FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended June 30, 1996 Commission file number 0-18494
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. II
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1436174
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201-3RD AVENUE, SUITE 2200, SEATTLE, WASHINGTON 98101
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code)206-624-8100
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
PART I ITEM I FINANCIAL STATEMENTS
BALANCE SHEETS
June 30, December 31,
Unaudited 1996 1995
------------- -------------
Assets:
Cash and cash equivalents $ 443,848 $ 455,167
Storage centers, net 24,547,472 24,965,503
Other assets 132,055 155,712
Amortizable assets 73,529 108,977
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Total Assets $ 25,196,904 $25,685,359
============= =============
Liabilities and Partners' Equity (Deficit):
Liabilities
Accounts payable and other accrued expenses $ 249,883 $ 388,930
Accrued transaction costs 204,352
Line of credit 470,000 470,000
Notes payable 2,830,930 2,867,661
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Total Liabilities 3,755,165 3,726,591
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Partners' equity (deficit)
Limited partners 21,649,262 22,140,440
General partner (207,523) (181,672)
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Total Partners' Equity (Deficit) 21,441,739 21,958,768
------------- -------------
Total Liabilities and Partners'
Equity (Deficit) $ 25,196,904 $25,685,359
============= =============
STATEMENTS OF EARNINGS
Three Months Ended June 30,Six Months Ended June 30,
---------------------------------------------------
Unaudited 1996 1995 1996 1995
----------------------- ----------- -----------
Rental Revenue: $1,162,367 $1,050,894 $2,255,157 $2,064,659
Expenses:
Operating and administrative 306,832 284,589 599,900 559,991
Property management fees 69,561 63,088 135,129 123,879
Depreciation 211,854 205,848 428,531 415,166
Real estate taxes 84,221 88,190 173,888 180,558
Amortization 17,724 17,724 35,448 35,449
----------- ----------- ----------- -----------
Total Expenses 690,192 659,439 1,372,896 1,315,043
----------- ----------- ----------- -----------
Earnings From Operations 472,175 391,455 882,261 749,616
----------- ----------- ----------- -----------
Other Income (Expense)
Interest income 4,425 1,732 9,659 3,773
Interest expense (69,458) (70,419) (139,275) (135,522)
Transaction costs (285,182) (285,182)
----------- ----------- ----------- -----------
Total Other Income
(Expenses) (350,215) (68,687) (414,798) (131,749)
----------- ----------- ----------- -----------
Earnings $ 121,960 $ 322,768 $ 467,463 $ 617,867
=========== =========== =========== ===========
Earnings per unit of limited
partnership interest $ 1.01 $ 2.66 $ 3.86 $ 5.10
=========== =========== =========== ===========
Distributions per unit of limited
partnership interest $ 4.06 $ 4.06 $ 8.13 $ 8.13
=========== =========== =========== ===========
STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
-----------------------------
Unaudited 1996 1995
------------- -------------
Operating activities:
Earnings $ 467,463 $ 617,867
Adjustments to reconcile earnings to net cash
provided by operating activities:
Transaction costs 285,182
Depreciation and amortization 463,979 450,615
Changes in operating accounts:
Other assets 23,657 33,631
Accounts payable and other accrued expenses (139,047) (16,483)
------------- -------------
Net cash provided by operating activities 1,101,234 1,085,630
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Investing activities:
Construction of and improvements to storage centers (10,500) (722,275)
------------- -------------
Financing activities:
Proceeds from line of credit 415,000
Payments on notes payable (36,731) (32,205)
Distributions to partners (984,492) (984,492)
Payment of transaction costs (80,830)
------------- -------------
Net cash used in financing activities (1,102,053) (601,697)
------------- -------------
Decrease in cash and cash equivalents (11,319) (238,342)
Cash and cash equivalents at beginning of year 455,167 384,867
------------- -------------
Cash and cash equivalents at end of period $ 443,848 $ 146,525
============= =============
Supplemental disclosures of cash flow information:
Cash paid during period for interest $ 139,275 $ 135,522
============= =============
NOTES TO FINANCIAL STATEMENTS
Note A -- Financial Statements Preparation
The interim financial statements are unaudited but reflect all
adjustments that are, in the opinion of management, necessary to a
fair statement of the results for the interim periods presented.
These adjustments consist primarily of normal recurring accruals.
The interim financial statements should be read in conjunction with
the audited financial statements contained in the 1995 Annual
Report. The results of operations for interim periods will not
necessarily be indicative of the operating results for the fiscal
year.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
revenue and expenses during the reporting period. Actual results
can differ from those estimates.
Distributions and earnings per unit of limited partnership
interest are based on the total amounts distributed and allocated
to limited partners divided by the number of units outstanding
during the period (115,110 for the three and six months ended June
30, 1996 and 1995).
PART 1, ITEM 2 MANAGEMENTS' DISCUSSION AND ANALYSIS
The Partnership's rental revenue for the three and six months
ended June 30, 1996 increased $111,500 and $190,500, respectively,
compared to the same periods in 1995. Additionally, earnings from
operations also increased for the three and six months ended June
30, 1996, $80,700 and $132,600, respectively, compared to the same
periods in 1995. These increases resulted primarily from a 5.5%
increase in the average rental rate per square foot as well as the
increase in revenue from storage center expansions. Chesapeake,
Sterling Heights and T.C. Jester storage centers contributed the
largest revenue gains in the Partnership. Occupancies for the
Partnership remained stable at an average 94% at June 30, 1996 and
1995.
Total expenses for the three and six months ended June 30, 1996
rose 4.7% and 4.4% respectively, compared to the same periods in
1995. Operating and administrative expenses for the three and six
months ended June 30, 1996 increased 7.8% and 7.1% respectively,
compared to the same periods in 1995, primarily due to increased
personnel costs due to additional hours worked by store managers
and increased salaries. Additionally, real estate taxes decreased
by 4.5% and 3.7% for the three and six months ended June 30, 1996,
respectively, compared to the same periods in 1995, largely due to
a lower tax assessment at the Orange storage center.
Capital improvements for the six months ended June 30 , 1996
totaled $10,500 which included pavement work at the Chesapeake and
Kennydale storage centers.
On July 1, 1996, the Partnership entered into a merger
agreement with Shurgard Storage Centers, Inc. (SSCI) and two
affiliated Partnerships whereby: A) SSCI would commence a cash
tender offer for up to 49,000 Units of the Partnership and B)
following completion of the tender offer, the Partnership would
seek the requisite approval by the limited partners to merge into
SSCI. Upon consummation of the merger all limited partners would
receive stock in SSCI.
In connection with this transaction, the Partnership is
expected to incur approximately $630,100 in costs. As of June 30,
1996, transaction costs totaling approximately $285,200 have been
posted as expenses on the Partnership's books (of which
approximately $80,800 has already been paid). In the event that the
merger is not consummated, the Partnership will bear certain
expenses as defined in the merger agreement.
Due to this transaction, Partnership distributions have been
temporarily suspended. Upon completion of the merger, the
Partnership will make a final cash distribution equal to the
amount, if any, by which the Partnership's closing net asset value
exceeds its net asset value as defined in the merger agreement.
This distribution will be received only by those who were partners
immediately prior to the merger.
PART II, ITEM 1 LEGAL PROCEEDINGS
On July 16, 1996, Irving and Roberta B. Schuman filed a
purported class and derivative action complaint in the Superior
Court of the State of Washington, King County naming the Shurgard
REIT, the General Partner of the Partnership, and certain other
individuals and entities as defendants and the Partnership as a
nominal defendant.
In the complaint, the plaintiffs asserted claims for breach of
fiduciary duty, aiding and abetting a breach of fiduciary duty,
breach of contract and fraud against each of the defendants. The
plaintiffs seek monetary damages and equitable relief, including an
order enjoining the consummation of the Shurgard REIT's tender
offer for units of the Partnership (the Offer), or alternatively,
an order requiring the defendants to issue disclosures to correct
allegedly false and misleading statements and omissions of material
facts in all documents prepared, filed with the SEC, issued or
disseminated to the Limited Partners of the Partnership by the
defendants in connection with the Offer. The defendants believe
the lawsuit is without merit and intend to vigorously defend it.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IDS/SHURGARD INCOME GROWTH PARTNERS L.P. II
Date: August 12, 1996 By:HARRELL BECK
--------------------------------------
Harrell Beck
Treasurer and Authorized Signatory
Shurgard General Partner, Inc.
General Partner