FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT of 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the transition period from _________to _________
Commission file number 0-17645
UNITED INVESTORS GROWTH PROPERTIES
(Exact name of small business issuer as specified in its charter)
Missouri 43-1483928
(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)
(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
ITEM 1. FINANCIAL STATEMENTS
a)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 1999
Assets
Cash and cash equivalents $ 784
Receivables and deposits 237
Restricted escrows 195
Other assets 285
Investment properties:
Land $ 1,480
Buildings and related personal property 14,102
15,582
Less accumulated depreciation (5,102) 10,480
$ 11,981
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 94
Tenant security deposit liabilities 76
Accrued property taxes 65
Other liabilities 141
Mortgage notes payable 10,766
Partners' Capital
General partner $ 3
Limited partners (39,287 units
issued and outstanding) 836 839
$ 11,981
See Accompanying Notes to Consolidated Financial Statements
b)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Revenues:
Rental income $ 635 $ 785 $1,893 $2,306
Other income 50 41 124 116
Total revenues 685 826 2,017 2,422
Expenses:
Operating 273 398 844 1,064
General and administrative 45 30 115 83
Depreciation 137 150 410 439
Interest 219 261 628 790
Property taxes 64 78 170 238
Total expenses 738 917 2,167 2,614
Net loss $ (53) $ (91) $ (150) $ (192)
Net loss allocated
to general partner (1%) $ (1) $ (1) $ (2) $ (2)
Net loss allocated
to limited partners (99%) (52) (90) (148) (190)
$ (53) $ (91) $ (150) $ (192)
Net loss per limited
partnership unit $(1.32) $(2.29) $(3.77) $(4.84)
Distributions per limited
partnership unit $18.91 $ -- $18.91 $10.08
See Accompanying Notes to Consolidated Financial Statements
c)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 39,297 $ -- $ 9,824 $ 9,824
Partners' capital at
December 31, 1998 39,287 $ 12 $ 1,727 $ 1,739
Distribution to partners -- (7) (743) (750)
Net loss for the nine months
ended September 30, 1999 -- (2) (148) (150)
Partners' capital
at September 30, 1999 39,287 $ 3 $ 836 $ 839
See Accompanying Notes to Consolidated Financial Statements
d)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities:
Net loss $ (150) $ (192)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 410 439
Amortization of loan costs, lease commissions
and loan premiums, net 15 (22)
Change in accounts:
Receivables and deposits (8) 18
Other assets 21 (32)
Accounts payable (1) 137
Tenant security deposit liabilities 4 9
Accrued property taxes 20 (15)
Other liabilities 4 47
Net cash provided by operating activities 315 389
Cash flows from investing activities:
Property improvements and replacements (300) (172)
Net deposits to restricted escrows (65) (54)
Net cash used in investing activities (365) (226)
Cash flows from financing activities:
Payments on mortgage note payable (113) (109)
Payoff of mortgage note payable (2,397) --
Proceeds from debt refinancing 3,500 --
Loan costs paid (99) (21)
Distributions to partners (750) (400)
Net cash provided by (used in) financing activities 141 (530)
Net increase (decrease) in cash and cash equivalents 91 (367)
Cash and cash equivalents at beginning of period 693 1,120
Cash and cash equivalents at end of period $ 784 $ 753
Supplemental disclosure of cash flow information:
Cash paid for interest $ 612 $ 766
See Accompanying Notes to Consolidated Financial Statements
e)
UNITED INVESTORS GROWTH PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of United Investors
Growth 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., a
Delaware corporation (the "General Partner"), all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1999, are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1999. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Partnership's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998.
Principles of Consolidation
The consolidated financial statements include all the accounts of the
Partnership and its three 100% owned limited liability companies, Terrace
Royale, L.L.C., Cheyenne Woods United Investors, L.L.C. and Deerfield
Apartments, L.L.C. Although legal ownership of the respective asset remains
with these entities, the Partnership retains all economic benefits from the
properties. As a result, the Partnership consolidates its interest in these
three entities, whereby all accounts are included in the consolidated financial
statements of the Partnership with all inter-entity accounts being eliminated.
NOTE B - TRANSFER OF CONTROL
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the General Partner. The General Partner does not believe that this transaction
will have a material effect on the affairs and operations of the Partnership.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership. The following payments were made to the General
Partner and affiliates during the nine month periods ended September 30, 1999
and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expenses) $102 $125
Reimbursement for services of affiliates (included in
operating and general and administrative expenses) 38 38
During the nine months ended September 30, 1999 and 1998, affiliates of the
General Partner were entitled to receive 5% of gross receipts from all of the
Registrant's residential properties as compensation for providing property
management services. The Registrant paid to such affiliates approximately
$102,000 and $100,000 for the nine months ended September 30, 1999 and 1998,
respectively. During the nine months ended September 30, 1998, affiliates of
the General Partner were entitled to varying percentages of gross receipts from
the Registrant's commercial property as compensation for providing property
management services. These services were performed by affiliates of the General
Partner during the nine months ending September 30, 1998, and were approximately
$25,000. On December 15, 1998, the lender foreclosed on this commercial
property.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $38,000 for both the nine
month periods ended September 30, 1999 and 1998, including approximately $1,000
of construction reimbursement costs for the period ended September 30, 1998. No
such costs were incurred for the nine months ended September 30, 1999.
On June 9, 1999, AIMCO Properties, L.P., an affiliate of the General Partner
commenced a tender offer to purchase up to 15,930.68 (approximately 40.55% of
the total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $65 per unit. The offer expired on July 16,
1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,497.00 units.
As a result, AIMCO and its affiliates currently own 8,117.00 units of limited
partnership interest in the Partnership representing approximately 20.66% of the
total outstanding units. It is possible that AIMCO or its affiliates will make
one or more 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 - REFINANCING
On January 29, 1999, the Partnership refinanced the mortgage encumbering Terrace
Royale Apartments. The refinancing replaced indebtedness of approximately
$2,397,000 with a new mortgage in the amount of $3,500,000 at an interest rate
of 6.51%. The interest rate on the old mortgage was 13.5%, under the
forbearance agreement in effect at the time of the refinancing. Payments are
due on the first day of each month until the loan matures on February 1, 2019.
Total capitalized loan costs were approximately $99,000.
NOTE E - DISTRIBUTIONS
A cash distribution of approximately $750,000 (approximately $743,000 to the
limited partners or $18.91 per limited partnership unit) was made during the
nine months ended September 30, 1999. This distribution represented the
remaining net proceeds from the mortgage refinancing at Deerfield and a portion
of the net proceeds from the mortgage refinancing at Terrace Royale Apartments.
A cash distribution of approximately $400,000 (approximately $396,000 to the
limited partners or $10.08 per limited partnership unit) was made during the
nine months ended September 30, 1998. This distribution represented a portion of
the net proceeds from the mortgage refinancing at Deerfield in November 1997.
NOTE F - SEGMENT REPORTING
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of three apartment complexes
in Bothell, Washington; North Las Vegas, Nevada and Memphis, Tennessee. The
Partnership rents apartment units to tenants for terms that are typically twelve
months or less.
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment 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 segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the nine months ended September 30, 1999 and 1998, is
shown in the tables below (in thousands). The "Other" column includes
Partnership administration related items and income and expense not allocated to
the reportable segment.
1999 Residential Other Totals
Rental income $ 1,893 $ -- $ 1,893
Other income 95 29 124
Interest expense (income) 631 (3) 628
Depreciation 410 -- 410
General and administrative expense -- 115 115
Segment loss (65) (85) (150)
Total assets 11,286 695 11,981
Capital expenditures for investment properties 300 -- 300
1998 Residential Other Totals
Rental income $ 1,902 $ 404 $ 2,306
Other income 90 26 116
Interest expense 601 189 790
Depreciation 398 41 439
General and administrative expense -- 83 83
Segment loss (108) (84) (192)
Total assets 11,212 2,356 13,568
Capital expenditures for investment properties 166 6 172
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 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.
The Partnership's investment properties consist of three apartment complexes.
The following table sets forth the average occupancy of the properties for each
of the nine month periods ended September 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Terrace Royale Apartments 94% 98%
Bothell, Washington
Cheyenne Woods Apartments 90% 89%
North Las Vegas, Nevada
Deerfield Apartments 95% 95%
Memphis, Tennessee
The General Partner attributes the decrease in occupancy at Terrace Royale to
increased competition in the Bothell, Washington area. New units have been
constructed, and these properties are offering concessions and move in
incentives.
Results of Operations
The Registrant's net loss for the nine months ended September 30, 1999 was
approximately $150,000 compared to a net loss of approximately $192,000 for the
nine months ended September 30, 1998. The Registrant's net loss for the three
months ended September 30, 1999, was approximately $53,000 compared to a net
loss of approximately $91,000 for the three months ended September 30, 1998.
The decrease in net loss for the three and nine month periods ended September
30, 1999, is due primarily to a decrease in total expenses partially offset by a
decrease in rental revenue due to the foreclosure of Greystone South Plaza
Center in December 1998, as discussed below. Excluding the operations of
Greystone South Plaza Center, the Partnership had a net loss of approximately
$147,000 for the nine months ended September 30, 1999, compared to a net loss of
approximately $164,000 for the nine months ended September 30, 1998. Excluding
the operations of Greystone South Plaza Center, the Partnership had a net loss
of approximately $53,000 for the three months ended September 30, 1999, compared
to a net loss of approximately $75,000 for the comparable period in 1998. The
decrease in net loss for the three and nine months ended September 30, 1999 was
primarily due to a decrease in total expenses.
Total expenses, excluding Greystone South Plaza Center, decreased for the three
and nine months ended September 30, 1999, due to decreased operating expenses,
which were partially offset by increases in interest and general and
administrative expenses. The decrease in operating expenses was primarily due
to lower maintenance expenses at Deerfield Apartments due to the completion in
1998 of an exterior painting project. No such projects were undertaken during
the nine months ended September 30, 1999. In addition, insurance expense
decreased at all the Partnership's properties due to lower rates received from a
new insurance carrier late in 1998 and security patrol expense decreased at
Cheyenne Woods. These decreases were partially offset by an increase in fees
charged by the lender for the forebearance agreement while refinancing Terrace
Royale Apartments, increased advertising expense at all of the Partnership's
properties, and appraisal costs incurred at all the Partnership's properties
during 1999. No appraisals were done during the nine months ended September 30,
1998. The increase in interest expense is due to additional interest incurred
at Terrace Royale during the forbearance period on the previous mortgage. During
the forbearance period, the interest rate was increased by the lender to 13.50%.
General and administrative expenses increased primarily due to increased
professional fees associated with managing the Partnership. Included in general
and administrative expenses at both September 30, 1999 and 1998, are management
reimbursements to the General Partner allowed under the Partnership Agreement.
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.
Total revenues, excluding Greystone South Plaza Center, remained stable for the
three and nine month periods ended September 30, 1999 due to an increase in
other income which was offset by a decrease in rental income. Other income
increased for the three and nine month periods ended September 30, 1999 due to
increased utility income at Terrace Royale and increased interest income due to
increased average cash balances in interest bearing accounts. Rental income
decreased for the three and nine month periods ended September 30, 1999, due
to decreased average rental rates at Cheyenne Woods, reduced occupancy at
Terrace Royale, and increased concession costs at all of the Partnership's
properites partially offset by increased average rental rates at Terrace Royale
and Deerfield.
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. 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 September 30, 1999, the Registrant had cash and cash equivalents of
approximately $784,000 as compared to approximately $753,000 at September 30,
1998. The increase in cash and cash equivalents of approximately $91,000 from
the Registrant's year ended December 31, 1998, is due primarily to approximately
$315,000 of cash provided by operating activities, and to a lesser extent, to
approximately $141,000 of cash provided by financing activities which was
partially offset by approximately $365,000 of cash used in investing activities.
Cash used in investing activities consisted primarily of property improvements
and replacements and, to a lesser extent, deposits to escrow accounts maintained
by the mortgage lender. Cash provided by financing activities consisted of net
proceeds from the refinancing of Terrace Royale Apartments which was partially
offset by payments of principal made on the mortgages encumbering the
Registrant's properties, a distribution to partners, and additional loan costs
paid. The Partnership invests its working capital reserves in money market
accounts.
On December 15, 1998, the lender foreclosed on Greystone South Plaza Center.
The mortgage note payable had been in default since December 1997. In the
General Partner's opinion, it was not in the Partnership's best interest to
contest the foreclosure action.
On January 29, 1999, the Partnership refinanced the mortgage encumbering Terrace
Royale Apartments. The refinancing replaced indebtedness of approximately
$2,397,000 with a new mortgage in the amount of $3,500,000 at an interest rate
of 6.51%. The interest rate on the old mortgage was 13.5%, under the
forbearance agreement in effect at the time of the refinancing. Payments are
due on the first day of each month until the loan matures on February 1, 2019.
Total capitalized loan costs were approximately $99,000.
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 Registrant and to comply with Federal,
state and local legal and regulatory requirements. Capital improvements planned
for each of the Registrant's properties are detailed below.
Terrace Royale Apartments
During the nine months ended September 30, 1999, the Partnership completed
approximately $24,000 of capital improvements at Terrace Royale Apartments
consisting primarily of carpet and vinyl replacement 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 $183,000 of capital
improvements over the next few years. Capital improvements budgeted for, but
not limited to, approximately $83,000 are planned for 1999, which include
certain of the required improvements and consist of HVAC condensing units,
carpet replacement, exterior building enhancement and other building
improvements.
Cheyenne Woods Apartments
During the nine months ended September 30, 1999, the Partnership completed
approximately $182,000 of capital improvements at Cheyenne Woods, which
consisted primarily of carpet and vinyl replacements, exterior building
enhancements, roof replacement and appliances. The roof replacement is
approximately 75% complete as of September 30, 1999. These capital improvements
were funded from the property's replacement reserves and 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 $183,000 of capital improvements over the next few years.
Capital improvements budgeted for, but not limited to, approximately $254,000
are planned for 1999 which include certain of the required improvements and
consist of carpet and vinyl replacement and other interior and exterior building
improvements.
Deerfield Apartments
During the nine months ended September 30, 1999, the Partnership completed
approximately $94,000 of capital improvements at Deerfield Apartments consisting
primarily of parking lot resurfacing, roof replacement, appliances and carpet
and vinyl replacements. The roof replacement is approximately 50% complete as
of September 30, 1999. These improvements were funded from the Partnership's
operating 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 $183,000 of capital improvements over the next few years.
Capital improvements budgeted for, but not limited to, approximately $450,000
are planned for 1999 which include certain of the required improvements and
consist of stairwell improvements, roof replacement, and other interior and
exterior building improvements.
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 improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $10,766,000 has maturity dates ranging from 2004
to 2019 with balloon payments due at maturity. The General Partner will attempt
to refinance such indebtedness and/or sell the properties prior to such maturity
dates. If the properties cannot be refinanced and/or sold for a sufficient
amount, the Partnership may risk losing such properties through foreclosure.
A cash distribution of approximately $750,000 (approximately $743,000 to the
limited partners or $18.91 per limited partnership unit) was made during the
nine months ended September 30, 1999. This distribution represented the
remaining net proceeds from the mortgage refinancing at Deerfield and a portion
of the net proceeds from the mortgage refinancing at Terrace Royale Apartments.
A cash distribution of approximately $400,000 (approximately $396,000 to the
limited partners or $10.08 per limited partnership unit) was made during the
nine months ended September 30, 1998. This distribution represented a portion of
the net proceeds from the mortgage refinancing at Deerfield. Future cash
distributions will depend on the levels of net cash generated from operations,
the timing of debt maturities, refinancings and/or property sales and the
availability of cash reserves. The Registrant's distribution policy is reviewed
on an annual basis. There can be no assurance, however, that the Registrant will
generate sufficient funds from operations after required capital expenditures to
permit further distributions to its partners during the remainder of 1999 or
subsequent periods.
Tender Offer
On June 9, 1999, AIMCO Properties, L.P., an affiliate of the General Partner
commenced a tender offer to purchase up to 15,930.68 (approximately 40.55% of
the total outstanding units) units of limited partnership interest in the
Partnership for a purchase price of $65 per unit. The offer expired on July 16,
1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 3,497.00 units.
As a result, AIMCO and its affiliates currently own 8,117.00 units of limited
partnership interest in the Partnership representing approximately 20.66% of the
total outstanding units. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made, or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
routers and desktop PCs were analyzed for compliance. The Managing Agent has
begun to replace each of the non-compliant network connections and desktop PCs
and, as of September 30, 1999, had virtually completed this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date.
Computer Software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
In April 1999 the Managing Agent embarked on a data center consolidation project
that unifies its core financial systems under its Year 2000 compliant system.
The estimated completion date for this project is October 1999.
During 1998, the Managing agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and testing process was
completed in June 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded virtually all of the server operating systems.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally.
A pre-assessment of the properties by the Managing Agent has indicated virtually
no Year 2000 issues. A complete, formal assessment of all the properties by the
Managing Agent was virtually completed by September 30, 1999. Any operating
equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
September 30, 1999 to replace or repair the operating equipment was
approximately $75,000. The Managing Agent estimates the cost to replace or
repair any remaining operating equipment is approximately $125,000.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within its enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent has banking relationships with three major financial
institutions, all of which have designated their compliance. The Managing Agent
has updated data transmission standards with all of the financial institutions.
All financial institutions have communicated that they are Year 2000 compliant
and accordingly no accounts were required to be moved from the existing
financial institutions.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date, the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.9 million ($0.7 million expenses
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1999.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNITED INVESTORS GROWTH PROPERTIES
By: United Investors Real Estate, Inc.
Its General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from United
Investors Growth Properites 1999 Third Quarter 10-QSB and is qualified in its
entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000831663
<NAME> UNITED INVESTORS GROWTH PROPERTIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 784
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 15,582
<DEPRECIATION> 5,102
<TOTAL-ASSETS> 11,981
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 10,766
0
0
<COMMON> 0
<OTHER-SE> 839
<TOTAL-LIABILITY-AND-EQUITY> 11,981
<SALES> 0
<TOTAL-REVENUES> 2,017
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,167
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 628
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (150)
<EPS-BASIC> (3.77)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
