after five years), if any, will
<PAGE>
be received by the shareholders of Shurgard Incorporated
(including members of management of SSCI) and not by SSCI or
its shareholders.
(c) Changes in control: On March 24, 1995, Shurgard Incorporated was
acquired by SSCI. As a result of the merger, SSCI will perform all
the duties previously performed by Shurgard Incorporated, including
supervision of the operation of the Partnership projects. For the
directors, executive officers, key personnel of SSCI and a description
of the circumstances under which the General Partner may be removed,
see Item 10 of this form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Partnership agreement provides a fee payable to SSCI for property
management services equal to 6% of gross revenues from self service storage
operations for day-to-day professional property management services. The
monthly fee for management services will be reduced to 3% if leasing services
are performed by a party other than SSCI. Payments to SSCI for such management
totaled $433,316 for the year ended December 31, 1995.
Note E of the Annual Report to Security Holders for the year ended December
31, 1995, a copy of which is included as Exhibit 13, is incorporated by
reference. In addition, Shurgard Incorporated will receive fees from the
Partnership as specified in the Agreement of Limited Partnership, reference to
which is made as Exhibit 3(a), and in the Management Services Agreement,
reference to which is made as Exhibit 10(a), both of which documents are
incorporated by reference. SSCI will succeed Shurgard Incorporated with respect
to these agreements. On March 24, 1995 pursuant to the merger of Shurgard
Incorporated with SSCI, the shareholders of Shurgard Incorporated received
shares of SSCI. The following persons owned approximately the designated
percentages of SSCI's outstanding common stock as of December 31, 1995.
<TABLE>
<CAPTION>
Ownership
of
Person Relationship to Partnership SSCI (1)
- ---------------- --------------------------- ---------
<S> <C> <C>
Charles K. Barbo Individual General Partner
of Shurgard Associates L.P.
President and Chairman of the Board of
Shurgard General Partner, Inc. 3.1%
Arthur W. Buerk Individual General Partner of
Shurgard Associates L.P. 2.2%
Donald B. Daniels Director and Vice President of
Shurgard General Partner, Inc. *
</TABLE>
As shareholders of SSCI these individuals may benefit indirectly from the
transactions disclosed in this item. Shurgard Realty Advisors is owned 100% by
SSCI.
(1) As a result of the Merger, Shurgard Incorporated shareholders were
entitled to receive additional SSCI shares based on (i) the extent to which,
during the five years following the closing of the Merger, SSCI realized value
as a result of certain transactions relating to, among others, SSCI's interest
in the General Partner and (ii) the value, at the end of five
<PAGE>
years or in the event of a change of control, of any remaining interests in the
General Partner as determined by independent appraisal. The ownership
percentages in SSCI above do not reflect theses additional shares.
* Mr. Daniels owns less than 1% of SSCI.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND
REPORTS ON FORM 8-K.
(a) 1. Financial statements:
The following financial statements of IDS/Shurgard Income Growth
Partners L.P. III are incorporated by reference in Part II and are
filed as Exhibit 13:
Balance sheets - December 31, 1995 and 1994
Statements of earnings - Three years ended December 31, 1995
Statements of partners' equity (deficit) - Three years ended
December 31, 1995
Statements of cash flows - Three years ended December 31, 1995
Notes to financial statements - Three years ended December 31, 1995
Independent auditors' report
2. All other schedules are omitted because either they are not applicable
or the required information is shown in the financial statements or
notes thereto.
3. Exhibits:
All exhibits to this report are listed in the Exhibit Index.
(b) Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 28, 1996 IDS/SHURGARD INCOME GROWTH PARTNERS L.P. III
By: Shurgard Associates L.P. III, General Partner
By: Shurgard General Partner, Inc. General
Partner
By: HARRELL BECK
-----------------------------------------
Harrell Beck, Treasurer
By: CHARLES K. BARBO
---------------------------------------------------
Charles K. Barbo, General Partner
By: ARTHUR W. BUERK
---------------------------------------------------
Arthur W. Buerk, General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
CHARLES K. BARBO President, Chairman of the Board and March 28, 1996
- ---------------------- Director of Shurgard General
Charles K. Barbo Partner, Inc. (principal executive
officer)
ARTHUR W. BUERK General Partner. March 28, 1996
- ----------------------
Arthur W. Buerk
HARRELL BECK Treasurer of Shurgard General March 28, 1996
- ---------------------- Partner, Inc. (principal financial
Harrell Beck officer and principal accounting
officer)
<PAGE>
EXHIBIT INDEX
EXHIBIT REFERENCE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. Articles of incorporation and by-laws: Filed as Exhibit 3 to Form S-11 for
(a) Agreement of Limited Partnership Registration No. 33-25729
4. Instruments defining the rights of See Exhibit 3(a), above
security holders, including indentures
10. (a) Management Services Agreement Filed as Exhibit 10(a) to Form S-11
for Registration No. 33-25729
(b) Amended and Restated Promissory
Note by IDS/Shurgard Income Growth
Partners L.P. III in favor of Seattle-
First National Bank dated March 28,
1994
(c) Business Loan Agreement between
IDS/Shurgard Income Growth Partners
L.P. III and Seattle-First National
Bank dated March 28, 1994.
13. Annual report to security holders
21. Subsidiaries of the registrant See Item 10K of this report
27. Financial Data Schedule
<PAGE>
AMENDED AND RESTATED
PROMISSORY NOTE
$12,500,000.00 March 28, 1994
Seattle, Washington
FOR VALUE RECEIVED, the undersigned promises to pay to the order of
SEATTLE-FIRST NATIONAL BANK, a national banking association ("Lender") at its
principal office in the City of Seattle, Washington, or at such other place or
places as any holder hereof may in writing designate the sum of (a)Eight Million
Dollars ($8,000,000), which amount constitutes the sum of the Amount Refinanced
(as defined below) plus One Million Five Hundred Thousand and No/100 Dollars
($1,500,000.00) (the "Initial Advance") advanced under the Loan Agreement (as
defined below) on the date hereof; plus (b)all other advances made from time to
time under the Loan Agreement up to an aggregate principal amount for the Amount
Refinanced, the Initial Advance, and all such other advances equal to the sum of
Twelve Million Five Hundred Thousand and No/100 Dollars ($12,500,000.00) in
lawful money of the United States, together with interest on the outstanding
principal amount thereof in lawful money from the date hereof until paid at the
rate of seven percent (7%) per annum (as such interest rate may be adjusted from
time to time in accordance with the terms hereof), and after maturity, or after
default, at the rate of four percent (4%) per annum above the interest rate
otherwise in effect hereunder. The principal of and interest on this Amended
and Restated Promissory Note ("Note") shall be payable in monthly installments
as provided in Section2 hereof. Each such installment shall be applied first to
interest to the due date of such installment, with the balance being applied to
principal, except that if any late charge is not paid and/or any advance made by
the holder hereof under the terms of any instrument securing this Note is not
repaid, any monies received, at the option of the holder, may first be applied
to pay such late charge and/or advances plus interest thereon, and the balance
shall be applied on account of any installment due. Interest shall be
calculated using a 30-day month and a 360-day year.
The undersigned may elect to have interest accrue at the Prime Rate (as
defined below), the Indexed Rate (as defined below) or at the Fixed Interest
Rate (as defined below).
This Note consolidates, amends, restates and replaces (a)that certain
promissory note in the maximum principal amount of $4,000,000.00 dated as of
July29, 1993, executed by Borrower in favor of Lender and (b)that certain
promissory note in the maximum principal amount of $4,865,000.00 dated as of
September1, 1993, executed by Borrower and Grcich, et al., a California
partnership, Grupe Storage Investors No. 4, Ltd., a California limited
partnership and Grupe
PAGE 1
<PAGE>
Properties Co., a California corporation (collectively, "Grupe"), in favor of
Lender (as such notes may have been amended from time to time prior to the date
hereof being referred to herein as the "Old Notes"). The principal balance
outstanding under the Old Notes as of the date hereof is $8,000,000.00 (the
"Amount Refinanced").
1. INTEREST
a. Prime Rate. In the absence of an effective request for the
application of the Indexed Rate or a fixed rate under Section 5 hereof, the loan
shall accrue interest at the Prime Rate. As used herein, "Prime Rate" means on
any day the Lender's publicly announced prime rate of interest at its principal
office (which prime rate is a reference rate and not necessarily the lowest rate
of interest charged by the holder to its prime customers), changing as such
prime rate changes. Each date when the Prime Rate changes at a time when the
Prime Rate is in effect under this Note shall be referred to herein as a "Prime
Rate Change Date."
B. CHANGES IN INTEREST OWED; INTEREST CHANGE DATE. The undersigned
may at any time on three (3) Business Days notice elect to have the loan bear
interest at the Indexed Rate (as defined in Section1(d)). The Indexed Rate will
change five (5) months after the first payment date after the Indexed Rate is
selected and every sixth month thereafter ("Indexed Rate Change Date") unless
the undersigned elects upon 24hours notice prior to any Indexed Rate Change Date
to have interest accrue at the Prime Rate or elects to fix the interest rate
pursuant to Section 5.
C. INDEX; CURRENT INDEX. Changes in the Indexed Rate will be based on
changes in the six-month LIBOR as defined in Paragraph4 below ("Index"). If the
Index is no longer available, the holder will choose a new Index based upon
comparable information and give the undersigned notice of this choice. The most
recently available Index figure 15 Business Days (defined below) before each
Indexed Rate Change Date is the "Current Index."
D. CALCULATION OF INDEXED RATE. After Borrower has selected the
Indexed Rate, the holder will before each Indexed Rate Change Date, calculate
the Indexed Rate by adding two and 75/100 percent (2.75%) to the Current Index,
rounded to the next highest one-eighth of one percent (0.125%), which will be
the new interest rate until the next Indexed Rate Change Date.
2. PAYMENTS
The outstanding principal amount of this Note as of the date hereof
(comprised of the Amount Refinanced and the amount advanced under the Loan
Agreement on the date hereof), together with interest thereon, shall be due and
payable on the first day of each month beginning with May1, 1994, in equal
installments based on an
PAGE 2
<PAGE>
amortization schedule of twenty years from the date hereof. The principal
amount of each advance made under the Loan Agreement after the date hereof,
together with interest thereon, shall be due and payable on the first day of
each month beginning with the month immediately following the date of such
advance in equal installments based on an amortization schedule of twenty (20)
years from the date of such advance. The holder will change the monthly payment
after each Prime Rate Change Date, Indexed Rate Change Date, or Fixed Rate
Change Date (each an "Interest Change Date"), as applicable, to an amount
sufficient to repay the unpaid principal balance of the Amount Refinanced and
the Initial Advance and each subsequent advance in full at the then applicable
interest rate in substantially equal installments of principal and interest over
such twenty-year amortization schedule. Until the payment is again changed, the
undersigned shall pay the new monthly payment each month beginning on the first
monthly payment due date after the applicable Interest Change Date.
3. NOTICE OF CHANGES
The holder will mail or deliver to the undersigned a notice of any
changes in the monthly payment before the first payment due date after any
Interest Change Date.
4. LIBOR
a. The "Index" is the London Interbank Offered Rate ("LIBOR"),
adjusted at the holder's option for statutory reserves, deposit insurance,
regulatory capital, taxes and assessments, if any. It is the average of the
rates of interest, on a per annum basis, at which deposits in United States
dollars having a term of six months are offered by major banks in immediately
available funds to prime banks in the London Interbank market at 11:00 A.M.
(London time) on the day which is fifteen (15) Business Days prior to the
applicable Indexed Rate Change Date. This rate is reported on Telerate, a
national and international medium which provides interest rate quotations daily,
as quoted by the British Bankers Association as Interest Settlement Rates on
page3750 (or such other page as may replace it). Such interest rate quotation,
as provided by Telerate, shall be deemed conclusive and final with respect to
LIBOR determinations for so long as Telerate continues to make such interest
rate reports. If Telerate or the British Bankers Association report is no
longer available for six-month maturities, a comparable publication or report
containing such information will be used. If there is no such publication or
comparable publication containing such information, six-month LIBOR shall be the
average rate (rounded if necessary to the nearest one-thousandth of a percent)
at which dollar deposits having a maturity of six months are offered by at least
two major banks in an interbank market where Eurodollars are being traded, to
prime banks in immediately available funds on the LIBOR determination date
described above or as soon thereafter as such offer quotes can be obtained.
PAGE 3
<PAGE>
b. "Business Day" shall mean a day on which commercial banks are
generally open for business in Seattle, Washington and London, England.
c. The amount of adjustment for reserves, deposit insurance,
regulatory capital; taxes and assessments may change on any Indexed Rate Change
Date depending on such charges being assessed against holder at that time. Such
charges may change due to various factors, including but not limited to changes
in the requirements for reserves and capital adequacy promulgated by the Federal
Reserve System of the United States and/or other state and federal regulatory
agencies, statutory changes affecting holder and/or imposition of taxes, FDIC
fees and/or assessments. Each determination of an adjustment amount shall be
made by the holder in its sole and absolute discretion and shall be conclusive
and binding upon maker and shall be determined without benefit of or credit for
prorations, exceptions or offsets that may be available to the holder from time
to time.
5. INTEREST RATE CONVERSION OPTION
If the undersigned is in compliance with all terms and conditions of the
loan documents executed in connection with this Note, interest on the whole
principal may, at the undersigned's option, upon 24hours notice to the holder
hereof, be converted from either the Prime Rate or the Indexed Rate to a fixed
rate in accordance with the following provisions, PROVIDED, HOWEVER, that the
undersigned's option to fix the rate is subject to the availability to the
holder hereof of matchfunding opportunities for an equivalent time period. This
option to fix the rate of interest under this Note may be elected at any one or
more times during the term of this loan provided that any fixed rate period must
either (a)extend to the maturity date of this Note, or (b)be for a period of one
(1) year or any integer multiple thereof and PROVIDED FURTHER, that no fixed
rate period may extend beyond the maturity date of this Note. The final day of
any such fixed interest rate period is referred to herein as a "Fixed Rate
Change Date."
Said fixed interest rate shall be Seattle-First National Bank's reserve-
adjusted "Fixed Rate Index" as quoted by Seattle-First National Bank on the date
the funds are converted for the period for which the rate is being fixed and the
remainder of the original amortization schedule, rounded upward to the next
highest one-eighth of one percent (0.125%) plus two and 75/100 percent (2.75%)
per annum. The Fixed Rate Index will be adjusted at the holder's option to
reflect the holder's cost of statutory reserves, deposit insurance, regulatory
capital, taxes and assessments, if any, as set forth in Paragraph4(c) herein.
The funds will be converted to the fixed rate on the date the holder
receives the undersigned's written notice exercising the fixed rate option,
PROVIDED that the notice is received before 12 noon Seattle time;
PAGE 4
<PAGE>
Should the undersigned elect to fix the interest rate, the monthly
payment will be recalculated at the beginning of the fixed rate period using the
fixed rate and an amortization term that will amortize the Refinanced Amount,
the Initial Advance, or any other advance under the Loan Agreement, as
applicable, over the remainder of the original amortization schedule for such
amount. Upon expiration of any fixed rate period, the interest rate will
automatically revert to the Prime Rate for the remainder of the term unless the
undersigned elects in writing to repeat the process and reset the fixed rate in
accordance with the above or has elected by proper notice to select the Indexed
Rate.
6. PREPAYMENT
At any time when the Prime Rate is in effect and during the thirty (30)
days immediately prior to any Indexed Rate Change Date (a "Prepayment Period"),
the undersigned may prepay principal, in whole or in part, without prepayment
fee, at any time. Any partial prepayments shall not reduce nor postpone regular
monthly installment payments.
At any time other than a Prepayment Period, the undersigned may not
prepay less than the whole outstanding principal of this Note but may prepay the
whole outstanding principal, PROVIDED, HOWEVER, that a prepayment fee is paid as
set forth below. This prepayment fee shall be payable whether such prepayment
is by voluntary prepayment, operation of law, acceleration or otherwise.
A. PREPAYMENT FEES. The amount of the prepayment fee depends on the
following:
(1) The amount by which interest reference rates as defined below
have changed between the time the loan is prepaid and the preceding Indexed Rate
Change Date or the Fixed Rate Change Date, as applicable.
(2) The amount of principal prepaid.
(3) A prepayment fee factor (see "Prepayment Fee Factor Schedule"
below).
B. DEFINITION OF REFERENCE RATE. The "Reference Rate" used to
represent interest rate levels shall be the bond equivalent yield of the average
U.S. Treasury rate having maturities equivalent to the remaining period to
maturity of this loan rounded upward to the nearest month. The "Initial
Reference Rate" shall be the Reference Rate assigned to the loan by the holder
on the most recent Indexed Rate Change Date
PAGE 5
<PAGE>
or Fixed Rate Change Date, as applicable. The "Final Reference Rate" shall be
the Reference Rate at the time of prepayment.
The Reference Rate shall be interpolated from the Federal Reserve
Statistical Release (PublicationH.15) as displayed on Page119 of the Dow Jones
Telerate Service (or such other page or service as may replace that page or
service for the purpose of displaying rates comparable to said U.S. Treasury
rates) on the day the loan was converted to a fixed rate (Initial Reference
Rate) or the day of prepayment (Final Reference Rate).
C. CALCULATION OF PREPAYMENT FEE
(1) If the Initial Reference Rate is less than or equal to the Final
Reference Rate, there is no prepayment fee.
(2) If the Initial Reference Rate is greater than the Final Reference
Rate, the prepayment fee shall be equal to the difference between
the Initial and Final Reference Rates (expressed as a decimal),
multiplied by the appropriate factor from the Prepayment Fee Factor
Schedule, multiplied by the principal amount of this loan being
prepaid.
EXAMPLE OF PREPAYMENT FEE CALCULATION:
An amortizing loan with remaining principal of $250,000 is fully prepaid
with 24months remaining until maturity. An Initial Reference Rate of 9.0% was
assigned to the loan at the time the loan was converted to a fixed rate. The
Final Reference Rate (as determined by current 24-month U.S. Treasury rate on
Page119 of Telerate) is 7.5%. Rates therefore have dropped 1.5% since the loan
was converted to a fixed rate and a prepayment fee applies. A prepayment fee
factor of 1.3 is determined from Table1 below, and the prepayment fee is
computed as follows:
Prepayment Fee = (0.09 - 0.075) x (1.3) x ($250,000) = $4,875
PAGE 6
<PAGE>
D. PREPAYMENT FEE FACTOR SCHEDULE
TABLE 1 - FULLY AMORTIZING LOANS
Months Remaining to Maturity*
0 3 6 9 12 24 36 48 60 84 120 240 360
----------------------------------------------------------------
0 .21 .36 .52 .67 1.3 1.9 2.5 3.1 4.8 5.9 10.3 13.1
TABLE 2 - PARTIALLY AMORTIZlNG (BALLOON) LOANS
Months Remaining to Maturity*
0 3 6 9 12 24 36 48 60 84 120 240 360
----------------------------------------------------------------
0 .26 .49 .71 .94 1.8 2.7 3.4 4.2 5.6 7.4 11.6 14.0
* If the remaining fixed rate period is between any two time periods shown
in the above schedules, interpolate between the corresponding factors to the
closest month.
The holder of this Note is not required to actually reinvest the prepaid
principal in any U.S. Government Treasury Obligations, or otherwise prove its
actual loss, as a condition to receiving a prepayment fee as calculated above.
Maker agrees that this prepayment fee is the bargained-for consideration to the
holder for permitting prepayment and the above is not a liquidated damages
provision. This prepayment fee provision is to be interpreted in a manner that
would make it enforceable to the fullest extent permitted by law, with any
portion of the fee that is unenforceable being stricken or otherwise changed to
cause the fee, as revised, to be enforced.
7. LATE CHARGE
If any payment is not received by the holder on or before fifteen (15) days
after it is due, the holder, at its option, may assess a late charge equal to
four percent (4%) of each dollar not timely paid. If the payment Is not made on
or before the fifteenth (15th) day of the first month following the month in
which it is due, an additional four percent (4%) will be charged. An additional
four percent (4%) will be charged for each successive month the payment remains
fifteen (15) days past due. This late charge shall apply individually to all
payments past due and there will be no daily PRO RATA adjustment. Such late
charge shall be due and payable on demand, and the holder, at its option, may
(a)refuse any late payment or any subsequent payment unless accompanied by such
late charge, (b)add such late charge to the principal balance of this Note,
(c)pay any late charge with advances from the loan proceeds, or (d)treat the
failure to pay such late charge as demanded as a default hereunder. If
PAGE 7
<PAGE>
such late charge is added to the principal balance of this Note, it shall bear
interest at the default rate.
8. DEFAULT
Borrower will be in default if Borrower fails to make any payment when due
or if a default occurs under any other section of this Note, under that certain
Business Loan Agreement dated as of the date hereof by and between Borrower and
Lender (as amended, modified or restated from time to time, the "Loan
Agreement") or under any other Loan Document (as defined in the Loan Agreement).
9. GENERAL PROVISIONS
a. In the event the undersigned does not pay interest when due, the
holder, at its option, may (a)charge interest on said interest at the same rate
as on principal; (b)add said interest to the principal balance where it will
become a part thereof, and bear interest at the same rate as the principal; or
(c)pay said interest with advances of the loan proceeds which advances shall
likewise bear interest at the same rate as the principal.
b. In the event the undersigned defaults under any of the provisions of
any instrument securing this Note or any other Loan Document or fails to pay any
installment when due under this Note, then, or at any time thereafter, at the
option of the legal holder of this Note, the whole of the principal sum then
remaining unpaid, together with all interest acquired thereon, shall become
immediately due and payable without notice, and any lien given to secure its
payment may be foreclosed. Such acceleration of the debt shall be deemed to be
a prepayment, and the undersigned shall also pay to the holder, in addition to
such amounts, an amount equal to the prepayment fee which would otherwise have
been payable as hereinbefore provided had the undersigned exercised the
privilege to prepay this Note in full. Failure of the holder to exercise this
acceleration option, or any other right the holder may, in such event, be
entitled to, shall not constitute a waiver of the right to exercise such option
or any other right in the event of any subsequent default. If this Note is
placed in the hands of an attorney for collection or is collected through any
court of competent jurisdiction (including the Bankruptcy Court) or through
other legal proceedings, the undersigned promise to pay the reasonable
attorneys' fees of holder including allocated costs of in-house counsel, and all
other costs and expenses incurred by holder in connection with such collection,
whether or not suit is commenced and whether incurred at trial or any appeal
therefrom, and any costs, expenses or losses related to the fixed rate.
c. The undersigned and all endorsers and all persons liable or to become
liable on this Note waive demand, protest and notice of demand, protest and
PAGE 8
<PAGE>
nonpayment and consent to any and all renewals and extensions in the time of
payment hereof and further agree that at any time the terms of payment hereof
may be modified or security released by agreement between the holder hereof and
any owner of the premises affected by the instrument securing this Note without
affecting the liability of any party to this Note or of any person liable or to
become liable with respect to any Indebtedness evidenced hereby.
d. In any action or proceeding to recover any sum herein provided for, no
defense of adequacy of security or that resort must first be had to security or
to any other person shall be asserted. All of the covenants, provisions and
conditions herein contained are made on behalf of, and shall apply to and bind
the respective heirs, devisees, personal representatives, successors and assigns
of the parties hereto, jointly and severally. Each and every party signing or
endorsing this Note binds himself as principal and not as surety.
e. The obligation evidenced by this Note is exclusively for commercial or
business purposes.
f. The undersigned consents to the nonexclusive personal jurisdiction of
the courts of the state where the real property is located and the federal
courts located therein in any action relating to or arising out of the
enforcement or interpretation of this Note. The undersigned further agrees not
to assert in any such action that the proceeding has been brought in an
inconvenient forum.
g. At the time this loan is closed, the undersigned agrees that the
interest rate will be inserted above by the holder of this Note. The holder is
authorized to deduct the payment(s) on this Note and any other sums secured by
any of the Deeds of Trust securing this Note on the fifth day of each month from
Seafirst Deposit Account No.67525410 or such other Seafirst Deposit Account as
may be authorized in the future. The holder is also authorized to deposit the
advance(s) on this loan, subject to the terms of the loan documents, to Seafirst
Deposit Account No.67525410.
10. SECURITY
This Note is subject to all of the terms and conditions of the Loan
Agreement and is secured by (a)that certain Deed of Trust dated July29, 1993,
executed by Borrower in favor of CHICAGO TITLE INSURANCE COMPANY, for the
benefit of Lender relating to certain real property located in San Joaquin
County, California and Alameda County, California; (b)that certain Deed of Trust
dated August27, 1993, executed by Borrower as successor to Grupe, in favor of
CHICAGO TITLE INSURANCE COMPANY for the benefit of Lender, relating to certain
real property located in Sacramento County, California and Alameda County,
California; (c)that
PAGE 9
<PAGE>
certain Deed of Trust dated as of the date hereof relating to certain real
property located in Maricopa County, Arizona; and (d)such other collateral as
may be granted by Borrower from time to time.
11. CONCERNING ORAL AGREEMENTS
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.
Executed as of the date first above written.
BORROWER: IDS/SHURGARD INCOME GROWTH
PARTNERS L.P. III, a Washington limited
partnership
By: SHURGARD ASSOCIATES LP. III,
a Washington limited partnership,
its sole general partner
By: CHARLES K. BARBO
-----------------------------
Charles K. Barbo,
Its general partner
By: ARTHUR W. BUERK
-----------------------------
Arthur W. Buerk,
Its general partner
By: SHURGARD GENERAL
PARTNER, INC., a Washington
corporation, its general partner
By: CHARLES K. BARBO
-----------------------------
Charles K. Barbo,
Its Chairman
PAGE 10
<PAGE>
BUSINESS LOAN AGREEMENT
PART A
THIS SEAFIRST BUSINESS LOAN AGREEMENT ("Agreement") is made between
SEATTLE-FIRST NATIONAL BANK ("Bank") and IDS/SHURGARD INCOME GROWTH PARTNERS
L.P. III, a Washington limited partnership ("Borrower") with respect to the
following:
1. TERM LOAN. Subject to the terms and conditions of this Agreement, Bank
agrees to lend to Borrower as follows:
a. AMOUNT: The initial outstanding principal amount owing under this
Agreement, prior to any disbursements hereunder, shall be
$8,000,000.00 which constitutes the aggregate outstanding principal
amount, as of the date hereof, of the Prior Notes (as defined
below). Bank agrees, subject to the terms and conditions of this
Agreement, to make further advances under this Agreement from time
to time upon Borrower's written request therefor between the date
of this Agreement and December 31, 1996; PROVIDED HOWEVER, that at
no time may Borrower request an advance hereunder that would cause
the aggregate outstanding principal amount of this loan to exceed
the lesser of $12,500,000 or 50% of the Total Appraised Collateral
Value (as defined below). Bank agrees that the Total Appraised
Collateral Value of the real property covered by the Existing Deeds
of Trust totals $22,525,000 as of the date of this Agreement. This
loan matures on April 1, 2001.
b. INTEREST RATE: As described in the Note (as defined below).
c. REPAYMENT: At the times and in amounts as set forth in the Note.
d. COLLATERAL: This term loan shall be secured by deeds of trust
covering certain real and personal property located in Alameda
County, California; San Joaquin County, California, Sacramento
County,, California (collectively, the "California Deeds of Trust")
and Maricopa County, Arizona (the "Arizona Deed of Trust") all as
described on Schedule attached hereto (collectively, the "Existing
Deeds of Trust") and certain other deeds of trust that may be
granted by Borrower from time to time (collectively the "Future
Deeds of Trust"). The Existing Deeds of Trust and the Future Deeds
of Trust are collectively referred to in this Agreement as the
"Deeds of Trust."
<PAGE>
BUSINESS LOAN AGREEMENT
PART B
1. PROMISSORY NOTE(S). This loan shall be evidenced by the Amended
and Restated Promissory Note dated as of the date hereof in the principal amount
of up to $12,500,000.00 executed by Borrower in favor of Bank (the "Note"). The
Note shall amend, restate, consolidate and replace (without satisfying the
indebtedness evidenced thereby) (a) that certain promissory note in the maximum
principal amount of $4,000,000.00 dated as of July 29, 1993, executed by
Borrower in favor of Bank, as amended by that certain Amendment to Note dated as
of August 27, 1993, by and between Bank and Borrower, and (b) that certain
promissory note in the maximum principal amount of $4,865,000.00 dated as of
September 1, 1993, executed by Borrower and Grcich, et al., a California
partnership, Grupe Storage Investors No. 4, Ltd., a California limited
partnership and Grupe Properties Co., a California corporation (collectively,
"Grupe"), in favor of Bank, as amended by that certain Assignment and Assumption
Agreement dated as of January 9, 1994, by and between Borrower, Grupe and Bank
(the promissory notes referred to in clauses (a) and (b) above are collectively
referred to herein as the "Prior Notes").
2. CONDITIONS TO AVAILABILITY OF FUTURE ADVANCES OF TERM LOAN. This
Agreement shall not become effective and Bank shall not be obligated to
disburse/make any advance, until Borrower complies with all of the following
conditions and Bank receives all of the following documents, each of which must
be in form and substance satisfactory to Bank.
2.1 Original, duly executed Note;
2.2 Original, duly executed and duly recorded Arizona Deed of
Trust and original, duly executed and duly recorded amendments to the California
Deeds of Trust (the "Amendments to Deed of Trust");
2.3 Such evidence as Bank may deem appropriate that the security
interests and liens in favor of Bank are valid, enforceable, perfected and prior
to the rights and interests of others except those consented to in writing by
Bank;
2.4 Evidence that the execution, delivery and performance by
Borrower of this Agreement and the execution, delivery and performance by
Borrower of any instrument or agreement required under this Agreement, as
appropriate, have been duly authorized;
-2-
<PAGE>
2.5 Any other document which is deemed by the Bank to be required
from time to time to evidence loans or to effect the provisions of this
Agreement;
2.6 If requested by Bank, a written legal opinion expressed to
Bank, of counsel for Borrower as to the matters set forth in Sections 3.1 and
3.2, and to the best of such counsel's knowledge after reasonable investigation,
the matters set forth in Sections 3.3, 3.5, 3.6, 3.7 and such other matters as
the Bank may reasonably request;
2.7 Pay or reimburse Bank for any out-of-pocket expenses expended
in making or administering the loans made hereunder including, without
limitation, attorneys' fees (including allocated costs of in-house counsel),
appraisal fees, title insurance premiums and recording fees;
2.8 Other
(a) Borrower shall have paid to Bank a Commitment Fee of
$125,000.00.
(b) Borrower shall have executed and delivered to Bank (1)
a Certificate and Indemnity Agreement Regarding Compliance with Building Laws,
(2) a Certificate and Indemnity Agreement Regarding Hazardous Substances, (3)
such UCC-1 Financing Statements and UCC-3 Change Statements as Bank deems
necessary or desirable to perfect or continue the perfection of all security
Interests granted under any of the Deeds of Trust, and (4) a letter in form and
substance satisfactory to Bank regarding compliance with Americans With
Disabilities Act.
(c) Bank shall have received from Chicago Title Insurance
Company endorsements (or irrevocable commitments to issue endorsements) in form
and substance satisfactory to Bank to the following title insurance policies
(the "Policies") insuring that nothing contained herein or in the Amendments to
Deed of Trust impairs the lien or priority of the California Deeds of Trust:
(i) Policy No. 34868 dated August 4, 1993, (ii) Policy No. 05-0047-02-030916
(Order No. 338026) dated September 1, 1993, and (iii) Policy No. 296015L dated
September 1, 1993.
(d) Bank shall have received an irrevocable commitment to
issue a title insurance policy in form and substance satisfactory to Bank from
Chicago Title Insurance Company insuring that the Arizona Deed of Trust is a
first lien on the real property described therein;
-3-
<PAGE>
(e) Bank shall have received evidence satisfactory to Bank
that all insurance required by any of the Existing Deeds of Trust is in effect.
(f) Bank shall have received a Phase I environmental
assessment in form and substance satisfactory to Bank as to the real property
that is subject to the lien of any of the existing Deeds of Trust (the "Existing
Real Property Collateral").
(g) Bank shall have received appraisals in form and
substance satisfactory to Bank as to each parcel of the Existing Real Property
Collateral.
(h) Borrower and Bank shall have entered into an interest
rate swap agreement, in a notional amount and otherwise in form and substance
satisfactory to Bank.
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants
to Bank as of the date of this Agreement and hereafter so long as credit granted
under this Agreement is available and until full and final payment of all sums
outstanding under this Agreement and the Note that:
3.1 Borrower is duly organized and existing under the laws of the
state of its organization as a limited partnership. Borrower is properly
licensed and in good standing in each state in which Borrower is doing business
and Borrower has qualified under and has complied with, where required, the
fictitious or trade name statutes of each state in which Borrower is doing
business, and Borrower has obtained all necessary government approvals for its
business activities; the execution, delivery and performance of this Agreement
and such notes and other instruments required herein are within Borrower's
partnership powers, have been duly authorized by all necessary partnership
action and are not in conflict with the terms of any charter, bylaw or other
organizational papers of Borrower, and this Agreement, such notes and the loan
documents are the valid and binding obligation of Borrower, enforceable
according to their terms.
3.2 The execution, delivery and performance of this Agreement,
the Note, the Deeds of Trust, the Amendments to Deeds of Trust, and all other
documents executed in connection with or otherwise relating to this Agreement
(collectively, the "Loan Documents") are not in conflict with any law or any
indenture, agreement or undertaking to which Borrower is a party or by which
Borrower is bound or affected;
3.3 Borrower has title to each of the properties and assets as
reflected in its financial statements (except such assets which have been sold
or otherwise disposed of in the ordinary course of business), and no assets or
revenues of the
-4-
<PAGE>
Borrower are subject to any lien except as required or permitted by this
Agreement, disclosed in its financial statements or otherwise previously
disclosed to Bank in writing;
3.4 All financial information, statements as to ownership of
Borrower and all other statements submitted by Borrower to Bank, whether
previously or in the future, are and will be true and correct in all material
respects upon submission, and are and will be complete upon submission insofar
as may be necessary to give Bank a true and accurate knowledge of the subject
matter thereof;
3.5 Borrower has filed all tax returns and reports as required by
law to be filed and has paid all taxes and assessments applicable to Borrower or
its properties which are presently due and payable, except those being contested
in good faith;
3.6 There are no proceedings, litigation or claims (including
unpaid taxes) against Borrower pending or, to the knowledge of the Borrower,
threatened, before any court or government agency, and no ether event has
occurred which may have a material adverse effect on Borrower's financial
condition;
3.7 There is no event which is, or with notice or lapse of time
or both, would be an Event of Default (as defined in Article 7) under this
Agreement.
3.8 Borrower has exercised due diligence in inspecting Borrower's
properties for hazardous wastes and hazardous substances. Except as otherwise
previously disclosed and acknowledged to Bank in writing:
(a) during the period of Borrower's ownership of Borrower's
properties, there has been no use, generation, manufacture, storage, treatment,
disposal, release or threatened release of any hazardous waste or hazardous
substance by any person in, on, under or about any of Borrower's properties;
(b) Borrower has no actual or constructive knowledge that
there has been any use, generation, manufacture, storage, treatment, disposal,
release or threatened release of any hazardous waste or hazardous substance by
any person in, on, under or about any of Borrower's properties by any prior
owner or occupant of any of Borrower's properties; and
(c) Borrower has no actual or constructive notice of any
actual or threatened litigation or claims of any kind by any person relating to
such matters. The terms "hazardous waste(s)," "hazardous substance(s),"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same
-5-
<PAGE>
meanings as set forth in the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq., the
Superfund Amendments and Reauthorization Act of 1986, as amended, Pub. L.
No. 99-499, the Hazardous Materials Transportation Act, as amended, 49 U.S.C.
Section 1801, et seq., the Resource Conservation and Recovery Act, as amended,
49 U.S.C. Section 6901, et seq., or other applicable state or federal laws,
rules or regulations adopted pursuant to any of the foregoing.
3.9 Each chief place of business of Borrower, and the office or
offices where Borrower keeps its records concerning any of the collateral, is
located at: 1201 Third Avenue, Suite 2200, Seattle, Washington 98101.
3.10 Each of the representations and warranties contained in this
Agreement or any other Loan Document shall be true and correct in each case as
if made on and as of the date of any advance under this Agreement, and Borrower
expressly agrees that it shall be an additional event constituting an Event of
Default under the Deeds of Trust if any representation or warranty made
hereunder shall prove to have been incorrect in any material respect when made.
4. AFFIRMATIVE COVENANTS. So long as credit granted under this
Agreement is available and until full and final payment of all sums outstanding
under this Agreement and promissory note(s), Borrower will:
4.1 Use the proceeds of any new advances under this Agreement
exclusively for the payment of certain sums owing to Grupe for the deferred
purchase price on certain parcels of real property that Borrower purchased from
Grupe pursuant to (a) that certain Agreement for Purchase and Sale and Escrow
Instructions dated July 15, 1993, as amended by the First Addendum dated July
29, 1993, and as assigned by the Assignment of Agreement of Purchase and Sale
dated July 29, 1993, and (b) that certain Agreement for Purchase and Sale and
Escrow Instructions dated August 5, 1993, as amended by the First Amendment to
Agreement for Purchase and Sale and Escrow Instructions dated August 27, 1993,
and as assigned by the Assignment of Agreement of Purchase and Sale dated August
27, 1993 (the "Grupe Agreements").
4.2 Maintain an annual Net Operating Income in an amount at least
equal to 2.5 times annual principal and interest payments on debt owed by
Borrower to Bank. The term "Net Operating Income" means, with respect to any
fiscal year, Borrower's projected annual rental income for such fiscal year
minus the sum of Borrower's actual operating expenses for such fiscal year to
date plus projected operating expenses for the remainder of such fiscal year
plus depreciation and amortization for such period;
-6-
<PAGE>
4.3 Maintain a tangible net worth of no less than Borrower's
tangible net worth as reported in Borrower's audited financial statement for the
fiscal year ending December 31, 1993 and as such tangible net worth is reduced
annually by Borrower's reported depreciation, amortization and non-cash expenses
and not permit Borrower's total indebtedness which is not subordinated in a
manner satisfactory to Bank to exceed 50% of Borrower's tangible net worth.
"Tangible net worth" means the excess of total assets over total liabilities
excluding, however, from the determination of total assets (a) all assets which
should be classified as intangible assets, such as goodwill, patents,
trademarks, copyrights, franchises and deferred charges (including unamortized
debt discount and research and development costs); (b) treasury stock; (c) cash
held in a sinking or other similar fund established for the purpose of
redemption or other retirement of capital stock; (d) to the extent not already
deducted from total assets, reserves for depreciation, depletion, obsolescence
or amortization of properties and other reserves or appropriations of retained
earnings which have been or should be established in connection with the
business conducted by the relevant corporation; and (e) any revaluation or other
write-up in book value of assets subsequent to the fiscal year of such
corporation last ended at the date of this Agreement;
4.4 Promptly give written notice to Bank of:
(a) all litigation affecting Borrower where the uninsured
amount is $100,000.00 or more;
(b) any substantial dispute which may exist between
Borrower and any governmental regulatory body or law enforcement authority;
(c) any default or Event of Default (however defined under
this Agreement or any other agreement between Borrower and with Bank or any
other creditor, or any event which, upon notice or lapse of time, or both, would
become an Event of Default; and
(d) any other matter which has resulted or might result in
a material adverse change in Borrower's financial condition or operations;
4.5 Provide or cause to be provided to Bank, as soon as available
but in any event within 60 days following the close of each of Borrower's fiscal
years and within 30 days following the end of each fiscal quarter in a form
satisfactory to Bank (including audited statements if required at any time by
Bank), such financial statements and other information respecting the financial
condition and operations of Borrower as Bank may reasonably request;
-7-
<PAGE>
4.6 Maintain in effect insurance with responsible insurance
companies in such amounts and against such risks as is customarily maintained by
persons engaged in businesses similar to that of Borrower and all policies
covering property given as security for the loans shall have loss payable
clauses in favor of Bank. Borrower agrees to deliver to Bank such evidence of
insurance as Bank may reasonably require and, within thirty (30) days after
notice from Bank, to obtain such additional insurance as Bank may reasonably
request;
4.7 Pay all indebtedness, taxes and other obligations for which
the Borrower is liable or to which its income or property is subject before they
shall become delinquent, except any which is being contested by the Borrower in
good faith;
4.8 Continue to conduct its business as presently constituted,
and will maintain and preserve all rights, privileges and franchises now
enjoyed, conduct Borrower's business in an orderly, efficient and customary
manner, keep all Borrower's properties in good working order and condition and,
from time to time, make all needed repairs, renewals or replacements so that the
efficiency of Borrower's properties shall be fully maintained and preserved;
4.9 Maintain adequate books, accounts and records and prepare all
financial statements required hereunder in accordance with generally accepted
accounting principles and practices consistently applied, and in compliance with
the regulations of any governmental regulatory body having jurisdiction over
Borrower or Borrower's business;
4.10 Permit representatives of Bank to examine the books and
records of Borrower and to examine the collateral of the Borrower at reasonable
times;
4.11 Perform, on request of Bank, such acts as may be necessary or
advisable to perfect any lien or security interest provided for herein or
otherwise carry out the intent of this Agreement;
4.12 Comply with all applicable federal, state and municipal laws,
ordinances, rules and regulations relating to its properties, charters,
businesses and operations, including compliance with all minimum funding and
other requirements related to any of Borrower's employee benefit plans.
4.13 Permit representatives of Bank to enter into Borrower's
properties to inspect and test Borrower's properties as Bank, in its sole
discretion, may deem appropriate to determine Borrower's compliance with section
5.8 of this Agreement; provided, however, that any such inspections and tests
shall be for Bank's sole benefit
-8-
<PAGE>
and shall not be construed to create any responsibility or liability on the part
of Bank to Borrower or to any third party.
5. NEGATIVE COVENANTS. So long as credit granted under this Agreement
is available and until full and final payment of all sums outstanding under this
Agreement and promissory note(s):
5.1 Borrower shall not permit or create any lien or encumbrance
on any of its assets other than liens or encumbrances of the type permitted
under the Deed of Trust nor incur, assume, guaranty, or otherwise become or
remain directly or indirectly liable with respect to any debt of Borrower other
than debt currently due by Borrower at the time of closing of the Loan or
incurred in the ordinary course of its business; PROVIDED, HOWEVER, that
Borrower may create a lien in the pledge real property identified in Schedule II
hereto to secure its obligations under the Grupe Agreements.
5.3 Total debt repayments to partners of Borrower plus
partnership distributions shall not exceed Borrower's net income plus
depreciation, amortization and other non-cash expenses for any calendar quarter.
5.4 Borrower shall not permit the outstanding principal amount of
the loan at any time to exceed 50% of the Total Appraised Collateral Value. As
used in this Agreement, the term "Total Appraised Collateral Value" shall mean
the aggregate value of all real property collateral in which a first lien is
created by any of the Existing Deeds of Trust as determined by MAI Appraisals
and confirmed by Bank's Appraisal Review Department. Borrower may from time to
time execute deeds of trust covering other property securing the obligations
secured by the Existing Deeds of Trust. The value of such future collateral
shall be calculated in the same manner as the Existing Real Property Collateral;
PROVIDED, HOWEVER, that before such future collateral shall be so included,
Borrower shall have satisfied with respect to such future collateral all
conditions set forth in Section 2 relating to the Existing Real Property
Collateral (including, without limitation, the execution of documents relating
to compliance with building laws, hazardous substance indemnities, and UCC
financing statements and the issuance of title insurance policies insuring the
first lien status of such Future Deeds of Trust). If at any time Bank
determines in its reasonable discretion that such loan-to-value ratio exceeds
fifty percent (50%), Borrower shall immediately grant a first priority line on
additional real estate collateral to Bank or prepay the loan to lower the ratio
to fifty percent (50%).
5.5 Borrower will not liquidate or dissolve or enter into any
consolidation, merger, pool, joint venture, syndicate or other combination, or
sell,
-9-
<PAGE>
lease or dispose of Borrower's business assets as a whole or such as in the
opinion of Bank constitutes a substantial portion of Borrower's business or
assets;
5.7 Borrower will not engage in any business activities or
operations substantially different from or unrelated to present business
activities or operations; and
5.8 Borrower, and Borrower's tenants, contractors, agents or
other parties authorized to use any of Borrower's properties, will not use,
generate, manufacture, store, treat, dispose of, or release any hazardous
substance or hazardous waste in, on, under or about any of Borrower's
properties, except as previously disclosed to Bank in writing as provided in
section 3.8; and any such activity shall be conducted in compliance with all
applicable federal, state and local laws, regulations and ordinances, including
without limitation those described in section 3.8;
6. WAIVER, RELEASE AND INDEMNIFICATION. Borrower hereby (a) releases
and waives any claims against Bank for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any of the applicable
federal, state or local laws, regulations or ordinances, including without
limitation those described in section 3.8, and (b) agrees to indemnify and hold
Bank harmless from and against any and all claims, losses, liabilities, damages,
penalties and expenses which Bank may directly or indirectly sustain or suffer
resulting from a breach of (i) any of Borrower's representations and warranties
with respect to hazardous wastes and hazardous substances contained in section
3.8, or (ii) section 5.7. The provisions of this section 6 shall survive the
full and final payment of all sums outstanding under this Agreement and the Note
and shall not be affected by Bank's acquisition of any interest in any of the
Borrower's properties, whether by foreclosure or otherwise.
7. EVENTS OF DEFAULT. The occurrence of any of the following events
("Events of Default") shall terminate any and all obligations on the part of
Bank to make any additional advances under the loan and, at the option of Bank,
shall make all sums of Interest and principal outstanding under the loan
Immediately due and payable, without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor, or other notices or
demands of any kind or character, all of which are waived by Borrower, and Bank
may proceed with collection of such obligations and enforcement and realization
upon all security which it may hold and to the enforcement of all rights
hereunder or at law:
7.1 The Borrower shall fail to pay when due any amount payable by
it hereunder;
-10-
<PAGE>
7.2 Borrower shall fail to comply with the provisions of any
other covenant, obligation or term of this Agreement for a period of fifteen
(15) days after the earlier of written notice thereof shall have been given to
the Borrower by Bank, or Borrower has knowledge of an Event of Default or an
event that can become an Event of Default or Borrower breaks any promise
Borrower has made to Bank, or Borrower fails to perform promptly at the time and
strictly in the manner provided in any other agreement or loan Borrower has with
Bank;
7.3 Borrower shall fail to pay when due any other obligation for
borrowed money, or to perform any term or covenant on its part to be performed
under any agreement relating to such obligation or any such other debt shall be
declared to be due and payable and such failure shall continue after the
applicable grace period;
7.4 Any representation or warranty made by Borrower in this
Agreement or in any other statement to Bank shall prove to have been false or
misleading in any material respect when made;
7.5 Borrower makes an assignment for the benefit of creditors,
files a petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions
to any court for a receiver or trustee for Borrower or any substantial part of
its property, commences any proceeding relating to the arrangement,
readjustment, reorganization or liquidation under any bankruptcy or similar
laws, or if there is commenced against Borrower any such proceedings which
remain undismissed for a period of thirty (30) days, or if Borrower by any act
indicates its consent or acquiescence in any such proceeding or the appointment
of any such trustee or receiver;
7.6 Any judgment attaches against Borrower or any of its
properties for an amount in excess of $50,000 which remains unpaid, unstayed on
appeal, unbonded or undismissed for a period of thirty (30) days;
7.7 Loss of any required government approvals, and/or any
governmental regulatory authority takes or institutes action which, in the
opinion of Bank, will adversely affect Borrower's condition, operations or
ability to repay the loan;
7.8 Failure of Bank to have a legal, valid and binding first lien
on, or a valid and enforceable prior perfected security interest in, any
property covered by any deed of trust or security agreement required under this
Agreement;
7.9 Borrower ceases to exist as a going concern;
-11-
<PAGE>
7.10 Occurrence of an extraordinary situation which gives Bank
reasonable grounds to believe that Borrower may not, or will be unable to,
perform its obligations under this or any other agreement between Bank and
Borrower; or
7.11 Any of the preceding events occur with respect to Borrower of
credit under this Agreement or any of Borrower's partners, or such partner dies
or becomes incompetent.
7.12 Any of the preceding events occur with respect to Shurgard
Storage Centers, Inc. ("SSCI") or SSCI discontinues of property management
services on behalf of Borrower.
8. ARBITRATION.
8.1 At the request of either Bank or Borrower any controversy or
claim between the Bank and Borrower arising from or relating to this Agreement
or any Loan Document executed in connection with this Agreement or arising from
any alleged tort shall be settled by arbitration in King County, Washington.
The United States Arbitration Act will apply to the arbitration proceedings
which will be administered by the American Arbitration Association under its
commercial rules of arbitration except that unless the amount of the claim(s)
being arbitrated exceeds $5,000,000.00, there shall be only one arbitrator. Any
controversy over whether an issue is arbitrable shall be determined by the
arbitrator(s). Judgment upon the arbitration award may be entered in any court
having jurisdiction. The institution and maintenance of any action for judicial
relief or pursuit of a provisional or ancillary remedy shall not constitute a
waiver of the right of either party, including plaintiff, to submit the
controversy or claim to arbitration if such action for judicial relief is
contested.
For purposes of the application of the statute of limitations, the filing
of an arbitration as provided herein is the equivalent of filing a lawsuit and
the arbitrator(s) will have the authority to decide whether any claim or
controversy is barred by the statute of limitations, and if so, to dismiss the
arbitration on that basis. The parties consent to the joinder in the
arbitration proceedings of any guarantor, hypothecator or other party having an
interest related to the claim or controversy being arbitrated.
8.2 Notwithstanding the provisions of Section 8.1, no controversy
or claim shall be submitted to arbitration without the consent of all parties if
at the time of the proposed submission such controversy or claim arises from or
relates to an obligation secured by real property;
-12-
<PAGE>
8.3 No provision of this Section 8 shall limit the right of the
Borrower or the Bank to exercise self-help remedies such as setoff, foreclosure,
or sale of any collateral, or obtaining any ancillary provisional or interim
remedies from a court of competent jurisdiction before, after or during the
pendency of any arbitration proceeding. The exercise of any such remedy does
not waive the right of either party to request arbitration. At Bank's option
foreclosure under any deed of trust may be accomplished by exercise of the power
of sale under the deed of trust or judicial foreclosure as a mortgage.
10. SUCCESSORS; WAIVERS. Notwithstanding the Events of Default above,
this Agreement shall be binding upon and inure to the benefit of Borrower and
Bank, their respective successors and assigns, except that Borrower may not
assign its rights hereunder. No consent or waiver under this Agreement shall be
effective unless in writing and signed by the Bank and shall not waive or affect
any other default, whether prior or subsequent thereto, and whether of the same
or different type. No delay or omission on the part of the Bank in exercising
any right shall operate as a waiver of such right or any other right.
11. COLLECTION ACTIVITIES, LAWSUITS AND GOVERNING LAW. Borrower agrees
to pay Bank all costs and expenses (including reasonable attorneys' fees and the
allocated cost for in-house legal services incurred by Bank) to enforce this
Agreement or any notes or loan documents entered into pursuant to this
Agreement, whether or not suit is instituted. If suit is instituted by Bank to
enforce this Agreement or any of these documents, Borrower consents to the
personal jurisdiction of the courts of the State of Washington and Federal
Courts located in the State of Washington. Borrower further consents to the
venue of this suit being laid in King County, Washington. This Agreement and
any notes and security agreements entered Into pursuant to this Agreement shall
be construed in accordance with the laws of the State of Washington.
12. ADDITIONAL PROVISIONS. Borrower agrees to the following additional
provisions: This Agreement supersedes all oral negotiation or agreements
between Bank and Borrower with respect to the subject matter hereof.
12.1 If any provision of this Agreement is held to be invalid or
unenforceable, then (a) such provision shall be deemed modified if possible, or
if not possible, such provision shall be deemed stricken, and (b) all other
provisions shall remain in full force and effect.
12.2 If the imposition of or any change in any law, rule, or
regulation guideline or the interpretation or application of any thereof by any
court of administrative or governmental authority (including any request or
policy whether or not having the force of law) shall impose or modify any taxes
(except U.S. federal,
-13-
<PAGE>
state or local income or franchise taxes imposed on Bank), reserve requirements,
capital adequacy requirements or other obligations which would: (a) increase
the cost to Bank for extending or maintaining the loans to which this Agreement
relates, (b) reduce the amounts payable to Bank under this Agreement, such notes
and other instruments; or (c) reduce the rate of return on Bank's capital as a
consequence of Bank's obligations with respect to the loan which this Agreement
relates, then Borrower agrees to pay Bank such additional amounts as will
compensate Bank therefor, within five (5) days after Bank's written demand for
such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive, absent manifest error.
12.3 Bank may sell participation in or assign this loan in whole
or in part without notice to Borrower and Bank may provide information regarding
the Borrower and this Agreement to any prospective participant or assignee. If
a participation is sold or the loan is assigned the purchaser will have the
right of setoff against the Borrower and may enforce its interest in the Loan
irrespective of any claims or defenses the Borrower may have against the Bank.
13. NOTICES. Any notices shall be given in writing to the opposite
party's signature below or as that party may otherwise specify in writing.
14. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT,
OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER
WASHINGTON LAW.
THIS BUSINESS LOAN AGREEMENT (Parts A and B) executed by the parties on
March 28, 1994.
BANK:
SEATTLE-FIRST NATIONAL BANK
(Branch or Office)
By
-------------------------
Title:
--------------------
-14-
<PAGE>
BORROWER:
IDS/SHURGARD INCOME GROWTH
PARTNERS L.P. III, a
Washington limited partnership
By Shurgard Associates L,P. III,
a Washington limited partnership,
its sole general partner
By CHARLES K. BARBO
-----------------------------
Its:
-------------------------
-15-
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
RESULTS OF OPERATIONS
From 1993 to 1995, the Partnership's revenue and expenses increased
primarily due to the acquisition of new storage centers and the interest on the
corresponding debt. The Partnership acquired the following storage centers:
Sacramento and San Lorenzo (February 1994); Castro Valley Office Building (May
1994); Castro Valley, Newark, San Leandro and Tracy (August 1993).
The Partnership's rental revenue and earnings from 1994 to 1995
increased 9% and 14%, respectively, resulting from a 10.7% increase in the
average rental rate per square foot. Rate increases were partially offset by a
decline in occupancies from 93% at December 31, 1993 to 90% at December 31, 1994
to 88% at December 31, 1995. Although the average occupancy for the Partnership
has decreased, the Partnership seeks to maximize revenue 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.
Revenue for the three storage centers purchased in 1994 increased 20%
or $156,000 in 1995 over their 1994 results, while comparable operating expenses
increased by 5% or $15,000. These combined to provide a 32% or $141,000
increase in 1995 earnings for these centers compared to their 1994 operating
results. These increases resulted from the additional two months of operations.
Occupancies for these three centers, which averaged 91% during 1994, rose
slightly to an average of 92% during 1995.
Revenue and operating expenses for the four properties purchased in
1993 rose 161% or $1.3 million and 145% or $415,000 from 1993 to 1994,
respectively. These increases reflect the additional seven months of operations
in 1994. Additionally, revenue and expenses increased 8% or $173,000 and 4% or
$26,000 from 1994 to 1995, respectively. This provided a 11% increase in 1995
earnings for these centers compared to 1994. Annual occupancies for these four
centers averaged 91%, 90%, and 91% at December 31, 1993, 1994 and 1995,
respectively.
Storage centers owned prior to 1993 had increased revenue of 14% from
1993 to 1994 and 8% from 1994 to 1995. Operating expenses for these storage
centers increased 8% or $126,000 in 1995 over 1994. The majority of this
increase is due to 1) additional hours worked by managers, 2) higher repair and
maintenance expenses which included retail renovations at the Tucker facility,
and 3) increased store inventory costs. Additionally operating expenses
increased 3% in 1994 over 1993. Annual occupancies for these storage centers
averaged 94% at December 31, 1993, 89% at December 31, 1994, and 85% December
31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
CASH FROM OPERATIONS: Cash from operations increased by $720,300 from
1993 to 1994 and $337,200 from 1994 to 1995, reflecting the increase in
earnings. Management believes that cash balances and cash flow from operations
will be adequate to support the future operating needs of the Partnership.
INVESTING ACTIVITIES: In 1993, the Partnership invested $237,000 in
existing storage centers, including office remodeling at Norcross, Stone
Mountain, Tucker and Forest Park and new signage at Rochester. The Partnership
also purchased four storage centers during the third quarter of 1993 at a total
cost of $13.3 million. The Partnership acquired a security interest in two
additional properties as part of a binding purchase agreement with the same
seller. These two centers were purchased on February 10, 1994, for $5.7
million. All six California properties are subject to similar terms under the
purchase and sales agreements. These agreements provide the Partnership a 10%
return on funds invested for the first
<PAGE>
three years. All of these storage centers are located in northern California,
San Francisco Bay and Sacramento areas and they range in size from 58,000 to
69,000 net rentable square feet. Additionally, in March 1994, the Partnership
purchased an office building from the same seller at a total cost of $500,000.
In 1994, the Partnership invested $157,000 in existing storage centers.
These improvements included new signage at Castro Valley, Newark, San Leandro
and Tracy. Security improvements were also made at the Gilbert Dobson Ranch,
Castro Valley, Newark and Tracy storage centers. As part of Stone Mountain and
Forest Park's original acquisitions, the Partnership acquired undeveloped land
in Atlanta adjacent to each storage center. The Partnership has listed both
parcels with a local real estate broker for resale.
During 1995, the Partnership invested $147,000 in capital improvements
which included pavement work at the Gilbert, Allen Boulevard and Rochester
storage centers, as well as a new perimeter fence at the Windcrest storage
center. Additionally, the septic system at the Delray Beach storage center was
replaced. Planned improvements for 1996 total approximately $188,600 and are
expected to be funded from operations and cash reserves.
FINANCING ACTIVITIES: During 1993, the Partnership issued $10,821,000
of debt in conjunction with the purchase of the six storage centers in the San
Francisco area. This debt was comprised of an $8 million bank note and
$2,821,000 in seller notes. Seller's notes require quarterly interest payments
to the extent any center's net operating income, as defined, exceeds 10% of the
Partnership's investment in the related center. Annual payments are due under
conditions provided in the note agreement based on each center's performance.
During 1994, the Partnership consolidated existing outstanding notes
payable totaling $8 million and borrowed an additional $1.5 million. This new
note matures April 1, 2001 and bears an interest rate of 8% until September
1996, at which time it reprices and can be fixed for various periods at the
Partnership's option. Cash proceeds from the additional borrowing under this
note were used to make $580,000 in payments on the seller's notes taken in 1993
and fund the $500,000 purchase price of the Castro Valley office building. The
terms of this note provide the Partnership the option to borrow up to an
additional $3 million. It may be necessary for the Partnership to borrow under
this provision to meet the future repayment obligations of the seller's notes to
the extent they cannot be funded from operating cash flow. In 1994, the
Partnership made the final payments of $651,000 on the seller's notes that
originated with the purchase of the Tracy and San Leandro storage centers.
In 1995, the Partnership made a $65,347 payment on the seller's note
which originated with the purchase of the Castro Valley storage center as well
as final payment of $615,000 on the seller's note which originated with the
purchase of the Newark storage center. Subsequent to year end, the Partnership
borrowed $600,000 on its bank note to partially fund the final payment of
$909,653 on the seller's note which originated with the purchase of the Castro
Valley storage center and to replenish cash reserves.
DISTRIBUTIONS TO PARTNERS: Annualized distribution rates were 7.5%,
7.125%, and 6.125% for 1995, 1994 and 1993, respectively. Distributions are
expected to continue on a quarterly basis and will reflect the Partnership's
future operating results and cash position.
POTENTIAL TRANSACTION: 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.
<PAGE>
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rental Revenue $ 7,224,762 $ 6,608,932 $ 4,109,845 $ 2,572,560 $ 354,807
- -----------------------------------------------------------------------------------------------------
Interest and Other Income $ 36,378 $ 56,948 $ 230,099 $ 333,318 $ 583,711
- -----------------------------------------------------------------------------------------------------
Earnings $ 1,885,279 $ 1,655,334 $ 1,426,673 $ 1,065,304 $ 607,355
- -----------------------------------------------------------------------------------------------------
Earnings per Unit of Limited
- -----------------------------------------------------------------------------------------------------
Partnership Interest $ 15.02 $ 13.19 $ 11.37 $ 8.98 $ 9.76
- -----------------------------------------------------------------------------------------------------
Distributions to
- -----------------------------------------------------------------------------------------------------
Limited Partners $ 2,235,276 $ 2,123,512 $ 1,825,475 $ 1,555,516 $ 685,323
- -----------------------------------------------------------------------------------------------------
Distributions per Unit of
- -----------------------------------------------------------------------------------------------------
Limited Partnership
- -----------------------------------------------------------------------------------------------------
Interest $ 18.75 $ 17.81 $ 15.31 $ 13.80 $ 11.59
- -----------------------------------------------------------------------------------------------------
Total Assets $ 35,636,187 $36,930,297 $ 36,726,054 $ 26,270,790 $20,319,832
- -----------------------------------------------------------------------------------------------------
Notes Payable $ 10,745,854 $11,619,725 $ 10,821,000 $ -- $ --
- -----------------------------------------------------------------------------------------------------
Partners' Equity $ 24,414,027 $24,881,672 $ 25,461,614 $ 25,956,493 $19,956,835
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Cash and cash equivalents $ 673,130 $ 602,285
- --------------------------------------------------------------------------------
Storage centers, net 34,146,500 35,121,146
- --------------------------------------------------------------------------------
Other assets 250,621 258,242
- --------------------------------------------------------------------------------
Amortizable assets, less accumulated
- --------------------------------------------------------------------------------
amortization of $1,131,762 and $749,074 364,101 746,789
- --------------------------------------------------------------------------------
Land held for resale 201,835 201,835
- --------------------------------------------------------------------------------
Total Assets $ 35,636,187 $ 36,930,297
- --------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' EQUITY (DEFICIT):
- --------------------------------------------------------------------------------
Liabilities:
- --------------------------------------------------------------------------------
Accounts payable and other accrued
- --------------------------------------------------------------------------------
expenses $ 476,306 428,900
- --------------------------------------------------------------------------------
Notes payable 10,745,854 11,619,725
- --------------------------------------------------------------------------------
Total Liabilities 11,222,160 12,048,625
- --------------------------------------------------------------------------------
Partners' equity (deficit):
- --------------------------------------------------------------------------------
Limited partners 24,518,638 24,962,899
- --------------------------------------------------------------------------------
General partner (104,611) (81,227)
- --------------------------------------------------------------------------------
Total Partners' Equity 24,414,027 24,881,672
- --------------------------------------------------------------------------------
Total Liabilities and
- --------------------------------------------------------------------------------
Partners' Equity $ 35,636,187 $ 36,930,297
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31,
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
- --------------------------------------------------------------------------------
Rental $ 7,224,762 $ 6,608,932 $ 4,109,845
- --------------------------------------------------------------------------------
Interest and other income 36,378 56,948 230,099
- --------------------------------------------------------------------------------
Total Revenue 7,261,140 6,665,880 4,339,944
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------
Operating 1,799,970 1,625,933 1,183,446
- --------------------------------------------------------------------------------
Property management fees 433,316 393,684 246,650
- --------------------------------------------------------------------------------
Depreciation 1,122,039 1,052,532 661,921
- --------------------------------------------------------------------------------
Real estate taxes 506,460 504,422 361,790
- --------------------------------------------------------------------------------
Interest 960,964 820,083 122,691
- --------------------------------------------------------------------------------
Amortization 382,688 465,348 211,138
- --------------------------------------------------------------------------------
Administrative 170,424 148,544 125,635
- --------------------------------------------------------------------------------
Total Expenses 5,375,861 5,010,546 2,913,271
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EARNINGS $ 1,885,279 $ 1,655,334 $ 1,426,673
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EARNINGS PER UNIT OF LIMITED
- --------------------------------------------------------------------------------
PARTNERSHIP INTEREST $ 15.02 $ 13.19 $ 11.37
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DISTRIBUTIONS PER UNIT OF LIMITED
- --------------------------------------------------------------------------------
PARTNERSHIP INTEREST $ 18.75 $ 17.81 $ 15.31
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
<PAGE>
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Limited Partners General Partner Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1993 $ 25,983,981 $ (27,488) $ 25,956,493
- --------------------------------------------------------------------------------
Distributions (1,825,475) (96,077) (1,921,552)
- --------------------------------------------------------------------------------
Earnings 1,355,338 71,335 1,426,673
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Balance, December 31, 1993 25,513,844 (52,230) 25,461,614
- --------------------------------------------------------------------------------
Distributions (2,123,512) (111,764) (2,235,276)
- --------------------------------------------------------------------------------
Earnings 1,572,567 82,767 1,655,334
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Balance, December 31, 1994 24,962,899 (81,227) 24,881,672
- --------------------------------------------------------------------------------
Distributions (2,235,276) (117,648) (2,352,924)
- --------------------------------------------------------------------------------
Earnings 1,791,015 94,264 1,885,279
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 $ 24,518,638 $ (104,611) $ 24,414,027
- --------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
- -----------------------------------------------------------------------------------------------------
Earnings $ 1,885,279 $ 1,655,334 $ 1,426,673
- -----------------------------------------------------------------------------------------------------
Adjustments to reconcile earnings
- -----------------------------------------------------------------------------------------------------
to net cash provided by operating activities:
- -----------------------------------------------------------------------------------------------------
Depreciation and amortization 1,504,727 1,517,880 873,059
- -----------------------------------------------------------------------------------------------------
Changes in operating accounts:
- -----------------------------------------------------------------------------------------------------
Other assets 7,621 (50,866) (41,318)
- -----------------------------------------------------------------------------------------------------
Accounts payable and other
- -----------------------------------------------------------------------------------------------------
accrued expenses 47,406 (14,540) 129,143
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,445,033 3,107,808 2, 387,557
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
- -----------------------------------------------------------------------------------------------------
Purchase of and improvements to
- -----------------------------------------------------------------------------------------------------
storage centers (147,393) (588,910) (15,476,979)
- -----------------------------------------------------------------------------------------------------
Consideration for amortizable assets (286,950) (670,804)
- -----------------------------------------------------------------------------------------------------
Net cash used in investing activities (147,393) (875,860) (16,147,783)
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
- -----------------------------------------------------------------------------------------------------
Proceeds from notes payable 9,500,000 8,865,000
- -----------------------------------------------------------------------------------------------------
Payments on notes payable (873,871) (9,375,275) (865,000)
- -----------------------------------------------------------------------------------------------------
Payments of loan costs (242,226) (127,846)
- -----------------------------------------------------------------------------------------------------
Distributions to partners (2,352,924) (2,235,276) (1,921,552)
- -----------------------------------------------------------------------------------------------------
Net cash (used in) provided
- -----------------------------------------------------------------------------------------------------
by financing activities (3,226,795) (2,352,777) 5,950,602
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash
- -----------------------------------------------------------------------------------------------------
equivalents 70,845 (120,829) (7,809,624)
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning
- -----------------------------------------------------------------------------------------------------
of year 602,285 723,114 8,532,738
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 673,130 $ 602,285 $ 723,114
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- -----------------------------------------------------------------------------------------------------
Cash paid during year for interest $ 940,442 $ 776,498 $ 113,247
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
- -----------------------------------------------------------------------------------------------------
Liabilities incurred in connection with the
- -----------------------------------------------------------------------------------------------------
purchase of storage centers $ $ 674,000 $ 2,821,000
- -----------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL: IDS/Shurgard Income Growth Partners L.P. III (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. III, a Washington limited
partnership.
As of December 31, 1995, there were approximately 4,100 limited partners in
the Partnership. There were 119,215 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.
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 primarily of non-
compete covenants and loan costs, are amortized over their expected useful lives
of two 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 accuring for probable
losses, which if any, could be material to the future financial postion or
results of operations at December 31, 1995. 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 (119,215 units for each of the three years ended December 31, 1995).
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 (119,215 units for each of the three years ended December 31,
1995).
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. Assets to be disposed of are reported at the lower of cost or net
realizable value. At December 31, 1995, no assets had been written down.
<PAGE>
NOTE B -- STORAGE CENTERS
Storage centers consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 7,503,081 $ 7,515,406
- --------------------------------------------------------------------------------
Buildings 29,238,967 29,110,884
- --------------------------------------------------------------------------------
Equipment 699,802 668,167
- --------------------------------------------------------------------------------
37,441,850 37,294,457
- --------------------------------------------------------------------------------
Less accumulated depreciation (3,295,350) (2,173,311)
- --------------------------------------------------------------------------------
$ 34,146,500 $ 35,121,146
- --------------------------------------------------------------------------------
</TABLE>
NOTE C -- NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Notes payable to sellers $ 1,583,653 $ 2,264,000
- --------------------------------------------------------------------------------
Note payable to bank 9,162,201 9,355,725
- --------------------------------------------------------------------------------
$ 10,745,854 $ 11,619,725
- --------------------------------------------------------------------------------
</TABLE>
On March 31, 1994, the Partnership consolidated outstanding notes
payable totaling $8 million and borrowed an additional $1.5 million. The new
terms of this note provide the Partnership the option to borrow an additionsl $3
million. This note is secured by real estate and bears interest at 8%. The
note matures April 1, 2001 and requires monthly payments of principal and
interest based on a twenty-year amortization. The note reprices to market every
six months, accordingly, the recorded value approximates fair value.
Notes to sellers, which mature December 31, 1996, are secured by
certain storage centers of the Partnership. The recorded value of these
seller's notes approximates fair value. Annual payments of principal are due 90
days after year end under conditions provided in the note agreement based on
each center's performance. Quarterly interest is payable to the extent any
center's net operating income, as defined, exceeds 10% of the Partnership's
investment in the related center. In 1994 and 1995, the Partnership made
principal payments of $651,000 and $680,347 respectively, on these notes.
Subsequent to year end, the Partnership borrowed $600,000 on its bank note to
partially fund the final payment of $909,653 on the seller's note that
originated with the purchase of the Castro Valley storage center and to
replenish cash reserves. Maturities of notes payable include this final payment
made February 29, 1996.
Maturities of notes payable at December 31, 1995, are as follows:
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------
1996 $ 1,798,135
- --------------------------------------------------------------------------------
1997 233,730
- --------------------------------------------------------------------------------
1998 254,705
- --------------------------------------------------------------------------------
1999 277,563
- --------------------------------------------------------------------------------
2000 302,472
- --------------------------------------------------------------------------------
Thereafter 7,879,249
- --------------------------------------------------------------------------------
$ 10,745,854
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE D -- ACQUISITION
During the years ended December 31, 1993 and 1994, the Partnership
acquired existing storage centers from unaffiliated parties. These acquisitions
were funded through a combination of bank notes, seller notes and cash. Certain
information about these acquisitions is as follows:
<TABLE>
<CAPTION>
PROPERTY ACQUISITION
FACILITY LOCATION PRICE DATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Castro Valley(1) Castro Valley, CA 5,000,000 August, 1993
- --------------------------------------------------------------------------------
Newark(1) Newark, CA 3,340,000 August, 1993
- --------------------------------------------------------------------------------
San Leandro(1) San Leandro, CA 2,671,000 August, 1993
- --------------------------------------------------------------------------------
Tracy(1) Tracy, CA 2,250,000 August, 1993
- --------------------------------------------------------------------------------
Sacramento(1) Sacramento, CA 2,834,000 February, 1994
- --------------------------------------------------------------------------------
San Lorenzo(1) San Lorenzo, CA 2,905,000 February, 1994
- --------------------------------------------------------------------------------
Castro Valley
Office Bldg.(2) Castro Valley, CA 500,000 May, 1994
- --------------------------------------------------------------------------------
</TABLE>
1 These purchases were funded with cash, a $8 million bank note, and
$3.495 million in seller notes.
2 This purchase was funded with cash.
The transactions were accounted for as purchases, and the results of
operations for each of the storage centers from their respective acquisition
date have been included in the financial statements. The general partner
estimates that if these properties had been acquired on January 1, 1994 and
1993, the pro forma combined results of operations for the year would have been
as follows:
<TABLE>
<CAPTION>
(unaudited)
1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Total revenue $ 6,773,234 $ 6,237,005
- --------------------------------------------------------------------------------
Earnings $ 1,613,010 $ 1,331,884
- --------------------------------------------------------------------------------
Earnings per unit of limited
partnership interest $ 12.85 $ 10.61
- --------------------------------------------------------------------------------
</TABLE>
These pro forma operating results include the Partnership's results of
operations, less increased depreciation and amortization on storage centers and
other assets, respectively, and increased interest expense on the bank loans.
The pro forma information does not purport to be indicative of the results
that actually would have been obtained if the combined operations had been
conducted for the full year and is not intended to be a projection of future
results.
NOTE E -- TRANSACTIONS WITH AFFILIATES
In connection with the management of the centers, the Partnership has paid
or accrued 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 the Management Company of Shurgard Incorporated merged with
Shurgard Storage Centers, Inc. Prior to the merger date such fees were paid
to the Management Company of Shurgard Incorporated.
<PAGE>
INDEPENDENT AUDITORS' REPORT
General Partners and Limited Partners
IDS/Shurgard Income Growth Partners L.P. III
Seattle, Washington
We have audited the accompanying balance sheets of IDS/Shurgard Income
Growth Partners L.P. III as of December 31, 1995 and 1994, 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,
1995 and 1994 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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 673,130
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 37,441,850
<DEPRECIATION> 3,295,350
<TOTAL-ASSETS> 35,636,187
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 24,414,027
<TOTAL-LIABILITY-AND-EQUITY> 35,636,187
<SALES> 0
<TOTAL-REVENUES> 7,261,140
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,414,897
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 960,964
<INCOME-PRETAX> 1,885,279
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,885,279
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,885,279
<EPS-PRIMARY> 15.02
<EPS-DILUTED> 15.02
</TABLE>
