FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from________to________
Commission file number 0-17646
UNITED INVESTORS INCOME PROPERTIES
(Exact name of small business issuer as specified in its charter)
Missouri 43-1483942
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
UNITED INVESTORS INCOME PROPERTIES
BALANCE SHEET
(Unaudited)
September 30, 1998
(in thousands, except unit data)
Assets
Cash and cash equivalents $ 883
Receivables and deposits 193
Other assets 71
Investment properties:
Land $ 1,862
Buildings and related personal property 10,622
12,484
Less accumulated depreciation (3,298) 9,186
Investment in joint venture 634
$10,967
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 15
Tenant security deposit liabilities 58
Accrued property taxes 28
Other liabilities 39
Partners' Capital (Deficit)
General partner's $ (25)
Limited partners' (61,063 units 10,852 10,827
issued and outstanding)
$10,967
See Accompanying Notes to Financial Statements
b)
UNITED INVESTORS INCOME PROPERTIES
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Revenues
Rental income $ 445 $ 444 $1,321 $1,284
Other income 29 25 89 76
Total revenues 474 469 1,410 1,360
Expenses:
Operating 94 190 516 536
General and administrative 20 23 65 64
Depreciation 102 98 300 286
Property taxes 38 35 112 118
Total expenses 254 346 993 1,004
Equity in income of
joint venture 7 4 15 17
Net income $ 227 $ 127 $ 432 $ 373
Net income allocated to
general partner (1%) $ 2 $ 1 $ 4 $ 4
Net income allocated to
limited partners (99%) 225 126 428 369
$ 227 $ 127 $ 432 $ 373
Net income per
partnership unit $ 3.68 $ 2.06 $ 7.01 $ 6.04
Distributions per limited
partnership unit $ 2.50 $ 2.50 $ 7.50 $ 7.50
See Accompanying Notes to Financial Statements
c)
UNITED INVESTORS INCOME PROPERTIES
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original capital contributions 61,063 $ -- $15,266 $15,266
Partners' (deficit) capital at
December 31, 1997 61,063 $ (24) $10,881 $10,857
Partners' distributions -- (5) (457) (462)
Net income for the nine months
ended September 30, 1998 -- 4 428 432
Partners' (deficit) capital at
September 30, 1998 61,063 $ (25) $10,852 $10,827
See Accompanying Notes to Financial Statements
d)
UNITED INVESTORS INCOME PROPERTIES
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1998 1997
Cash flows from operating activities:
Net income $ 432 $ 373
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in net income of joint venture (15) (17)
Depreciation 300 286
Amortization of lease commissions 5 5
Change in accounts:
Receivables and deposits (37) (87)
Other assets 19 15
Accounts payable 3 3
Tenant security deposit liabilities 7 4
Accrued property taxes 28 32
Other liabilities (7) 13
Net cash provided by operating activities 735 627
Cash flows from investing activities:
Property improvements and replacements (118) (139)
Distributions from joint venture -- 65
Net cash used in investing activities (118) (74)
Cash flows from financing activities:
Partners' distributions (462) (462)
Net cash used in financing activities (462) (462)
Net increase in cash and cash equivalents 155 91
Cash and cash equivalents at beginning of period 728 633
Cash and cash equivalents at end of period $ 883 $ 724
See Accompanying Notes to Financial Statements
e)
UNITED INVESTORS INCOME PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of United Investors Income
Properties (the "Partnership") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b)of Regulation S-B. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of United Investors Real Estate, Inc. (the "General Partner"), a
Delaware corporation, a wholly-owned subsidiary of Insignia Properties Trust
("IPT") (see "Note E") all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine month periods ended September 30, 1998, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Partnership's annual report on
Form 10-KSB for the fiscal year ended December 31, 1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
NOTE B - INVESTMENT IN JOINT VENTURE
The Partnership owns a 35% interest in Corinth Square ("Corinth"), a joint
venture with United Investors Income Properties II, an affiliated partnership in
which the General Partner is also the sole general partner. The joint venture
owns a 24,000 square foot medical office building located in Prairie Village,
Kansas. The Partnership reflects its interest in its joint venture property
utilizing the equity method (see "Note D").
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
Affiliates of the General Partner provide property management and asset
management services to the Partnership. The partnership agreement provides for
payments to affiliates for property management services based on a percentage of
revenue and for reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
The following payments were made to affiliates of the General Partner for the
nine months ended September 30, 1998 and 1997:
1998 1997
(in thousands)
Property management fees (included in operating
expenses) $ 67 $ 64
Reimbursement for services of affiliates (included in
general and administrative and operating expenses) 28 30
For the period from January 1, 1997, to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
General Partner with an insurer unaffiliated with the General Partner. An
affiliate of the General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the master policy. The agent assumed the financial
obligations to the affiliate of the General Partner which received payments on
these obligations from the agent. The amount of the Partnership's insurance
premiums that accrued to the benefit of the affiliate of the General Partner by
virtue of the agent's obligations was not significant.
NOTE D - INVESTMENT IN CORINTH SQUARE JOINT VENTURE
The Partnership owns a 35% interest in Corinth, a joint venture with United
Investors Income Properties II, an affiliated partnership, in which the General
Partner is also the sole general partner. Corinth is accounted for using the
equity method of accounting (see "Note B").
The condensed balance sheet of Corinth at September 30, 1998, is summarized as
follows (in thousands):
Assets
Commercial property, net $1,722
Other assets 142
Total $1,864
Liabilities and Partners' Capital
Liabilities $ 53
Partners' capital 1,811
Total $1,864
Condensed statements of operations of Corinth for the nine months ended
September 30, 1998 and 1997, are as follows (in thousands):
1998 1997
Revenue $ 283 $ 256
Costs and expenses 241 207
Net income $ 42 $ 49
NOTE E - TRANSFER OF CONTROL; SUBSEQUENT EVENT
On October 1, 1998, Insignia Financial Group, Inc. completed its merger with and
into Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result of the Insignia Merger, AIMCO acquired control
of the General Partner. In addition, AIMCO also acquired approximately 51% of
the outstanding common shares of beneficial interest of Insignia Properties
Trust ("IPT"), the sole shareholder of the General Partner of the Partnership.
Also, effective October 1, 1998, IPT and AIMCO entered into an Agreement and
plan of Merger pursuant to which IPT is to be merged with and into AIMCO or a
subsidiary of AIMCO (the "IPT Merger"). The IPT Merger requires the approval of
the holders of a majority of the outstanding IPT Shares. AIMCO has agreed to
vote all of the IPT Shares owned by it in favor of the IPT Merger and has
granted an irrevocable limited proxy to unaffiliated representatives of IPT to
vote the IPT Shares acquired by AIMCO and its subsidiaries in favor of the IPT
Merger. As a result of AIMCO's ownership and its agreement, the vote of no
other holder of IPT is required to approve the merger. The General Partner
does not believe that this transaction will have a material effect on the
affairs and operations of the Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of three apartment complexes and
a commercial office building. The following table sets forth the average
occupancy of the properties for each of the nine month periods ended September
30, 1998 and 1997:
Average Occupancy
Property 1998 1997
Bronson Place Apartments
Mountlake Terrace, Washington 95% 96%
Meadow Wood Apartments
Medford, Oregon 90% 92%
Defoors Crossing Apartments
Atlanta, Georgia 92% 94%
Peachtree Corners Medical Building
Atlanta, Georgia 74% 74%
The Partnership realized net income of $432,000 for the nine month period ended
September 30, 1998, compared to net income of $373,000 for the nine month period
ended September 30, 1997. The Partnership's net income for the three months
ended September 30, 1998 was approximately $227,000 compared to net income of
approximately $127,000 for the three months ended September 30, 1997. The
increase in net income for the comparable nine month periods is primarily
attributable to increased rental income and decreased operating expenses.
Rental income increased primarily due to rental rate increases at Bronson Place,
which were partially offset by reduced rental revenue at DeFoors Crossing and
Peachtree Corners. The decrease in operating expenses is primarily due to
approximately $119,000 of insurance proceeds received as a result of storm
damage during the second quarter at Peachtree Corners. This was partially
offset by approximately $92,000 of related insurance damage expenses incurred
during the first nine months of 1998. All storm damages had been repaired and
all insurance proceeds received as of September 30, 1998.
Included in operating expenses are approximately $28,000 and $10,000 of major
repairs and maintenance for the nine months ending September 30, 1998 and 1997,
respectively. The major repairs and maintenance items for 1998 are comprised
primarily of deck repairs and landscaping. The 1997 major repairs and
maintenance items are comprised primarily of exterior building repairs and
swimming pool repairs.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment properties to assess
the feasibility of increasing rents, maintaining or increasing occupancy levels
and protecting the Partnership from increases in expenses. As part of this plan,
the General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. Due to changing market conditions, which can
result in the use of rental concessions and rental reductions to offset
softening market conditions, there is no guarantee that the General Partner will
be able to sustain such a plan.
At September 30, 1998, the Partnership had cash and cash equivalents of
approximately $883,000 compared to approximately $724,000 at September 30, 1997.
The net increase in cash and cash equivalents for the nine month period ended
September 30, 1998 was $155,000 compared to $91,000 for the nine month period
ended September 30, 1997. Net cash provided by operating activities increased
primarily due to the increased net income for the nine month period ended
September 30, 1998, as discussed above. In addition, cash used for receivables
and deposits decreased for the nine months ended September 30, 1998. Net cash
used in investing activities increased primarily due to a lack of distributions
from the joint venture during 1998. Net cash used in financing activities
remained constant.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
federal, state and local legal and regulatory requirements. Such assets are
currently thought to be sufficient for any near-term needs of the Partnership.
The General Partner is currently assessing the need for capital improvements at
each of the Partnership's properties. To the extent that additional capital
improvements are required, the Partnership's distributable cash flow, if any,
may be adversely affected, at least in the short term. Distributions to
partners of $462,000 were made during the nine month periods ended September 30,
1998 and 1997. Future cash distributions will depend on the levels of net cash
generated from operations, property sales and the availability of cash reserves.
The Partnership's future distribution policy will be reviewed on a quarterly
basis. There can be no assurance that the Partnership will make further cash
distributions in 1998 or any future years.
Transfer of Control; Subsequent Event
On October 1, 1998, Insignia Financial Group, Inc. completed its merger with and
into Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result of the Insignia Merger, AIMCO acquired control
of the General Partner. In addition, AIMCO also acquired approximately 51% of
the outstanding common shares of beneficial interest of Insignia Properties
Trust ("IPT"), the sole shareholder of the General Partner. Also, effective
October 1, 1998, IPT and AIMCO entered into an Agreement and plan of Merger
pursuant to which IPT is to be merged with and into AIMCO or a subsidiary of
AIMCO (the "IPT Merger"). The IPT Merger requires the approval of the holders
of a majority of the outstanding IPT Shares. AIMCO has agreed to vote all of
the IPT Shares owned by it in favor of the IPT Merger and has granted an
irrevocable limited proxy to unaffiliated representatives of IPT to vote the
IPT Shares acquired by AIMCO and its subsidiaries in favor of the IPT Merger.
As a result of AIMCO's ownership and its agreement, the vote of no other
holder of IPT is required to approve the merger. The General Partner does
not believe that this transaction will have a material effect on the affairs and
operations of the Partnership.
Year 2000
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Partnership is
dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any computer programs or hardware
that have date-sensitive software or embedded chips may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Managing Agent has determined that it will be required to modify or replace
significant portions of its software and certain hardware so that those systems
will properly utilize dates beyond December 31, 1999. The Managing Agent
presently believes that with modifications or replacements of existing software
and certain hardware, the Year 2000 Issue can be mitigated. However, if such
modifications and replacements are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Managing
Agent and the Partnership.
Status of Progress in Becoming Year 2000 Compliant
The Managing Agent's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing and implementation. To date, the
Managing Agent has fully completed its assessment of all information systems
that could be significantly affected by the Year 2000, and has begun the
remediation, testing and implementation phase on both hardware and software
systems. Assessments are continuing in regards to embedded systems in operating
equipment. The Managing Agent anticipates having all phases complete by June 1,
1999.
In addition to the areas the Partnership is relying on the Managing Agent to
verify compliance with, the Partnership has certain operating equipment,
primarily at the property sites, which needed to be evaluated for Year 2000
compliance. The focus of the General Partner was to the security systems,
elevators, heating-ventilation-air-conditioning systems, telephone systems and
switches, and sprinkler systems. The General Partner is currently engaged in the
identification of all non-compliant operational systems, and is in the process
of estimating the costs associated with any potential modifications or
replacements needed to such systems in order for them to be Year 2000 compliant.
It is not expected that such costs would have a material adverse effect upon
the operations of the Partnership.
Risk Associated with the Year 2000
The General Partner believes that the Managing Agent has an effective program in
place to resolve the Year 2000 issue in a timely manner and has appropriate
contingency plans in place for critical applications that could affect the
Partnership's operations. To date, the General Partner is not aware of any
external agent with a Year 2000 issue that would materially impact the
Partnership's results of operations, liquidity or capital resources. However,
the General Partner has no means of ensuring that external agents will be Year
2000 compliant. The General Partner does not believe that the inability of
external agents to complete their Year 2000 resolution process in a timely
manner will have a material impact on the financial position or results of
operations of the Partnership. However, the effect of non-compliance by
external agents is not readily determinable.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date of
this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27 - Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K:
A Form 8-K dated September 23, 1998 (amended October 27, 1998) was
filed reporting the change in the Partnership's accounatants.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNITED INVESTORS INCOME PROPERTIES
By: United Investors Real Estate, Inc.
Its General Partner
By: /s/Patrick Foye
Patrick Foye
Executive Vice President
By: /s/Timothy R. Garrick
Timothy R. Garrick
Vice President - Accounting
(Duly Authorized Officer)
Date: November 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
United Investors Income Properties 1998 Third Quarter 10-QSB and is
qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000830056
<NAME> UNITED INVESTORS INCOME PROPERTIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 883
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,484
<DEPRECIATION> 3,284
<TOTAL-ASSETS> 10,967
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 10,827
<TOTAL-LIABILITY-AND-EQUITY> 10,967
<SALES> 0
<TOTAL-REVENUES> 1,410
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 993
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 432
<EPS-PRIMARY> 7.01<F2>
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<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
