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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 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 (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO 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)
(in thousands, except unit data)
September 30, 1999
Assets
Cash and cash equivalents $ 1,262
Receivables and deposits 184
Other assets 103
Investment properties:
Land $ 1,862
Buildings and related personal property 10,165
12,027
Less accumulated depreciation (3,707) 8,320
Investment in joint venture 632
$ 10,501
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 16
Tenant security deposit liabilities 59
Accrued property taxes 34
Distribution payable 730
Other liabilities 51
Partners' (Deficit) Capital
General partner $ (36)
Limited partners (61,063 units
issued and outstanding) 9,647 9,611
$ 10,501
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,
1999 1998 1999 1998
Revenues:
Rental income $ 475 $ 445 $ 1,379 $ 1,321
Other income 35 29 107 89
Total revenues 510 474 1,486 1,410
Expenses:
Operating 209 94 534 516
General and administrative 49 20 135 65
Depreciation 103 102 307 300
Property taxes 14 38 89 112
Impairment loss on property held
for investment ("Note F") 600 -- 600 --
Total expenses 975 254 1,665 993
Equity in income of joint venture 7 7 22 15
Net (loss) income $ (458) $ 227 $ (157) $ 432
Net (loss) income allocated
to general partner (1%) $ (5) $ 2 $ (2) $ 4
Net (loss) income allocated
to limited partners (99%) (453) 225 (155) 428
$ (458) $ 227 $ (157) $ 432
Net (loss) income per limited
partnership unit $ (7.42) $ 3.68 $ (2.54) $ 7.01
Distributions per limited
partnership unit $ 11.84 $ 2.50 $ 16.83 $ 7.50
See Accompanying Notes to Financial Statements
c)
UNITED INVESTORS INCOME PROPERTIES
STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 61,063 $ -- $15,266 $10,266
Partners' (deficit) capital at
December 31, 1998 61,063 $ (24) $10,830 $10,806
Distributions to partners -- (10) (1,028) (1,038)
Net loss for the nine months
ended September 30, 1999 -- (2) (155) (157)
Partners' (deficit) capital
at September 30, 1999 61,063 $ (36) $ 9,647 $ 9,611
See Accompanying Notes to Financial Statements
d)
UNITED INVESTORS INCOME PROPERTIES
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities:
Net (loss) income $ (157) $ 432
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Equity in net income of joint venture (22) (15)
Depreciation 307 300
Impairment loss on property held for investment 600 --
Amortization of lease commissions 5 5
Change in accounts:
Receivables and deposits (10) (37)
Other assets (18) 19
Accounts payable (9) 3
Tenant security deposit liabilities -- 7
Accrued property taxes 27 28
Other liabilities 4 (7)
Net cash provided by operating activities 727 735
Cash flows used in investing activities:
Property improvements and replacements (114) (118)
Distributions from joint venture 29 --
Net cash used in investing activities (85) (118)
Cash flows used in financing activities:
Distributions to partners (308) (462)
Net increase in cash and cash equivalents 334 155
Cash and cash equivalents at beginning of period 928 728
Cash and cash equivalents at end of period $ 1,262 $ 883
Supplemental disclosure of non-cash financing activity:
Distribution payable $ 730 $ --
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" or "Registrant") 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, 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, 1999, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1999. 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, 1998.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged 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, AIMCO acquired 100% ownership interest in
the General Partner. The General Partner does not believe that this transaction
will have a material effect on the affairs and operations of the Partnership.
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.
The Partnership Agreement provides for payments to affiliates for services 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 during the nine month periods ended September 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expenses) $ 67 $ 67
Reimbursement for services of affiliates (included in
general and administrative expenses) 28 28
During the nine months ended September 30, 1999 and 1998, affiliates of the
General Partner were entitled to receive 5% of gross receipts from all of the
Partnership's residential properties as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$67,000 and $63,000 for the nine months ended September 30, 1999 and 1998,
respectively. During the nine months ended September 30, 1998, affiliates of
the General Partner were entitled to varying percentages of gross receipts from
the Partnership's commercial property as compensation for providing management
services. These services were performed by affiliates of the General Partner
for the nine months ended September 30, 1998, and were approximately $4,000.
Effective October 1, 1998 (the effective date of the Insignia Merger), these
services for the commercial property were provided by an unrelated party.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $28,000 for both of the nine
month periods ended September 30, 1999 and 1998.
On May 19, 1999, AIMCO Properties, L.P., an affiliate of the General Partner,
commenced a tender offer to purchase up to 27,055.18 (approximately 44.31% of
the total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $163 per unit. The offer expired on July
30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 6,539.00 units.
As a result, AIMCO and its affiliates currently own 11,511.00 units of limited
partnership interest in the Partnership representing approximately 18.85% of the
total outstanding units. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO.
NOTE D - INVESTMENT IN CORINTH SQUARE 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, whereby the original investment is increased by
advances to the joint venture and by the Partnership's share of the earnings of
the joint venture. The investment is decreased by distributions from the joint
venture and by the Partnership's share of losses of the joint venture.
The consolidated balance sheet of Corinth Square at September 30, 1999, is
summarized as follows (in thousands):
Assets
Commercial property, net $1,705
Other assets 154
Total $1,859
Liabilities and Partners' Capital
Liabilities $ 53
Partners' capital 1,806
Total $1,859
Condensed statements of operations of Corinth Square for the nine months ended
September 30, 1999 and 1998, are as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenue $ 96 $ 95 $ 301 $ 283
Costs and expenses 76 75 238 241
Net income $ 20 $ 20 $ 63 $ 42
NOTE E - DISTRIBUTIONS
During the nine months ended September 30, 1999, the Partnership distributed
cash generated from operations of approximately $308,000 (approximately $305,000
to the limited partners or $4.99 per limited partnership unit). Subsequent to
September 30, 1999, the Partnership paid a distribution of cash generated from
operations of approximately $730,000 (approximately $723,000 to the limited
partners or $11.84 per limited partnership unit) which was approved and accrued
during the nine months ended September 30, 1999. During the nine months ended
September 30, 1998, the Partnership made distributions of cash generated from
operations of approximately $462,000 (approximately $457,000 to the limited
partners or $7.50 per limited partnership unit).
NOTE F - IMPAIRMENT LOSS ON PROPERTY HELD FOR INVESTMENT
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", the Partnership records impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets might
be impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. During the three
months ended September 30, 1999, the Partnership determined that Peachtree
Corners Medical Building located in Atlanta, Georgia, with a carrying value of
approximately $1,451,000, was impaired and its value was written down by
approximately $600,000 to reflect its fair value at September 30, 1999 of
approximately $851,000. The fair value was based upon current economic
conditions and projected future operational cash flows. The property is under
contract for sale. The sale, which is subject to the purchaser's due diligence
and other customary conditions, is expected to close during the fourth quarter
of 1999. However, there can be no assurance that the sale will be consummated.
NOTE G - SEGMENT REPORTING
The Partnership has two reportable segments: residential properties and
commercial properties. The Partnership's residential segment consists of three
apartment complexes located in Mountlake Terrace, Washington; Atlanta, Georgia
and Medford, Oregon. The Partnership rents apartment units to tenants for terms
that are typically twelve months or less. The commercial property segment
consists of a medical complex located in Atlanta, Georgia. This property leases
space to various medical practices at terms that range from seven to ten years.
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segments are the same as those of the Partnership as
described in the Partnership's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
The Partnership's reportable segments are investment properties that offer
different products and services. The reportable segments are each managed
separately because they provide distinct services with different types of
products and customers.
Segment information for the nine month periods ended September 30, 1999 and
1998, is shown in the tables below (in thousands). The "Other" column includes
Partnership administration related items and income and expense not allocated to
the reportable segments.
1999 Residential Commercial Other Totals
Rental income $ 1,258 $ 121 $ -- $ 1,379
Other income 88 -- 19 107
Depreciation 259 48 -- 307
General and administrative expense -- -- 135 135
Impairment loss on property held
for investment -- 600 -- 600
Equity in income of joint venture -- -- 22 22
Segment profit (loss) 523 (586) (94) (157)
Total assets 8,297 998 1,206 10,501
Capital expenditures for
investment properties 114 -- -- 114
1998 Residential Commercial Other Totals
Rental income $ 1,188 $ 133 $ -- $ 1,321
Other income 66 1 22 89
Depreciation 252 48 -- 300
General and administrative expense -- -- 65 65
Equity in income of joint venture -- -- 15 15
Segment profit (loss) 407 53 (28) 432
Total assets 8,014 1,702 1,251 10,967
Capital expenditures for
investment properties 99 19 -- 118
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operations. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
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 months ended September 30, 1999
and 1998:
Average Occupancy
Property 1999 1998
Bronson Place Apartments 94% 95%
Mountlake Terrace, Washington
Meadow Wood Apartments 93% 90%
Medford, Oregon
Defoors Crossing Apartments 95% 92%
Atlanta, Georgia
Peachtree Corners Medical Building 74% 74%
Atlanta, Georgia
The General Partner attributes the increased occupancy at Meadow Wood and
Defoors Crossing Apartments to improved market conditions and increased
marketing efforts.
Results of Operations
The Partnership realized a net loss of approximately $157,000 for the nine
months ended September 30, 1999, compared to net income of approximately
$432,000 for the nine months ended September 30, 1998. The Partnership's net
loss for the three months ended September 30, 1999, was approximately $458,000
compared to net income of approximately $227,000 for the three months ended
September 30, 1998. The decrease in net income for the three and nine month
periods ended September 30, 1999 is primarily due to an increase in total
expenses due to an impairment loss realized at Peachtree Corners Medical
Building as discussed below. Excluding the impact of the impairment loss, net
income increased approximately $11,000 for the nine months ended September 30,
1999 and decreased approximately $85,000 for the three months ended September
30, 1999 as compared to the corresponding periods in 1998. The increase in net
income for the nine months ended September 30, 1999 was due to an increase in
total revenues, partially offset by an increase in total expenses. The decrease
in net income for the three months ended September 30, 1999 is due to an
increase in total expenses, partially offset by an increase in total revenue.
The increase in total revenue for both the three and nine month periods ended
September 30, 1999 was due to increased rental income and increased other
income. Rental income increased primarily due to increased average rental rates
at all of the Partnership's properties and improved occupancy at Meadow Wood and
Defoors Crossing Apartments which more than offset the decrease in occupancy at
Bronson Place Apartments. These increases were partially offset by reduced
expense recoveries from the tenants at Peachtree Corners. The increase in other
income is primarily due to increased tenant charges at Bronson Place and Meadow
Wood Apartments.
Total expenses increased for the nine months ended September 30, 1999 primarily
due to increased general and administrative expenses partially offset by
decreased property tax expense. General and administrative expense increased
for the three and nine months ended September 30, 1999, due to an increase in
professional fees related to the oversight of the Partnership. Included in
general and administrative expenses are reimbursements to the General Partner
allowed under the Partnership Agreement associated with its management of the
Partnership. Costs associated with the quarterly and annual communications with
investors and regulatory agencies and the annual audit required by the
Partnership Agreement are also included. Property tax expense decreased for
the three and nine month periods ended September 30, 1999 due to a tax refund
received by Meadow Wood Apartments.
Total expenses increased for the three months ended September 30, 1999 due to
increased operating expense and general and administrative expense, partially
offset by decreased property tax expense. Operating expense increased primarily
due to the receipt of insurance proceeds during 1998 for renovations necessary
as a result of storm damage incurred during the second quarter of 1998. In
addition, utility expenses increased primarily at Defoors Crossing.
During the three months ended September 30, 1999, the Partnership determined
that the Peachtree Corners Medical Building located in Atlanta, Georgia, with a
carrying value of approximately $1,451,000, was impaired and its value was
written down by approximately $600,000. The fair value was based upon current
economic conditions and projected future operational cash flows. The property
is under contract for sale. The sale, which is subject to the purchaser's due
diligence and other customary conditions, is expected to close during the fourth
quarter of 1999. However, there can be no assurance that the sale will be
consummated.
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 expense. 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.
Liquidity and Capital Resources
At September 30, 1999, the Partnership had cash and cash equivalents of
approximately $1,262,000 compared to approximately $883,000 at September 30,
1998. Cash and cash equivalents increased by approximately $334,000 since the
Partnership's year ended December 31, 1998, due to approximately $727,000 of
cash provided by operating activities, which was partially offset by
approximately $308,000 of cash used in financing activities and approximately
$85,000 of cash used in investing activities. Cash used in financing activities
consisted of distributions paid to the partners. Cash used in investing
activities consisted primarily of property improvements and replacements
partially offset by distributions from the Corinth Square joint venture. The
Partnership invests its working capital reserves in money market accounts.
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 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. Capital improvements planned
for each of the Partnership's properties are detailed below.
Bronson Place
During the nine months ended September 30, 1999, the Partnership spent
approximately $77,000 on capital improvements at Bronson Place Apartments,
primarily consisting of structural improvements, electrical improvements, and
carpet and vinyl replacements. The electrical and structural improvements were
substantially complete as of September 30, 1999. These improvements were funded
from cash flow from operations. Based on a report received from an independent
third party consultant analyzing necessary exterior improvements and estimates
made by the General Partner on interior improvements, it is estimated that the
property requires approximately $68,000 of capital improvements over the next
few years. The Partnership has budgeted, but is not limited to, capital
improvements of approximately $76,000 for 1999, which include certain of the
required improvements, and consists primarily of carpet and vinyl replacements.
Defoors Crossing
During the nine months ended September 30, 1999, the Partnership spent
approximately $13,000 on capital improvements at Defoors Crossing Apartments,
primarily consisting of carpet and vinyl replacements and other structural
improvements. These improvements were funded from cash flow from operations.
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the General Partner on
interior improvements, it is estimated that the property requires approximately
$78,000 of capital improvements over the next few years. The Partnership has
budgeted, but is not limited to, capital improvements of approximately $94,000
for 1999, which include certain of the required improvements, and consists
primarily of carpet and vinyl replacements, landscaping, signage and parking lot
resurfacing.
Meadow Wood
During the nine months ended September 30, 1999, the Partnership spent
approximately $24,000 on capital improvements at Meadow Wood Apartments,
primarily consisting of carpet and vinyl replacements, appliances and air
conditioning units. These improvements were funded from cash flow from
operations. Based on a report received from an independent third party
consultant analyzing necessary exterior improvements and estimates made by the
General Partner on interior improvements, it is estimated that the property
requires approximately $99,000 of capital improvements over the next few years.
The Partnership has budgeted, but is not limited to, capital improvements of
approximately $112,000 for 1999, which include certain of the required
improvements, and consists primarily of parking lot resurfacing, carpet and
vinyl replacements and appliances.
Peachtree Medical Building
The Partnership did not make any capital improvements at Peachtree Medical
Building during the nine months ended September 30, 1999. Based on a report
received from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the General Partner on interior improvements,
it is estimated that the property requires approximately $86,000 of capital
improvements over the next few years. The Partnership has budgeted, but is not
limited to, capital improvements of approximately $43,000, which include certain
of the required improvements, and consists of tenant improvements for 1999.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital and tenant improvements are completed, the Partnership's distributable
cash flow, if any, may be adversely affected at least in the short term.
The Partnership made distributions of cash generated from operations of
approximately $308,000 (approximately $305,000 to the limited partners or $4.99
per limited partnership unit) during the nine month period ended September 30,
1999. Subsequent to September 30, 1999, the Partnership paid a distribution of
cash generated from operations of approximately $730,000 (approximately $723,000
to the limited partners or $11.84 per limited partnership unit) which was
approved and accrued during the nine months ended September 30, 1999. During the
nine months ended September 30, 1998, the Partnership paid distributions of cash
generated from operations of approximately $462,000 (approximately $457,000 to
the limited partners or $7.50 per limited partnership unit). During the nine
months ended September 30, 1998, the Partnership paid distributions of cash
generated from operations of approximately $462,000 (approximately $457,000
to the limited partners or $7.50 per limited partnership unit). The
Partnership's distribution policy is reviewed on a quarterly basis. Future
cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of financings
and/or property sales. There can be no assurance, however, that the Partnership
will generate sufficient funds from operations after required capital
improvements to permit any additional distributions to its partners during the
remainder of 1999 or subsequent periods.
Tender Offer
On May 19, 1999, AIMCO Properties, L.P., an affiliate of the General Partner,
commenced a tender offer to purchase up to 27,055.18 (approximately 44.31% of
the total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $163 per unit. The offer expired on July
30, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 6,539.00 units.
As a result, AIMCO and its affiliates currently own 11,511.00 units of limited
partnership interest in the Partnership representing approximately 18.85% of the
total outstanding units. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO.
Year 2000 Compliance
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 digits to define the applicable year. The Partnership
is dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the 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.
Over the past two years, 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
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of September 30, 1999, had virtually completed this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April 1999 the Managing Agent embarked on a data center consolidation project
that unifies its core financial systems under its Year 2000 compliant system.
The estimated completion date for this project is October 1999.
During 1998, the Managing agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and testing process was
completed in June 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded virtually all of the server operating systems.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated virtually
no Year 2000 issues. A complete, formal assessment of all the properties by the
Managing Agent was virtually completed by September 30, 1999. Any operating
equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
September 30, 1999 to replace or repair the operating equipment was
approximately $75,000. The Managing Agent estimates the cost to replace or
repair any remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent has banking relationships with three major financial
institutions, all of which have designated their compliance. The Managing Agent
has updated data transmission standards with all of the financial institutions.
All financial institutions have communicated that they are Year 2000 compliant
and accordingly no accounts were required to be moved from the existing
financial institutions.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date, the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation 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.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expenses
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
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:
None filed during the quarter ended September 30, 1999.
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 J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from United
Investors Income Properties 1999 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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,262
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,027
<DEPRECIATION> 3,707
<TOTAL-ASSETS> 10,501
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,611
<TOTAL-LIABILITY-AND-EQUITY> 10,501
<SALES> 0
<TOTAL-REVENUES> 1,486
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,665
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (157)
<EPS-BASIC> (2.54)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
