FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT
UNDER SECTION 13 OR 15(D)
FORM 10-KSB
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 [No Fee Required]
For the fiscal year ended December 31, 1998
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required]
For the transition period from to
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Commission file number 0-17646
UNITED INVESTORS INCOME PROPERTIES
(Name of small business issuer in its charter)
Missouri 43-1483942
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
----
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
-------------------------------------
(Title of class)
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
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $1,886,000
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of December 31, 1998. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
ITEM 1. DESCRIPTION OF BUSINESS
-----------------------
United Investors Income Properties (the "Registrant" or "Partnership"), a
Missouri Limited Partnership, was organized as a limited partnership under the
laws of the State of Missouri on June 23, 1988. The Partnership is governed by
an Agreement of Limited Partnership dated July 27, 1988. United Investors Real
Estate, Inc., a Delaware corporation, is the sole general partner ("UIRE" or the
"General Partner") of the Partnership. UIRE was wholly-owned by MAE GP
Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged into
Insignia Properties Trust ("IPT"), a subsidiary of Apartment Investment and
Management Company ("AIMCO"). Thus the General Partner is now wholly-owned by
AIMCO. The Partnership Agreement provides that the Partnership is to terminate
on December 31, 2018 unless terminated prior to such date.
Commencing on or about May 4, 1988, the Partnership offered pursuant to a
Registration Statement filed with the Securities and Exchange Commission ("SEC")
up to a maximum of 80,000 units of limited partnership interest (the "Units") at
$250 per Unit with a minimum required purchase of eight Units or $2,000 (four
Units or $1,000 for an Individual Retirement Account). The offering of Units
terminated May 4, 1990. Upon termination of the offering, the Partnership had
accepted subscriptions for 61,063 Units resulting in gross offering proceeds of
approximately $15,266,000. Since its initial offering, the Registrant has not
received, nor are limited partners required to make, additional capital
contributions. The Partnership is engaged in the business of acquiring and
operating multifamily residential and commercial properties and other income
producing real estate. The Partnership has acquired three multifamily
residential properties, a medical office building, and an interest in a joint
venture which owns a medical office building. These properties are further
described in "Item 2. Description of Properties" below.
The General Partner of the Registrant intends to maximize the operating results
and, ultimately, the net realizable value of each of the Registrant's properties
in order to achieve the best possible return for the investors. Such results
may best be achieved by holding and operating the property or through property
sales or exchanges, refinancing, debt restructurings or relinquishment of the
assets. The Registrant intends to evaluate each of its holdings periodically to
determine the most appropriate strategy for each of its assets.
A further description of the Partnership's business is included in "Management's
Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form
10-KSB.
The Registrant has no employees. Management and administrative services are
provided by the General Partner and by agents retained by the General Partner.
An affiliate of the General Partner has been providing such property management
services. Effective October 1, 1998, property management services at the
Partnership's commercial property were provided by an unrelated party.
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential and commercial properties within the
market area of the Partnership's properties. The number and quality of
competitive properties, including those which may be managed by an affiliate of
the General Partner in such market area, could have a material effect on the
rental market for apartment and commercial properties owned by the Registrant
and the rents that may be charged for such properties. While the General
Partner and its affiliates are a significant factor in the United States in the
apartment industry, competition for apartments and commercial space is local.
In addition, various limited partnerships have been formed by the General
Partner and/or their affiliates to engage in business which may be competitive
with the Registrant.
Both the income and expenses of operating the properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
an oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
financing, changes in zoning laws, or changes in patterns or needs of users. In
addition, there are risks inherent in owning and operating properties because
such properties are susceptible to the impact of economic and other conditions
outside of the control of the Partnership.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.
The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain
cases, environmental testing has been performed which resulted in no material
adverse conditions or liabilities. In no case has the Partnership received
notice that it is a potentially responsible party with respect to an
environmental clean up site.
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 ultimately acquired a 100% ownership
interest in Insignia Properties Trust ("IPT"), the entity which controls 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.
ITEM 2. DESCRIPTION OF PROPERTIES
-------------------------
The following table sets forth the Partnership's investments in properties:
Date of
Property Purchase Type of Ownership(1) Use
-------- -------- ----------------- ---
Bronson Place Apartments 11/01/88 Fee simple Apartment
Mountlake Terrace, WA 70 units
Defoors Crossing Apartments 05/01/89 Fee simple Apartment
Atlanta, GA 60 units
Meadow Wood Apartments 10/02/89 Fee simple Apartment
Medford, OR 85 units
Peachtree Corners Medical Bldg. 06/01/90 Fee simple Medical Office
Atlanta, GA Building
13,000 sq. ft.
Joint Venture Property
----------------------
Corinth Square Professional 10/01/90 Joint Venture; Medical Office
Building, Partnership owns a Building
Prairie Village, Kansas 35% interest 23,000 sq. ft.
(1) None of the Partnership's properties are encumbered by mortgage financing.
SCHEDULE OF PROPERTIES:
- ----------------------
Set forth below for each of the Registrant's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation and
Federal tax basis.
Gross
Carrying Accumulated Useful Federal
Property Value Depreciation life Method Tax Basis
-------- ----- ------------ ---- ------ ---------
(in thousands) (in thousands)
Bronson Place $ 3,543 $ 1,090 5-40 yrs S/L $ 2,388
Defoors Crossing 3,372 904 5-40 yrs S/L 2,453
Meadow Wood 3,688 996 5-40 yrs S/L 2,657
Peachtree Corners 1,910 410 15-40 yrs S/L 1,653
------ ------ -----
Totals $12,513 $ 3,400 $ 9,151
======= ====== ======
See "Note A" of the financial statements in "Item 7. Financial Statements" for a
description of the Partnership's depreciation policy.
SCHEDULE OF RENTAL RATES AND OCCUPANCY:
- --------------------------------------
Average annual rental rates and occupancy for 1998 and 1997 for each property:
Average Annual Average Annual
Rental Rates Occupancy
------------ ---------
1998 1997 1998 1997
---- ---- ---- ----
Bronson Place $ 8,911/per unit $ 8,189/per unit 95% 95%
Defoors Crossing 9,158/per unit 8,730/per unit 92% 95%
Meadow Wood 7,132/per unit 7,005/per unit 89% 89%
Peachtree Corners 13.49/per sq.ft. 13.71/per sq.ft. 74% 74%
The General Partner attributes the decrease in occupancy at Defoors Crossing to
a softening in rental market conditions.
As noted under "Item 1. Description of Business," the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other residential apartment complexes and commercial buildings
in the localities in which they operate. The General Partner believes that all
of the properties are adequately insured. Each residential property is an
apartment complex which leases units for lease terms of one year or less. No
residential tenant leases 10% or more of the available rental space (See "Notes
A and E" of the financial statements in "Item 7. Financial Statements" for
information about the commercial leases). All of the properties are in good
physical condition, subject to normal depreciation and deterioration as is
typical for assets of this type and age.
The following is a schedule of the lease expirations at Peachtree Corners
Medical Building for the years 1999-2008:
Number of % of Gross
Expirations Square Feet Annual Rent Annual Rent
----------- ----------- ----------- -----------
(in thousands)
1999-2001 0 -- $ -- --
2002 1 1,967 28 21.0%
2003 1 3,738 54 40.2%
2004 0 -- -- --
2005 1 3,521 52 38.9%
2006-2008 0 -- -- --
The following schedule reflects information on tenants leasing 10% or more of
the leasable square footage for Peachtree Corners Medical Building.
Square Footage Annual rent per Lease
Nature of Business Leased Square Foot Expiration
------------------ ------ ----------- ----------
Medical Offices 1,967 $14.40 02/28/02
Medical Offices 3,738 14.50 03/30/03
Medical Offices 3,521 14.89 07/21/05
SCHEDULE OF REAL ESTATE TAXES AND RATES:
- ---------------------------------------
Real estate taxes and effective rates in 1998 for each property were:
1998 1998
Billing Rate
------- ----
(in thousands)
Bronson Place $ 39 1.28%
Defoors Crossing 38 1.97%
Meadow Wood 52 1.41%
Peachtree Corners 13 1.38%
CAPITAL IMPROVEMENTS:
--------------------
Bronson Place
- -------------
In 1998, the Partnership spent approximately $71,000 on capital improvements at
Bronson Place Apartments, primarily consisting of balcony and carpet
replacements. These improvements were funded from cash flow. 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 near term. The Partnership has budgeted, but is not
limited to, capital improvements of approximately $76,000 for 1999 at this
property consisting primarily of carpet and vinyl replacements.
Defoors Crossing
- ----------------
In 1998, the Partnership spent approximately $13,000 on capital improvements at
Defoors Crossing Apartments, primarily consisting of carpet and vinyl
replacements and appliances. These improvements were funded from cash flow.
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 near term. The Partnership has
budgeted, but is not limited to, capital improvements of approximately $94,000
for 1999 at this property consisting primarily of carpet and vinyl replacements,
landscaping, signage and parking lot repairs.
Meadow Wood
- -----------
In 1998, the Partnership spent approximately $44,000 on capital improvements at
Meadow Wood Apartments, primarily consisting of carpet and vinyl replacements,
appliances, and roof replacements. These improvements were funded from cash
flow. 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 near term. The
Partnership has budgeted, but is not limited to, capital improvements of
approximately $112,000 for 1999 at this property consisting primarily of parking
lot improvements, carpet and vinyl replacements and appliances.
Peachtree Medical Building
- --------------------------
In 1998, the Partnership spent approximately $19,000 on capital improvements at
Peachtree Medical Building, which consisted of roof replacement. These
improvements were funded from cash flow. 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 near term. The Partnership has budgeted, but is not limited to,
approximately $43,000 in tenant improvements for 1999.
The capital improvements planned for 1999 at the Partnership's properties will
be made only to the extent of cash available from operations and Partnership
reserves.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature arising in the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
During the quarter ended December 31, 1998, no matters were submitted to a vote
of Unit holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR PARTNERSHIP EQUITY AND RELATED PARTNER MATTERS
---------------------------------------------------------
The Partnership, a publicly-held limited partnership, offered 80,000 and sold
61,063 Limited Partnership Units during its offering period through May 4, 1990,
aggregating approximately $15,266,000. The Partnership currently has 61,063
Limited Partnership Units outstanding and 1,888 holders of record. Affiliates
of the General Partner owned 950 Units or 1.556% at December 31, 1998. No
public trading market has developed for the Units, and it is not anticipated
that such a market will develop in the future.
The Partnership made distributions of cash generated from operations of
approximately $617,000 ($10.01 per limited partnership unit) during each of the
years ended December 31, 1998 and 1997. Subsequent to the Partnership's fiscal
year-end, a distribution of cash generated from operations of approximately
$154,000 ($2.50 per limited partnership unit) was paid during March 1999.
Future cash distributions will depend on the levels of net cash from operations,
financing, property sales, and the availability of cash reserves. The
Partnership's distribution policy will be reviewed on a quarterly basis. There
can be no assurance, however, that the Partnership will generate sufficient
funds from operations after required capital improvements to permit additional
distributions to its partners in 1999 or subsequent periods.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-KSB and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussion of
the Registrant'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 Registrant's business and results of operation. 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.
This item should be read in conjunction with the financial statements and other
items contained elsewhere in this report.
RESULTS OF OPERATIONS
- ---------------------
The Partnership realized net income of approximately $566,000 for the year ended
December 31, 1998, compared to net income of approximately $472,000 for the year
ended December 31, 1997 (See "Note F" for a reconciliation of these amounts to
the Registrant's Federal taxable income). The increase in net income was due to
an increase in total revenue and a decrease in total expenses. The increase in
revenue is attributable to increased rental income and other income. Rental
income increased due to increased rental rates at the three residential
properties which were partially offset by the lower occupancy at Defoors
Crossing, increased concession costs at Defoors Crossing in an attempt to
reverse the occupancy decline, and lower average rental rates at Peachtree
Corners. Other income increased due to increased tenant charges and higher
average cash balances during 1998 leading to increased interest income. The
decrease in total expenses is primarily due to reduced maintenance expenses due
to approximately $119,000 of insurance proceeds received as a result of storm
damage during the second quarter of 1998 at Peachtree Corners. This was
partially offset by approximately $101,000 of related insurance damage expenses
incurred during the year ended December 31, 1998. All storm damages have been
repaired and all insurance proceeds received as of December 31, 1998.
General and administrative expenses increased slightly over the prior year.
Included in general and administrative expenses at both December 31, 1998 and
1997 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.
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. However, 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 December 31, 1998, the Partnership had cash and cash equivalents of
approximately $928,000 compared to approximately $728,000 at December 31, 1997.
The increase in cash and cash equivalents is due to approximately $964,000 of
cash provided by operating activities, which was partially offset by
approximately $147,000 of cash used in investing activities and approximately
$617,000 of cash used in financing activities. Cash used in investing
activities consisted of property improvements and replacements. Cash used in
financing activities consisted of distributions paid to the Registrant's
partners. The Registrant invests its working capital reserves in a money market
account.
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 property 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 Partnership
has budgeted, but is not limited to, approximately $282,000 in capital
improvements for all the Registrant's residential properties in 1999. Also, the
Partnership has budgeted approximately $43,000 in tenant improvements at the
Registrant's commercial property. Budgeted capital improvements at Bronson
Place include carpet and vinyl replacement. Budgeted capital improvements at
Defoors Crossing include carpet and vinyl replacement, landscaping, signage and
parking lot repairs. Budgeted capital improvements at Meadow Wood include
parking lot improvements, carpet and vinyl replacement and appliances. Budgeted
capital improvements at Peachtree Medical are for tenant improvements. The
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 Registrant'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 $617,000 during each of the years ended December 31, 1998 and
1997. The Partnership's distribution policy will be reviewed on a quarterly
basis. Subsequent to the Partnership's fiscal year-end, a distribution of cash
generated from operations of approximately $154,000 was paid during March 1999.
There can be no assurance, however, that the Partnership will generate
sufficient funds from operations after required capital improvements to permit
additional distributions to its partners in 1999 or subsequent periods.
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 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 mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, PC-based network servers and 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
December 31, 1998, had completed approximately 75% of 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. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by March
31, 1999.
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.
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 the testing process is
expected to be completed by March 31, 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 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
March 31, 1999.
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. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by March 31, 1999.
Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of December 31, 1998 the Managing Agent
has evaluated approximately 86% of the operating equipment for the Year 2000
compliance.
The total cost incurred for all properties managed by the Managing Agent as of
December 31, 1998 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by April 30, 1999.
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 our enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before May 1999.
The Managing Agent has updated data transmission standards with two of the three
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by June 1, 1999.
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 $2.8 million ($0.6 million expensed
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.
ITEM 7. FINANCIAL STATEMENTS
--------------------
UNITED INVESTORS INCOME PROPERTIES
LIST OF FINANCIAL STATEMENTS
Independent Auditors' Reports
Balance Sheet - December 31, 1998
Statements of Operations - Years ended December 31, 1998 and 1997
Statements of Changes in Partners' Capital (Deficit) - Years ended December 31,
1998 and 1997
Statements of Cash Flows - Years ended December 31, 1998 and 1997
Notes to Financial Statements
INDEPENDENT AUDITORS' REPORT
----------------------------
The Partners
United Investors Income Properties
(a Missouri Limited Partnership)
We have audited the accompanying balance sheet of United Investors Income
Properties (A Missouri Limited Partnership) ("the "Partnership") as of December
31, 1998, and the related statements of operations, changes in partners' capital
(deficit) and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Partnership as of December
31, 1998, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Greenville, South Carolina
February 18, 1999
INDEPENDENT AUDITORS' REPORT
The Partners
United Investors Income Properties
(A Missouri Limited Partnership)
We have audited the accompanying statements of operations, changes in partners'
capital (deficit) and cash flows of United Investors Income Properties (A
Missouri Limited Partnership) ("the Partnership") for the year ended December
31, 1997. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of the Partnership for the
year ended December 31, 1997, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
February 17, 1998
UNITED INVESTORS INCOME PROPERTIES
BALANCE SHEET
(in thousands, except unit data)
December 31, 1998
Assets
Cash and cash equivalents $ 928
Receivables and deposits 174
Other assets 90
Investment properties (Note G):
Land $ 1,862
Buildings and related personal property 10,651
------
12,513
Less accumulated depreciation (3,400) 9,113
------
Investment in joint venture (Note C) 639
------
$10,944
======
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 25
Tenant security deposit liabilities 59
Other liabilities 47
Accrued property taxes 7
Partners' (Deficit) Capital
General partner's $ (24)
Limited partners' (61,063 units
issued and outstanding) 10,830 10,806
------ ------
$10,944
======
See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1998 1997
---- ----
Revenues:
Rental income $ 1,774 $ 1,705
Other income 112 97
------ ------
Total revenues 1,886 1,802
------ ------
Expenses:
Operating 706 734
General and administrative 85 79
Depreciation 402 385
Property taxes 147 152
------ ------
Total expenses 1,340 1,350
------ ------
Equity in net income of joint venture (Note C) 20 20
------ ------
Net income $ 566 $ 472
====== ======
Net income allocated to general partner (1%) $ 6 $ 5
Net income allocated to limited partners (99%) 560 467
------ ------
$ 566 $ 472
====== ======
Net income per limited partnership unit $ 9.17 $ 7.65
====== ======
Distributions per limited partner unit $ 10.01 $ 10.01
====== ======
See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(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, 1996 61,063 $ (23) $11,025 $11,002
Partners' distributions -- (6) (611) (617)
Net income for the year ended
December 31, 1997 -- 5 467 472
------ ------ ------ ------
Partners' (deficit) capital at
December 31, 1997 61,063 (24) 10,881 10,857
Partners' distributions -- (6) (611) (617)
Net income for the year ended
December 31, 1998 -- 6 560 566
------ ------ ------ ------
Partners' (deficit) capital at
December 31, 1998 61,063 $ (24) $10,830 $10,806
======= ====== ====== ======
See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES
STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 566 $ 472
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in net income of joint venture (20) (20)
Depreciation 402 385
Amortization of lease commissions 7 7
Change in accounts:
Receivables and deposits (18) (29)
Other assets (2) (17)
Accounts payable 13 (5)
Tenant security deposit liabilities 8 2
Accrued property taxes 7 --
Other liabilities 1 24
---- ----
Net cash provided by operating activities 964 819
---- ----
Cash flows used in investing activities:
Property improvements and replacements (147) (179)
Distributions from joint venture -- 72
---- ----
Net cash used in investing activities (147) (107)
---- ----
Cash flows used in financing activities:
Partners' distributions (617) (617)
---- ----
Net increase in cash and cash equivalents 200 95
Cash and cash equivalents at beginning of year 728 633
---- ----
Cash and cash equivalents at end of year $ 928 $ 728
==== ====
See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES
Notes to Financial Statements
December 31, 1998
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------------
Organization: United Investors Income Properties (the "Partnership" or
- ------------
"Registrant"), a Missouri Limited Partnership, was organized in June 1988, with
the initial group of limited partners being admitted on July 27, 1988.
Additional partners were admitted through May 1990. United Investors Real
Estate, Inc., a Delaware Corporation, is the sole general partner ("UIRE" or the
"General Partner") of the Partnership. UIRE was wholly-owned by MAE GP
Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged into
Insignia Properties Trust ("IPT"), a subsidiary of Apartment Investment and
Management Company ("AIMCO"). Thus, the General Partner is a subsidiary of
AIMCO (See "Note B - Transfer of Control"). The Partnership Agreement states
that the Partnership is to terminate on December 31, 2018, unless terminated
prior to such date. As of December 31, 1998, the Partnership operates two
residential properties in the northwest and one residential and one commercial
property in the south.
Cash and cash equivalents: Cash and cash equivalents includes cash on hand and
- -------------------------
in banks, money market funds, and certificates of deposit with original
maturities of less than 90 days. At certain times, the amount of cash deposited
at a bank may exceed the limit on insured deposits.
Allocations of profits and losses: In accordance with the partnership agreement,
- ---------------------------------
all profits and losses are to be allocated 1% to the General Partner and 99% to
the limited partners.
Tenant Security Deposits: The Partnership requires security deposits from
- ------------------------
lessees for the duration of the lease, and such deposits are included in
receivables and deposits. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged its space and is current on its rental
payments.
Income taxes: For income tax purposes, the Partnership reports revenue and
- ------------
costs and expenses on the accrual method. No income tax provision has been
shown in the accompanying statements of operations since the partners are taxed
individually.
Investment Properties: Investment properties consist of three apartment
- ---------------------
complexes and a medical office building, all of which are stated at cost.
Acquisition fees are capitalized as a cost of real estate. 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. No adjustments for
impairment of value were necessary for the years ended December 31, 1998 or
1997.
Depreciation: Depreciation is provided by the straight-line method over the
------------
estimated lives of the apartment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used (1)
for real property over 15 years for additions prior to March 16, 1984, 18 years
for additions after March 15, 1984 and before May 9, 1985, and 19 years for
additions after May 8, 1985, and before January 1, 1987, and (2) for personal
property over 5 years for additions prior to January 1, 1987. As a result of the
Tax Reform Act of 1986, for additions after December 31, 1986, the modified
accelerated cost recovery method is used for depreciation of (1) real property
over 27 1/2 years and (2) personal property additions over 7 years.
Fair Value of Financial Instruments: SFAS No. 107, "Disclosures about Fair Value
- -----------------------------------
of Financial Instruments," as amended by SFAS No. 119, "Disclosures about
Derivative Financial Instruments and Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate fair value. Fair value is defined in the SFAS as the amount at which
the instruments could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The Partnership believes
that the carrying amount of its financial instruments approximates their fair
value due to the short term maturity of these instruments.
Leases: The Partnership leases its residential properties under short-term
- ------
operating leases. Lease terms are generally one year or less in duration. The
Partnership recognizes income as earned on its leases. In addition, the General
Partner's policy is to offer rental concessions during periods of declining
occupancy or in response to heavy competition from other similar complexes in
the area. Concessions are charged against rental income as incurred.
The Partnership leases certain commercial space to tenants under various lease
terms. For leases containing fixed rental increases during their term, rents are
recognized on a straight-line basis over the terms of the leases. For all other
leases, rents are recognized over the terms of the leases as earned.
Other Assets: Included in other assets are deferred rental income and lease
- ------------
commissions. Lease commissions are deferred and amortized over the life of the
related leases. At December 31, 1998, lease commissions of approximately
$53,000, less accumulated amortization of approximately $20,000, are included in
other assets.
Use of Estimates: The preparation of financial statements in conformity with
- ----------------
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Advertising: The Partnership expenses the costs of advertising as incurred.
- -----------
Advertising expense, included in operating expenses, was approximately $38,000
and $35,000 for the years ended December 31, 1998 and 1997, respectively.
Reclassifications: Certain reclassifications have been made to the 1997
- -----------------
information to conform to the 1998 presentation.
Segment Reporting: In June 1997, the Financial Accounting Standards Board
------------------
issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("Statement 131"), which is effective for years beginning after
December 15, 1997. Statement 131 established standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers (see "Note H" for detailed disclosure of
the Partnership's segments).
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 ultimately acquired a 100% ownership
interest in Insignia Properties Trust ("IPT"), the entity which controls 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 - 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, 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.
Condensed balance sheet information for Corinth at December 31, 1998, is as
follows:
December 31,
1998
-------
(in thousands)
Assets
------
Commercial properties, net $1,708
Other assets 157
-----
Total $1,865
=====-
Liabilities and Partners' Capital
- ---------------------------------
Liabilities $ 37
Partners' capital 1,828
-----
Total $1,865
=====-
Condensed statements of operations of Corinth for the years ended December 31,
1998 and 1997, are as follows:
Years Ended December 31,
1998 1997
---- ----
(in thousands)
Revenue $ 375 $ 355
Costs and Expenses (317) (297)
---- ----
Net income $ 58 $ 58
===== ====
NOTE D - 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
(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 in 1998 and 1997:
1998 1997
---- ----
(in thousands)
Property management fees (included in
operating expenses) $ 88 $ 86
Reimbursement for services of affiliates
(included in general and administrative
expenses and operating expenses) (1) 38 36
(1) Included in "Reimbursement for services of affiliates" for the year ended
December 31, 1997, is approximately $1,000 in reimbursements for
construction oversight costs. There were no reimbursements for construction
oversight costs for the year ended December 31, 1998.
During the years ended December 31, 1998 and 1997, affiliates of the General
Partner were entitled to receive 5% of the gross receipts from all of
Registrant's residential properties as compensation for providing property
management services. The Registrant paid to such affiliates $84,000 and $81,000
for the years ended December 31, 1998 and 1997, respectively. During the year
ended December 31, 1997 and for the nine months ended September 30, 1998
affiliates of the General Partner were entitled to varying percentages of gross
receipts from the Registrant's commercial property as compensation for providing
property management services. These services were performed by affiliates of
the General Partner during 1997 and for the nine months ended September 30, 1998
and were $5,000 and $4,000, respectively. Effective October 1, 1998 (the
effective date of the Insignia Merger (see "Note B")) these services for the
commercial properties were provided by an unrelated party.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $38,000 and $36,000 for the
years ended December 31, 1998 and 1997, respectively.
For the period 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 payment on these
obligations from the agent. The amount of the Partnership's insurance premiums
accruing to the benefit of the affiliate of the General Partner by virtue of the
agent's obligations was not significant.
NOTE E - OPERATING LEASES
- -------------------------
Tenants of Peachtree Corners Medical Building are responsible for their own
utilities, maintenance of their space and payment of their proportionate share
of common area maintenance, utilities, insurance and real estate taxes. The
real estate taxes, insurance, and common area maintenance expenses are paid
directly by the Partnership. The Partnership is then reimbursed by the tenants
for their proportionate share.
The future minimum rental payments to be received under operating leases that
have initial or remaining noncancellable lease terms in excess of one year, as
of December 31, 1998, are as follows (in thousands):
Years Ending December 31,
-------------------------
1999 $ 132
2000 137
2001 141
2002 120
2003 72
Thereafter 81
------
$ 683
======-
NOTE F - INCOME TAXES
---------------------
The following is a reconciliation between net income as reported in the
financial statements and Federal taxable income allocated to the partners in the
Partnership's tax return for the years ended December 31, 1998 and 1997 (in
thousands, except unit data):
1998 1997
---- ----
Net income as reported $ 566 $ 472
Add (deduct):
Deferred revenue and other
liabilities (2) 4
Depreciation differences 15 11
Nondeductible reserves and allowances -- 1
Accrued expenses (21) 18
Deferred charges and other assets -- (13)
---- ----
Federal taxable income $ 558 $ 493
==== ====
Federal taxable income per limited
partnership unit $9.05 $8.00
==== ====
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets at December 31, 1998 (in thousands):
Net assets as reported $10,806
Differences in basis of assets and liabilities:
Deferred revenue and other liabilities 7
Accumulated depreciation 71
Commercial property at cost 139
Deferred charges and other assets (30)
Other (56)
Syndication costs 1,902
------
Net assets - tax basis $12,839
======
NOTE G - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------
Initial cost
To Partnership
------------------
Buildings Net Costs
and Related Capitalized
Personal Subsequent to
Description Land Property Acquisition
----------- ------ -------- -----------
(in thousands) (in thousands)
Bronson Place Apartments $ 501 $2,568 $ 474
Defoors Crossing Apartments 520 2,480 372
Meadow Wood Apartments 501 2,884 303
Peachtree Corners Medical Bldg. $ 340 1,396 174
----- ----- ----
Totals $1,862 $9,328 $1,323
===== ===== =====
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1998
--------------------
(in thousands)
Buildings
And
Related
Personal Accumulated Date of Date Depreciable-
Description Land Property Total Depreciation Construction Acquired Life-Years
----------- ---- -------- ----- ------------ ------------ -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Bronson Place Apartments $ 501 $ 3,042 $ 3,543 $1,090 1988 11/01/88 5-40
Defoors Crossing Apartments 520 2,852 3,372 904 1988 05/01/89 5-40
Meadow Wood Apartments 501 3,187 3,688 996 1988 10/02/89 5-40
Peachtree Corners 340 1,570 1,910 410 1989 06/01/90 15-40
----- ------ ------ -----
Totals $1,862 $10,651 $12,513 $3,400
====== ====== ====== =====
</TABLE>
Reconciliation of "Real Estate and Accumulated Depreciation":
Years Ended December 31,
1998 1997
---- ----
(in thousands)
Investment Properties
---------------------
Balance at beginning of year $12,366 $12,187
Property improvements 147 179
------ ------
Balance at end of year $12,513 $12,366
======= ======
Accumulated Depreciation
- ------------------------
Balance at beginning of year $ 2,998 $ 2,613
Amounts charged to expense 402 385
------ ------
Balance at end of year $ 3,400 $ 2,998
======= ======
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1998 and 1997, is approximately $12,652,176 and $12,506,000. The
accumulated depreciation taken for Federal income tax purposes at December 31,
1998 and 1997, is approximately $3,336,890 and $2,968,000.
NOTE H _ SEGMENT REPORTING
- --------------------------
Description of the types of products and services from which the reportable
---------------------------------------------------------------------------
segment derives its revenue: As defined by SFAS No. 131, "Disclosures about
- ---------------------------
Segments of an Enterprise and Related Information", 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 people 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.
Measurement of segment profit or loss: The Partnership evaluates performance
- -------------------------------------
based on net income. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies.
Factors management used to identify the enterprise's reportable segments: 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 years 1998 and 1997 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.
1998 Residential Commercial Other Totals
---- ----------- ---------- ----- ------
Rental income $ 1,588 $ 186 $ -- $ 1,774
Other income 84 1 27 112
Depreciation 338 64 -- 402
General and administrative expense -- -- 85 85
Equity in income of joint venture -- -- 20 20
Segment profit (loss) 547 57 (38) 566
Total assets 7,920 1,625 1,399 10,944
Capital expenditures for
investment properties 128 19 -- 147
1997 Residential Commercial Other Totals
---- ----------- ---------- ----- ------
Rental income $ 1,540 $ 165 $ -- $ 1,705
Other income 70 2 25 97
Depreciation 322 63 -- 385
General and administrative expense -- -- 79 79
Equity in income of joint venture -- -- 20 20
Segment profit (loss) 484 22 (34) 472
Total assets 8,015 1,640 1,311 10,966
Capital expenditures for
investment properties 179 -- -- 179
NOTE I - LEGAL PROCEEDINGS
- --------------------------
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature arising in the ordinary course of business.
ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Effective September 23, 1998, the Registrant dismissed its prior Independent
Auditors, Deloitte & Touche LLP ("Deloitte") and retained as its new Independent
Auditors, KPMG Peat Marwick LLP. Deloitte's Independent Auditor's Report on the
Registrant's financial statements for the calendar year ended December 31, 1997
did not contain an adverse opinion or a disclaimer of opinion, and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
The decision to change Independent Auditors was approved by the General
Partner's Directors. During the calendar year ended 1997 and through September
23, 1998, there were no disagreements between the Registrant and Deloitte on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope of procedure which disagreements if not resolved to the
satisfaction of Deloitte, would have caused it to make references to the subject
matter of the disagreements in connection with its reports.
Effective September 23, 1998, the Registrant engaged KPMG Peat Marwick LLP as
its Independent Auditors. During the last two calendar years and through
September 23, 1998, the Registrant did not consult KPMG Peat Marwick LLP
regarding any of the matters or events set forth in Item 304 (a) (2) (i) and
(ii) of Regulation S-B.
PART III
ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
------------------------------------------------------------------------
WITH SECTION 16(A) OF THE EXCHANGE ACT
--------------------------------------
United Investors Income Properties (the "Registrant" or the "Partnership") has
no officers or directors. The names of the directors and executive officers of
United Investors Real Estate, Inc. ("UIRE" or the "General Partner"), their ages
and the nature of all positions with UIRE presently held by them are set forth
below. There are no family relationships between or among any officers and
directors.
Name Age Position
- ---- --- --------
Patrick J. Foye 41 Executive Vice President and Director
Timothy R. Garrick 42 Vice President - Accounting and Director
Patrick J. Foye has been Executive Vice President and Director of the General
Partner since October 1, 1998. Mr. Foye has served as Executive Vice President
of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the
law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was
Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992
through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power
Authority and serves as a member of the New York State Privatization Council.
He received a B.A. from Fordham College and a J.D. from Fordham University Law
School.
Timothy R. Garrick has served as Vice President-Accounting of AIMCO and Vice
President-Accounting and Director of the General Partner since October 1, 1998.
Prior to that date, Mr. Garrick served as Vice President-Accounting Services of
Insignia Financial Group since June of 1997. From 1992 until June of 1997, Mr.
Garrick served as Vice President of Partnership Accounting and from 1990 to 1992
as an Asset Manager for Insignia Financial Group. From 1984 to 1990, Mr.
Garrick served in various capacities with U.S. Shelter Corporation. From 1979
to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick
received his B.S. Degree from the University of South Carolina and is a
Certified Public Accountant.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
No direct form of compensation or remuneration was paid by the Partnership to
any officer or director of the General Partner. The Partnership has no plan,
nor does the Partnership presently propose a plan, which will result in any
remuneration being paid to any officer or director upon termination of
employment. However, reimbursements and other payments have been made to the
Partnership's General Partner and its affiliates, as described in "Item 12.
Certain Relationships and Related Transactions" below.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Except as noted below, no person or entity was known by the Registrant to be the
beneficial owner of more than 5% of the Limited Partnership Units of the
Registrant as of December 31, 1998.
Number of
Entity Units Percentage
------ ----- ----------
United Investors Real Estate I 950 1.56%
United Investors Real Estate I is indirectly and ultimately owned by AIMCO.
Their business address is 55 Beattie Place, Greenville, South Carolina 29602.
On October 1, 1998, Insignia Financial Group, Inc. merged into AIMCO, a real
estate investment trust, whose Class A Common Shares are listed on the New York
Stock Exchange. As a result of such merger, AIMCO and AIMCO Properties, L.P., a
Delaware limited partnership and the operating partnership of AIMCO ("AIMCO OP")
acquired indirect control of the General Partner. AIMCO and its affiliates
currently own 1.556% of the limited partnership interests in the Partnership.
AIMCO is presently considering whether it will engage in an exchange offer for
the additional limited partnership interests in the Partnership. There is a
substantial likelihood that, within a short period of time, AIMCO OP will offer
to acquire limited partnership interests in the Partnership for cash or
preferred units or common units of limited partnerships interests in AIMCO OP.
While such an exchange offer is possible, no definite plans exist as to when or
whether to commence such an exchange offer, or as to the terms of any such
exchange offer, and it is possible that none will occur.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Form 10-KSB shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to the registration or
qualification under the securities laws of any such state.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The General Partner received cash distributions from operations of approximately
$6,000 for each of the years ended December 31, 1998 and 1997. For a
description of the share of cash distributions from operations, if any, to which
the general partner is entitled, reference is made to "Item 7. Financial
Statements - Note A".
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
(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 in 1998 and 1997:
1998 1997
---- ----
(in thousands)
Property management fees $ 88 $ 86
Reimbursement for services of affiliates (1) 38 36
(1) Included in "Reimbursement for services of affiliates" for the year ended
December 31, 1997, is approximately $1,000 in reimbursements for
construction oversight costs. There were no reimbursements for construction
oversight costs for the year ended December 31, 1998.
During the years ended December 31, 1998 and 1997, affiliates of the General
Partner were entitled to receive 5% of the gross receipts from all of
Registrant's residential properties as compensation for providing property
management services. The Registrant paid to such affiliates $84,000 and $81,000
for the years ended December 31, 1998 and 1997, respectively. During the year
ended December 31, 1997 and for the nine months ended September 30, 1998
affiliates of the General Partner were entitled to varying percentages of gross
receipts from all the Registrant's commercial property as compensation for
providing property management services. These services were performed by
affiliates of the General Partner during 1997 and for the nine months ended
September 30, 1998 and were $5,000 and $4,000, respectively. Effective October
1, 1998, these services for the commercial properties were provided by an
unrelated party.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $38,000 and $36,000 for the
years ended December 31, 1998 and 1997, respectively.
For the period 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 payment on these
obligations from the agent. The amount of the Partnership's insurance premiums
accruing to the benefit of the affiliate of the General Partner by virtue of the
agent's obligations was not significant.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
See Exhibit Index contained herein.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal year 1998:
Current Report on Form 8-K dated October 1, 1998 and filed October 16,
1998, disclosing change in control of Registrant from Insignia Financial
Group, Inc. to AIMCO.
Current Report on Form 8-K dated September 23, 1998 and filed October 1,
1998 disclosing the dismissal of Deloitte & Touche LLP as the Registrant's
Independent Accountant and the engagement of KPMG Peat Marwick LLP as the
Registrant's new Independent Accountant.
Current Report on Form 8-K/A dated September 23, 1998 and filed October 27,
1998 providing letter from the Registrant's former independent accountant
regarding concurrence with statements made in this Current Report.
SIGNATURES
----------
In accordance with Section 13 or 15(d) 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/ Timothy R. Garrick
------------------------
Timothy R. Garrick
Vice President _ Accounting
Date: March 31, 1999
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
date indicated.
/s/ Patrick J. Foye Executive Vice President Date: March 31, 1999
- ------------------------
Patrick J. Foye and Director
/s/ Timothy R. Garrick Vice President _ Accounting Date: March 31, 1999
- ------------------------
Timothy R. Garrick and Director
INDEX TO EXHIBITS
-----------------
Exhibit
- -------
1 Form of Dealer Manager Agreement between the General Partner and the
Dealer Manager, including Form of Soliciting Broker Agreement;
incorporated by reference to Exhibit 1 to Partnership's Amendment to
Registration Statement (File No. 33-20350) previously filed on May 2,
1988.
1.1 Amendment to Dealer Manager Agreement; incorporated by reference to
Exhibit 1.1 to Post-Effective Amendment No. 2 to Partnership's
Registration Statement previously filed on March 21, 1989.
4.1 Form of Subscription Agreement; incorporated by reference as part of
the Prospectus of Partnership contained in Partnership's Amendment to
Registration Statement previously filed on May 2, 1988.
4.2 Form of Agreement of Limited Partnership of Partnership; incorporated
by reference as part of the Prospectus of Partnership contained in
Partnership's Amendment to Registration Statement previously filed on
May 2, 1988.
4.3 Tenth Amendment to Agreement of Limited Partnership of Partnership;
incorporated by reference to Exhibit 4.3 to Partnership's Quarterly
Report on Form 10-Q previously filed on May 15, 1989.
10.1 Escrow Agreement among the Partnership, the General Partner, the
Dealer Manager, and Boston Safe Deposit & Trust Company; incorporated
by reference to Exhibit 10.1 to Partnership's Amendment to
Registration Statement previously filed on May 2, 1988.
10.1.1 Amendment to Escrow Agreement; incorporated by reference to Exhibit
10.1.1 to Post-Effective Amendment No. 5 to Partnership's Registration
Statement previously filed on October 19, 1989.
10.2 Agreement of Purchase and Sale, dated June 22, 1988, between United
Investors Real Estate, Inc., as nominee for United Investors Income
Properties, as purchaser, and Nilsen/Bay Ridge Development, Inc. and
MBIV Development, as seller, relating to Bronson Place Apartments;
incorporated by reference to Exhibit 10.1 to Partnership's Quarterly
Report on Form 10-Q previously filed on August 11, 1988.
10.3 Agreement of Purchase and Sale, dated October 20, 1988, between United
Investors Real Estate, Inc., as purchaser, and Defoors Crossing
Associates, Ltd., as seller, relating to Defoors Crossing Apartments,
and amendments thereto; incorporated by reference to Exhibit 10.3 to
Post-Effective Amendment No. l to Partnership's Registration Statement
previously filed on February 1, 1989.
10.4 Agreement of Purchase and Sale, dated June 29, 1989, between United
Investors Real Estate, Inc., as purchaser and CMW Properties, as
seller, relating to Meadow Wood Apartments, and amendments thereto;
incorporated by reference to Exhibit 10.4 to Partnership's Current
Report on Form 8-K previously filed on October 17, 1989.
10.5 Agreement of Purchase and Sale, dated December 21, 1989, between
United Investors Real Estate, Inc., as purchaser, and Corners Medical
Group, Inc., as seller, relating to Peachtree Corners Medical
Building, and amendments thereto; incorporated by reference to Exhibit
10.5 to Partnership's Quarterly Report on Form 10-Q previously filed
on May 15, 1990.
10.6 Agreement of Purchase and Sale, dated June 29, 1990, between United
Investors Real Estate, Inc., as purchaser, and American Fire Sprinkler
Corporation, as seller, relating to Corinth Square Professional
Building; incorporated by reference to Exhibit 10.6 to Partnership's
Quarterly Report on Form 10-Q previously filed on August 15, 1990.
10.7 Agreement of Joint Venture of Corinth Square Associates dated October
1, 1990 between the Partnership and United Investors Income Properties
II; incorporated by reference to Exhibit 4.4 to Partnership's Current
Report on Form 8-K previously filed on October 23, 1990.
10.8 Stock Purchase Agreement dated December 4, 1992 showing the purchase
of 100% of the outstanding stock of United Investors Real Estate, Inc.
by MAE GP Corporation; incorporated by reference to Exhibit 10.8 to
Partnership's Current Report on Form 8-K previously filed on
December 31, 1992.
16 Letter dated October 1, 1998 from the Registrant's former accountant
incorporated by reference to exhibit (c) filed with Registrant's
Current Report on Form 8-K/A dated September 23, 1998.
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from United
Investors Income Properties 1998 Year-End 10-KSB and is qualified in its
entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000830056
<NAME> UNITED INVESTORS INCOME PROPERTIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 928
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,513
<DEPRECIATION> 3,400
<TOTAL-ASSETS> 10,944
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 10,806
<TOTAL-LIABILITY-AND-EQUITY> 10,944
<SALES> 0
<TOTAL-REVENUES> 1,886
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,340
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 566
<EPS-PRIMARY> 9.17<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
