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 June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from________to________
Commission file number 0-17646
UNITED INVESTORS INCOME PROPERTIES
(Exact name of small business issuer as specified in its charter)
Missouri 43-1483942
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
UNITED INVESTORS INCOME PROPERTIES
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 1999
Assets
Cash and cash equivalents $ 1,055
Receivables and deposits 202
Other assets 73
Investment properties:
Land $ 1,862
Buildings and related personal property 10,728
12,590
Less accumulated depreciation (3,604) 8,986
Investment in joint venture 635
$10,951
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 4
Tenant security deposit liabilities 61
Accrued property taxes 45
Other liabilities 42
Partners' Capital (Deficit)
General partner's $ (24)
Limited partners' (61,063 units
issued and outstanding) 10,823 10,799
$10,951
See Accompanying Notes to Financial Statements
b)
UNITED INVESTORS INCOME PROPERTIES
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenues
Rental income $ 445 $ 455 $ 904 $ 876
Other income 37 32 72 60
Total revenues 482 487 976 936
Expenses:
Operating 175 264 325 422
General and administrative 48 23 86 45
Depreciation 104 99 204 198
Property taxes 41 37 75 74
Total expenses 368 423 690 739
Equity in income of
joint venture 6 6 15 8
Net income $ 120 $ 70 $ 301 $ 205
Net income allocated to
general partner (1%) $ 1 $ 1 $ 3 $ 2
Net income allocated to
limited partners (99%) 119 69 298 203
$ 120 $ 70 $ 301 $ 205
Net income per limited
partnership unit $1.95 $1.13 $4.88 $3.32
Distributions per limited
partnership unit $2.49 $2.49 $4.99 $4.99
See Accompanying Notes to Financial Statements
c)
UNITED INVESTORS INCOME PROPERTIES
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original capital contributions 61,063 $ -- $15,266 $15,266
Partners' (deficit) capital at
December 31, 1998 61,063 $ (24) $10,830 $10,806
Distributions to partners -- (3) (305) (308)
Net income for the six months
ended June 30, 1999 -- 3 298 301
Partners' (deficit) capital at
June 30, 1999 61,063 $ (24) $10,823 $10,799
See Accompanying Notes to Financial Statements
d)
UNITED INVESTORS INCOME PROPERTIES
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Net income $ 301 $ 205
Adjustments to reconcile net income to
net cash provided by operating activities
Equity in net income of joint venture (15) (8)
Depreciation 204 198
Amortization of lease commissions 3 3
Change in accounts:
Receivables and deposits (28) (58)
Other assets 14 30
Accounts payable (21) 1
Tenant security deposit liabilities 2 3
Accrued property taxes 38 27
Other liabilities (5) (8)
Net cash provided by operating
activities 493 393
Cash flows from investing activities:
Property improvements and replacements (77) (74)
Distributions from joint venture 19 --
Net cash used in investing
activities (58) (74)
Cash flows used in financing activities:
Distributions to partners (308) (308)
Net increase in cash and cash equivalents 127 11
Cash and cash equivalents at beginning of period 928 728
Cash and cash equivalents at end of period $1,055 $ 739
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 six month periods ended June 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 ultimately 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
(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 during the six months ended June
30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in
operating expenses) $ 45 $ 44
Reimbursement for services of affiliates
(included in general and administrative
expenses) 19 18
During the six months ended June 30, 1999 and 1998, affiliates of the General
Partner were entitled to receive 5% of the gross receipts from all of the
Partnership's residential properties as compensation for providing property
management services. The Partnership paid to such affiliates $45,000 and $42,000
for the six months ended June 30, 1999 and 1998, respectively. During the six
months ended June 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 property management services. These services were
performed by affiliates of the General Partner for the six months ended June 30,
1998, and were $2,000. 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 $19,000 and $18,000 for the
six months ended June 30, 1999 and 1998, respectively.
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 7,489.00 units of
limited partnership interest in the Partnership representing approximately
12.26% 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 condensed balance sheet of Corinth Square at June 30, 1999, is summarized as
follows (in thousands):
Assets
Commercial property, net $1,724
Other assets 131
Total $1,855
Liabilities and Partners' Capital
Liabilities $ 40
Partners' capital 1,815
Total $1,855
Condensed statements of operations of Corinth Square for the six months ended
June 30, 1999 and 1998, are as follows (in thousands):
1999 1998
Revenue $ 205 $ 188
Costs and expenses 162 166
Net income $ 43 $ 22
NOTE E - 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 six months ended June 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 $ 830 $ 74 $ -- $ 904
Other income 57 -- 15 72
Depreciation 172 32 -- 204
General and administrative expense -- -- 86 86
Equity in income of joint venture -- -- 15 15
Segment profit (loss) 346 11 (56) 301
Total assets 8,142 1,591 1,218 10,951
Capital expenditures for
investment properties 77 -- -- 77
1998 Residential Commercial Other Totals
Rental income $ 785 $ 91 $ -- $ 876
Other income 44 1 15 60
Depreciation 166 32 -- 198
General and administrative expense -- -- 45 45
Equity in income of joint venture -- -- 8 8
Segment profit (loss) 247 (20) (22) 205
Total assets 7,955 1,654 1,277 10,886
Capital expenditures for
investment properties 55 19 -- 74
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 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.
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 six month periods ended June 30,
1999 and 1998:
Average Occupancy
Property 1999 1998
Bronson Place Apartments
Mountlake Terrace, Washington 95% 95%
Meadow Wood Apartments
Medford, Oregon 93% 88%
Defoors Crossing Apartments
Atlanta, Georgia 94% 92%
Peachtree Corners Medical Building
Atlanta, Georgia 74% 74%
The General Partner attributes the increased occupancy at Meadow Wood Apartments
to improved market conditions and increased marketing efforts.
Results of Operation
The Partnership realized net income of approximately $301,000 for the six month
period ended June 30, 1999, compared to net income of approximately $205,000 for
the six month period ended June 30, 1998. The Partnership's net income for the
three months ended June 30, 1999, was approximately $120,000 compared to net
income of approximately $70,000 for the three months ended June 30, 1998. The
increase in net income for the six months ended June 30, 1999, is due to an
increase in total revenues and a decrease in total expenses. The increase in
total revenues for the six months ended June 30, 1999 is primarily attributable
to increased rental income. Rental income increased as a result of increased
rental rates at all the Partnership's properties and increased occupancy at
Meadow Wood and Defoors Crossing Apartments, partially offset by a decrease in
operating expense recoveries at Peachtree Corners Medical Building. The
increase in net income for the three months ended June 30, 1999 is due to a
decrease in total expenses, offset by a slight decrease in total revenues.
Total revenues for the three months ended June 30, 1999, decreased due to a
reduction in operating expense recoveries at Peachtree Corners Medical Building
during the second quarter of 1999.
The decrease in total expenses for the three and six month periods ended June
30, 1999, is primarily due to a decrease in operating expenses, partially offset
by an increase in general and administrative expenses. Operating expenses
decreased primarily due to decreased maintenance expenses at Peachtree Corners
Medical Building due to the completion during 1998 of renovations necessary as a
result of storm damage incurred during the second quarter of 1998 and the
completion during 1998 of exterior painting and landscaping at Bronson Place.
In addition, insurance expense decreased for all the Partnership's properties
due to lower rates received from a new insurance carrier and payroll expenses
decreased at Defoors Crossing Apartments. General and administrative expenses
increased due to an increase in professional fees related to the oversight of
the Partnership, increased legal expenses, and increased printing and mailing
costs. 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.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment properties to assess
the feasibility of increasing rents, maintaining or increasing occupancy levels
and protecting the Partnership from increases in expenses. As part of this plan,
the General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. Due to changing market conditions, which can
result in the use of rental concessions and rental reductions to offset
softening market conditions, there is no guarantee that the General Partner will
be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 1999, the Partnership had cash and cash equivalents of approximately
$1,055,000 compared to approximately $739,000 at June 30, 1998. Cash and cash
equivalents increased by approximately $127,000 since December 31, 1998, due to
approximately $493,000 of cash provided by operating activities, which was
partially offset by approximately $58,000 of cash used in investing activities
and approximately $308,000 of cash used in financing activities. Cash used in
investing activities consisted primarily of property improvements and
replacements offset by a distribution from the Corinth Square joint venture.
Cash used in financing activities consisted of distributions paid to the
partners. The Partnership 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 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 six months ended June 30, 1999, the Partnership has spent
approximately $57,000 on capital improvements at Bronson Place Apartments,
primarily consisting of structural improvements, which are substantially
complete, carpet and vinyl replacements, and electrical 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 $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
includes certain of the required improvements, and consists primarily of carpet
and vinyl replacements.
Defoors Crossing
During the six months ended June 30, 1999, the Partnership has spent
approximately $8,000 on capital improvements at Defoors Crossing Apartments,
primarily consisting of carpet and vinyl replacements and appliances. 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
includes certain of the required improvements, and consists primarily of carpet
and vinyl replacements, landscaping, signage and parking lot repairs.
Meadow Wood
During the six months ended June 30, 1999, the Partnership has spent
approximately $12,000 on capital improvements at Meadow Wood Apartments,
primarily consisting of carpet and vinyl replacements, appliances and
landscaping. 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 includes certain of the required improvements, and consists
primarily of parking lot improvements, carpet and vinyl replacements and
appliances.
Peachtree Medical Building
The Partnership did not make any capital improvements at Peachtree Medical
Building during the six months ended June 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 includes
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 each of the six month periods ended June
30, 1999 and 1998. The Partnership's distribution policy will be 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 additional distributions to its partners
in 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 7,489.00 units of
limited partnership interest in the Partnership representing approximately
12.26% 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 June 30, 1999, had completed approximately 90% 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
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
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 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
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 no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 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
June 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 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 July,
1999. The Managing Agent has updated data transmission standards with all of the
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 September 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 $2.9 million ($0.7 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.
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 June 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/ Carla R. Stoner
Carla R. Stoner
Senior Vice President
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from United
Investors Income Properties 1999 Second 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,055
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,590
<DEPRECIATION> 3,604
<TOTAL-ASSETS> 10,951
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 10,799
<TOTAL-LIABILITY-AND-EQUITY> 10,951
<SALES> 0
<TOTAL-REVENUES> 976
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 690
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 301
<EPS-BASIC> 4.88<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
