March 29, 2000
United States
Securities and Exchange Commission
Washington, D.C. 20549
RE: United Investors Growth Properties
Form 10-KSB
File No. 0-17645
To Whom it May Concern:
The accompanying Form 10-KSB for the year ended December 31, 1999 describes a
change in the method of accounting to capitalize exterior painting and major
landscaping, which would have been expensed under the old policy. The
Partnership believes that this accounting principle change is preferable because
it provides a better matching of expenses with the related benefit of the
expenditures and it is consistent with industry practice and the policies of the
General Partner.
Please do not hesitate to contact the undersigned with any questions or comments
that you might have.
Very truly yours,
Stephen Waters
Real Estate Controller
FORM 10-KSB--Annual or Transitional Report Under
Section 13 or 15(d)
Form 10-KSB
[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, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF1934 [No Fee Required]
For the transition period _________to _________
Commission file number 0-17645
UNITED INVESTORS GROWTH PROPERTIES
(Name of small business issuer in its charter)
Missouri 43-1483928
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
Issuer's telephone number
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 Interests
(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 of 1934 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. $2,721,000
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, 1999. 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 Growth Properties (the "Registrant" or "Partnership"), a
Missouri Limited Partnership, was organized as a limited partnership under the
laws of the State of Missouri on July 1, 1988. The Partnership is governed by an
Agreement of Limited Partnership dated October 24, 1988. United Investors Real
Estate, Inc., a Delaware corporation, is the sole general partner (the "General
Partner" or "UIRE") 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"), which is a subsidiary of Apartment Investment
and Management Company ("AIMCO"). Thus the General Partner is a now wholly-owned
subsidiary of AIMCO. The Partnership Agreement provides that the Partnership is
to terminate on December 31, 2018 unless terminated prior to such date.
The Partnership's primary business is to operate and hold existing real estate
properties for investment. The Partnership acquired three multifamily
residential properties and a retail center which included medical office space.
In addition, the Partnership owned a 60% interest in a joint venture which owned
a multifamily residential property. During the third quarter of 1995, the joint
venture property was sold. During the fourth quarter of 1998, the commercial
property was foreclosed on by the lender holding the mortgage encumbering the
property. The three remaining properties are further described in "Item 2.
Description of Properties" below.
Commencing on or about June 13, 1988, the Partnership offered pursuant to a
Registration Statement filed with the Securities and Exchange Commission, 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). Since its initial offering, the
Registrant has not received, nor are limited partners required to make,
additional capital contributions. The offering of Units terminated June 13,
1990. Upon termination of the offering, the Partnership had accepted
subscriptions for 39,297 Units resulting in Gross Offering Proceeds of
$9,824,000.
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 for the years ended December 31, 1999 and 1998.
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential 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 the
apartments at the Partnership's properties and the rents that may be charged for
such apartments. While the General Partner and its affiliates own and/or control
a significant number of apartment units in the United States, such units
represent an insignificant percentage of total apartment units in the United
States and competition for the apartments is local.
<PAGE>
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
changes in the supply and demand for similar properties resulting from various
market conditions, increases/decreases in unemployment or population shifts,
changes in the 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 residential 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.
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.
Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and IPT merged into 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 has had or 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:
<TABLE>
<CAPTION>
Date of
Property Purchase Type of Ownership Use
<S> <C> <C> <C>
Terrace Royale Apartments 11/01/88 Fee ownership subject Apartment
Bothell, Washington to first mortgage 80 units
Cheyenne Woods Apartments 04/18/89 Fee ownership subject Apartment
North Las Vegas, Nevada to first mortgage (1) 160 units
Deerfield Apartments 10/24/90 Fee ownership subject Apartment
Memphis, Tennessee to first mortgage (1) 136 units
</TABLE>
(1) Property is held by a limited liability company in which the Registrant
owns a 100% interest.
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)
Terrace Royale $ 4,560 $ 1,613 5-40 yrs S/L $ 2,914
Cheyenne Woods 6,527 2,128 5-40 yrs S/L 4,256
Deerfield 4,787 1,563 5-40 yrs S/L 3,167
Totals $15,874 $ 5,304 $10,337
See "Note A" of the consolidated financial statements included in "Item 7.
Financial Statements" for a description of the Partnership's depreciation policy
and "Note K - Change in Accounting Principle".
Schedule of Property Indebtedness:
The following table sets forth certain information relating to the loans
encumbering the Registrant's properties.
<TABLE>
<CAPTION>
Principal Principal
Balance At Stated Balance
December 31, Interest Period Maturity Due At
Property 1999 Rate Amortized Date Maturity (1)
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Terrace Royale $ 3,427 6.51% 20 yrs 02/19 $ --
Cheyenne Woods 3,769 7.67% 30 yrs 09/07 3,360
Deerfield 3,529 7.34% 30 yrs 12/04 3,303
Total $10,725 $ 6,663
</TABLE>
(1) See "Item 7. Financial Statements - Note D" for information with respect
to the Registrant's ability to prepay these loans and other specific
details about the loans.
<PAGE>
Rental Rates and Occupancy:
Average annual rental rates and occupancy for 1999 and 1998 for each property:
Average Annual Average
Rental Rate Occupancy
(per unit)
Property 1999 1998 1999 1998
Terrace Royale $10,544 $10,188 95% 98%
Cheyenne Woods 6,755 6,935 90% 88%
Deerfield 6,704 6,471 95% 95%
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.
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties are subject to competition from other
residential apartment complexes in the localities in which they operate. The
General Partner believes that all of the properties are adequately insured. The
properties are apartment complexes which lease their units for terms of one year
or less. No residential tenant leases 10% or more of the available rental space.
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.
Real Estate Taxes and Rates:
Real estate taxes and rates in 1999 for each property were:
1999 1999
Billing Rate
(in thousands)
Terrace Royale $ 81 1.53%
Cheyenne Woods 74 1.17%
Deerfield 89 5.54%
Capital Expenditures:
Terrace Royale Apartments
During the year ended December 31, 1999, the Partnership completed approximately
$57,000 of capital improvements at Terrace Royale Apartments, consisting
primarily of carpet and vinyl replacements, appliances, structural repairs, and
major landscaping. These improvements were funded from cash flow from
operations. The Partnership is currently evaluating the capital improvement
needs of the property for the upcoming year. The minimum amount to be budgeted
is expected to be $300 per unit or $24,000. Additional improvements may be
considered and will depend on the physical condition of the property as well as
replacement reserves and anticipated cash flow generated by the property.
<PAGE>
Cheyenne Woods Apartments
During the year ended December 31, 1999, the Partnership completed approximately
$292,000 of capital improvements at Cheyenne Woods Apartments, consisting
primarily of carpet and vinyl replacements, roof replacement, appliances, and
exterior painting. These improvements were funded from cash flow from operations
and from the property's replacement reserves. The Partnership is currently
evaluating the capital improvement needs of the property for the upcoming year.
The minimum amount to be budgeted is expected to be $300 per unit or $48,000.
Additional improvements may be considered and will depend on the physical
condition of the property as well as replacement reserves and anticipated cash
flow generated by the property.
Deerfield Apartments
During the year ended December 31, 1999, the Partnership completed approximately
$147,000 of capital expenditures at Deerfield Apartments, consisting primarily
of carpet and vinyl replacements, parking lot upgrades, appliances, and air
conditioning improvements. These improvements were funded from the Partnership's
operating cash flow. The Partnership is currently evaluating the capital
improvement needs of the property for the upcoming year. The minimum amount to
be budgeted is expected to be $300 per unit or $40,800. Additional improvements
may be considered and will depend on the physical condition of the property as
well as replacement reserves and anticipated cash flow generated by the
property.
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, 1999, no matters were submitted to a vote
of Unit holders through the solicitation of proxies or otherwise.
<PAGE>
PART II
Item 5. Market for Partnership Equity and Related Partner Matters
The Partnership, a publicly held limited partnership, offered and sold 39,297
limited partnership units aggregating $9,824,000. The Partnership currently has
927 holders on record owning an aggregate of 39,287 Units. Affiliates of the
General Partner owned 10,079 units or 25.655% at December 31, 1999. No public
trading market has developed for the Units, and it is not anticipated that such
a market will develop in the future.
The following table sets forth the distributions made by the Partnership for the
years ended December 31, 1998 and 1999:
Distributions
Per Limited
Aggregate Partnership Unit
01/01/98 - 12/31/98 $400,000 (1) $10.08
01/01/99 - 12/31/99 $750,000 (1) $18.91
(1) Distribution was made from cash from refinance proceeds (see "Item 6" for
further details).
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves and the timing of debt maturities,
refinancings, and /or property sales. The Partnership's distribution policy is
reviewed on an annual basis. There can be no assurance, however, that the
Partnership will generate sufficient funds from operations, after required
capital expenditures, to permit any additional distributions to its partners in
the year 2000 or subsequent periods. See "Item 2. Description of Properties -
Capital Improvements" for information relating to anticipated capital
expenditures at the properties.
Several tender offers were made by various parties, including affiliates of the
General Partner, during the years ended December 31, 1999 and 1998. As a result
of these tender offers, AIMCO and its affiliates currently own 10,079 limited
partnership units in the Partnership representing 25.655% of the 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. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
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
disclosures 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 consolidated financial statements and other items contained elsewhere in
this report.
Results of Operations
The Registrant's net loss for the year ended December 31, 1999 was approximately
$162,000 compared to net income of approximately $2,065,000 for the year ended
December 31, 1998. (See "Note F" of the consolidated financial statements in
"Item 7. Financial Statements" for a reconciliation of these amounts to the
Registrant's Federal taxable income (loss)). The increase in net loss was
primarily due to the foreclosure of Greystone South Plaza Center during December
1998. This foreclosure resulted in an extraordinary gain on foreclosure in 1998
of approximately $2,242,000. (See "Note C" of the consolidated financial
statements included in "Item 7. Financial Statements" for further discussion.)
Slightly offsetting the extraordinary gain on foreclosure was a cumulative
effect on prior years of a change in accounting principle in the amount of
$96,000 as discussed below.
Net loss before extraordinary item for the year ended December 31, 1999 was
approximately $258,000, compared to a net loss before extraordinary item of
$177,000 for the year ended December 31, 1998. Excluding the operations of
Greystone South Plaza Center and cumulative effect on prior years of a change in
accounting principle, the Partnership had a net loss of approximately $258,000
for the year ended December 31, 1999, compared to a net loss of approximately
$156,000 for the year ended December 31, 1998. The increase in net loss was
primarily due to an increase in total expenses, which was partially offset by an
increase in total revenues.
Total expenses, excluding Greystone South Plaza Center, increased for the year
ended December 31, 1999 as compared to the year ended December 31, 1998, due to
increased depreciation, interest, and general and administrative expenses, which
were partially offset by a decrease in operating expenses. Depreciation expense
increased due to capital improvements that are now being depreciated. The
increase in interest expense is due to additional interest incurred at Terrace
Royale during the forbearance period on the previous mortgage, as discussed
below. 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 expense at both December 31, 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. 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 and due to the change in
accounting principle, as discussed below. No such projects were undertaken
during the year ended December 31, 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 year ended December 31, 1998.
Total revenues, excluding Greystone South Plaza Center, increased for the year
ended December 31, 1999 due to an increase in other income which was offset by a
decrease in rental income. Other income increased for the year ended December
31, 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 year ended December 31, 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 properties
partially offset by increased average rental rates at Terrace Royale and
Deerfield.
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. During the fourth quarter of 1998, the Partnership recorded
an extraordinary gain on the foreclosure of approximately $2,242,000.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping. The Partnership
believes that this accounting principle change is preferable because it provides
a better matching of expenses with the related benefit of the expenditures and
it is consistent with industry practice and the policies of the General Partner.
The effect of the change in 1999 was to decrease net loss by approximately
$42,000 ($1.07 per limited partnership unit). The cumulative effect adjustment
of approximately $96,000 is the result of applying the aforementioned change in
accounting principle retroactively and is included in income for 1999. The
proforma amounts shown on the statements of operations have been adjusted for
the effect of retroactive application of this change. The accounting principle
change will not have an effect on cash flow, funds available for distribution or
fees payable to the General Partner and affiliates.
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 December 31, 1999, the Registrant had cash and cash equivalents of
approximately $774,000 as compared to approximately $693,000 at December 31,
1998. The increase in cash and cash equivalents of approximately $81,000 from
the Registrant's year ended December 31, 1998, is due primarily to approximately
$488,000 of cash provided by operating activities and, to a lesser extent, to
approximately $91,000 of cash provided by financing activities, which is
partially offset by approximately $498,000 of cash used in investing activities.
Cash used in investing activities consisted primarily of capital 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 Registrant invests its working capital reserves in money market
accounts.
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
forebearance 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 $108,000.
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. The Partnership is currently
evaluating the capital improvement needs of the properties for the upcoming
year. The minimum amount to be budgeted is expected to be $300 per unit or
$112,800. Additional improvements may be considered and will depend on the
physical condition of the properties as well as replacement reserves and
anticipated cash flow generated by the properties. 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 $10,725,000 has maturity dates ranging from 2004
to 2019 with balloon payments due at maturity for the mortgages encumbering
Cheyenne Woods and Deerfield. 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
year ended December 31, 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 year ended
December 31, 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 availability of
cash reserves, and the timing of debt maturities, refinancings, and/or property
sales. 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 any
distributions to its partners in 2000 or subsequent periods.
Tender Offer
Several tender offers were made by various parties, including affiliates of the
General Partner, during the years ended December 31, 1999 and 1998. As a result
of these tender offers, AIMCO and its affiliates currently own 10,079 limited
partnership units in the Partnership representing 25.655% of the 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. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
<PAGE>
Year 2000 Compliance
General Description
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 Managing Agent's computer
programs or hardware that had date-sensitive software or embedded chips might
have recognized a date using "00" as the year 1900 rather than the year 2000.
This could have resulted 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.
Computer Hardware, Software and Operating Equipment
In 1999, the Managing Agent completed all phases of its Year 2000 program by
completing the replacement and repair of any hardware or software system or
operating equipment that was not yet Year 2000 compliant. The Managing Agent's
hardware and software systems and its operating equipment are now Year 2000
compliant. No material failure or erroneous results have occurred in the
Managing Agent's computer applications related to the failure to reference the
Year 2000 to date.
Third Parties
To date, the Managing Agent is not aware of any significant supplier or
subcontractor (external agent) or financial institution of the Partnership that
has a Year 2000 issue that would have a material impact on the Partnership's
results of operations, liquidity or capital resources. However, the Managing
Agent has no means of ensuring or determining the Year 2000 compliance of
external agents. At this time, the Managing Agent does not believe that a Year
2000 issue of any non-compliant external agent will have a material impact on
the Partnership's financial position or results of operations.
Costs
The total cost of the Managing Agent's Year 2000 project was approximately $3.2
million and was funded from operating cash flows.
Risks Associated with the Year 2000
The Managing Agent completed all necessary phases of its Year 2000 program in
1999, and did not experience system or equipment malfunctions related to a
failure to reference the Year 2000. The Managing Agent or Partnership have not
been materially adversely effected by disruptions in the economy generally
resulting from the Year 2000 issue.
At this time, the Managing Agent does not believe that the Partnership's
business, results of operations or financial condition will be materially
adversely effected by the Year 2000 issue.
Contingency Plans Associated with the Year 2000
The Managing Agent has not had to implement contingency plans such as manual
workarounds or selecting new relationships for its banking or elevator operation
activities in order to avoid the Year 2000 issue.
<PAGE>
Item 7. Financial Statements
UNITED INVESTORS GROWTH PROPERTIES
LIST OF FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheet - December 31, 1999
Consolidated Statements of Operations - Years ended December 31, 1999 and
1998
Consolidated Statements of Changes in Partners' Capital - Years ended
December 31, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 31, 1999 and
1998
Notes to Consolidated Financial Statements
<PAGE>
Independent Auditors' Report
The Partners
United Investors Growth Properties
We have audited the accompanying consolidated balance sheet of United Investors
Growth Properties (the "Partnership") as of December 31, 1999, and the related
consolidated statements of operations, changes in partners' capital and cash
flows for each of the years in the two year period then ended. These
consolidated financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Partnership as
of December 31, 1999, and the results of its operations and its cash flows for
each of the years in the two year period then ended, in conformity with
generally accepted accounting principles.
As discussed in Note K to the financial statements, the Partnership changed its
method of accounting to capitalize the cost of exterior painting and major
landscaping effective January 1, 1999.
/s/KPMG LLP
Greenville, South Carolina
February 25, 2000
<PAGE>
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1999
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Cash and cash equivalents $ 774
Receivables and deposits 257
Restricted escrows 132
Other assets 273
Investment properties (Notes D and G):
Land $ 1,480
Buildings and related personal property 14,394
15,874
Less accumulated depreciation (5,304) 10,570
$12,006
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 161
Tenant security deposit liabilities 76
Accrued property taxes 47
Other liabilities 170
Mortgage notes payable (Note D) 10,725
Partners' Capital
General partner $ 3
Limited partners (39,287 units issued and
outstanding) 824 827
$12,006
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
<TABLE>
<CAPTION>
Years Ended December 31,
<S> <C> <C>
1999 1998
Revenues:
Rental income $ 2,539 $ 3,089
Other income 182 143
Total revenues 2,721 3,232
Expenses:
Operating 1,144 1,362
General and administrative 139 114
Depreciation 612 571
Interest 836 1,043
Property taxes 248 319
Total expenses 2,979 3,409
Loss before extraordinary item and cumulative effect of
a change in accounting principles (258) (177)
Extraordinary gain on foreclosure (Note C) -- 2,242
Cumulative effect on prior years of a change in
accounting for the cost of exterior painting and
major landscaping (Note K) 96 --
Net (loss) income $ (162) $ 2,065
Net (loss) income allocated to general partner (1%) $ (2) $ 21
Net (loss) income allocated to limited partners (99%) (160) 2,044
$ (162) $ 2,065
Per limited partnership unit:
Loss before extraordinary item and cumulative effect
of a change in accounting principle $ (6.49) $ (4.45)
Extraordinary gain on foreclosure -- 56.48
Cumulative effect on prior years of a change in
accounting principle for the cost of exterior
painting and major landscaping 2.42 --
Net (loss) income $ (4.07) $ 52.03
Distributions per limited partnership unit $ 18.91 $ 10.08
Proforma amounts assuming the new accounting
principle was applied retroactively:
Net (loss) income $ (258) $ 2,117
Net (loss) income per limited partnership unit $ (6.49) $ 53.35
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 39,297 $ -- $ 9,824 $ 9,824
Partners' (deficit) capital
at December 31, 1997 39,287 $ (5) $ 79 $ 74
Distribution to partners -- (4) (396) (400)
Net income for the year ended
December 31, 1998 -- 21 2,044 2,065
Partners' capital at
December 31, 1998 39,287 12 1,727 1,739
Distributions to partners -- (7) (743) (750)
Net loss for the year
ended December 31, 1999 -- (2) (160) (162)
Partners' capital
at December 31, 1999 39,287 $ 3 $ 824 $ 827
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net (loss) income $ (162) $ 2,065
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Extraordinary gain on foreclosure -- (2,242)
Depreciation 612 571
Amortization of loan costs, lease commissions,
and loan premiums, net 30 (29)
Cumulative effect on prior years of change in
accounting principle (96) --
Change in accounts:
Receivables and deposits (28) (27)
Other assets 27 (49)
Accounts payable 66 65
Tenant security deposit liabilities 4 7
Accrued property taxes 2 5
Other liabilities 33 63
Net cash provided by operating activities 488 429
Cash flows from investing activities:
Property improvements and replacements (496) (218)
Net deposits to restricted escrows (2) (71)
Net cash used in investing activities (498) (289)
Cash flows from financing activities:
Payments on mortgage note payable (154) (146)
Payoff of mortgage note payable (2,397) --
Proceeds from debt refinancing 3,500 --
Loans costs paid (108) (21)
Distributions to partners (750) (400)
Net cash provided by (used in) financing
activities 91 (567)
Net increase (decrease) in cash and cash equivalents 81 (427)
Cash and cash equivalents at beginning of year 693 1,120
Cash and cash equivalents at end of year $ 774 $ 693
Supplemental disclosure of cash flow information:
Cash paid for interest $ 805 $ 925
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
SUPPLEMENTAL DISCLOSURES OF NON-CASH ACTIVITIES
Foreclosure
During the fourth quarter of 1998, Greystone South Plaza Center was foreclosed
upon by the lender. In connection with this foreclosure, the following accounts
were adjusted by the non-cash amounts noted below:
1998
Accounts receivable $ (21)
Restricted escrows (50)
Other assets (105)
Investment properties (3,530)
Accounts payable 13
Tenant security deposits 21
Accrued taxes 84
Other liabilities 5
Mortgage notes payable 3,749
Gain on foreclosure of property $ 166
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
UNITED INVESTORS GROWTH PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note A - Organization and Significant Accounting Policies
Organization: United Investors Growth Properties (the "Partnership" or
"Registrant"), a Missouri Limited Partnership, was organized in July 1988, and
the initial group of limited partners was admitted on October 24, 1988.
Additional partners were admitted through June 1990.
The Partnership was formed to operate and hold certain types of income-producing
real estate. United Investors Real Estate, Inc. (the "General Partner") is the
general partner. Effective December 31, 1992, 100% of the General Partner's
common stock was purchased by MAE GP Corporation ("MAE GP"). Effective February
25, 1998, MAE GP was merged into Insignia Properties Trust ("IPT"), which is a
subsidiary of Apartment Investment and Management Company ("AIMCO"). Thus the
General Partner is now a wholly-owned subsidiary of AIMCO.
Principles of Consolidation: The consolidated financial statements includes 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.
Cash and Cash Equivalents: Includes cash on hand and in banks and money market
accounts. At certain times, the amount of cash deposited at a bank may exceed
the limit on insured deposits.
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 the space and is current on rental payments.
Restricted Escrows: Replacement reserve accounts were established in 1997 with
the refinancing proceeds for Cheyenne Woods Apartments and Deerfield Apartments.
A repair escrow was established in 1999 with the refinancing proceeds from
Terrace Royale Apartments. Cheyenne Woods Apartments and Deerfield Apartments
make monthly deposits to establish and maintain a Replacement Reserve designated
to cover necessary repairs and replacements of existing improvements at the
property. The reserve account balance at December 31, 1999, is approximately
$132,000 which includes interest.
Leases: The Partnership generally leases apartment units for twelve-month terms
or less. 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.
Investment Properties: Investment properties consist of three apartment
properties and are stated at cost. Acquisition fees are capitalized as a cost of
real estate. In accordance with Statement of Financial Accounting Standards
("SFAS") Statement 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. Costs of apartment properties that have been permanently impaired
have been written down to appraisal value. No adjustments for impairment of
value were recorded in the years ended December 31, 1999, or 1998.
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
additions over 27 1/2 years and (2) personal property additions over 5 years.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the costs of exterior painting and major landscaping (Note K).
Allocations of Profits, Gains and Losses:
Allocation of net income and loss - In accordance with the partnership
agreement, net income and net loss (as defined in the partnership agreement,
income or loss of the Partnership determined without regard to gain or loss from
sale) shall be allocated 1% to the General Partner and 99% to the limited
partners.
Distributions - The Partnership allocates distributions 1% to the General
Partner and 99% to the limited partners.
Gain/Loss from a Sale - Gain from a sale shall be allocated as follows:
First to each partner who has a negative capital account, an amount equal to (or
in proportion to, if less than) such partner's negative capital account balance.
Second, 99% to the limited partners and 1% to the General Partner, until each
limited partner has been allocated an amount equal to (or in proportion to, if
less than) the excess, if any, of such limited partner's adjusted capital
investment over his capital account. Third, 99% to the limited partners and 1%
to the General Partner, until each limited partner has received a 10% per annum
preferred return on their adjusted capital investment or, if greater, a 6%
cumulative annual return. Fourth, the balance will be allocated 85% to the
limited partners and 15% to the General Partner.
The interest of the General Partner, in the aggregate, in each material item of
income, gain, loss, deduction and credit of the Partnership will be equal to at
least 1% of each item at all times during the existence of the Partnership.
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 (except for long term
debt) approximates their fair value due to the short term maturity of these
instruments. The fair value of the Partnership's long term debt, after
discounting the scheduled loan payments to maturity, approximates its carrying
balance.
Loan costs: Loan costs of approximately $313,000, less accumulated amortization
of approximately $61,000, are included in other assets and are being amortized
on a straight-line basis over the life of the loans.
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.
Segment Reporting: SFAS No. 131, Disclosure about Segments of an Enterprise and
Related Information 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 I" for required disclosure.
Advertising: The Partnership expenses the cost of advertising as incurred.
Advertising costs of approximately $69,000 and $39,000 for the years ended
December 31, 1999 and 1998, respectively, were charged to operating expense as
incurred.
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 IPT merged into 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 has had or will have a material effect on the affairs and operations
of the Partnership.
Note C - Foreclosure of Greystone South Plaza Center
On December 15, 1998, the lender foreclosed on Greystone South Plaza Center. The
mortgage note payable had been in technical default since December 1997. In the
General Partner's opinion, it was not in the Partnership's best interest to
contest the foreclosure action. During the fourth quarter of 1998, the
Partnership recorded an extraordinary gain on the foreclosure of approximately
$2,242,000.
The extraordinary gain on foreclosure includes non-cash activity of $166,000,
which represents the difference between the fair market value of the property at
foreclosure and the amount of the debt, including accrued interest,
extinguished. The remaining portion of the gain of $2,076,000 represents the
difference between the carrying value of the real estate and the estimated fair
value of the property at disposition.
The 1998 results of operations for Greystone South Plaza Center are summarized
in the following table (in thousands):
For the Period
From January 1 to
December 15, 1998
Revenues $ 538
Loss from operations (20)
Note D - Mortgage Notes Payable
The principle terms of mortgage notes payable are as follows:
<TABLE>
<CAPTION>
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
1999 Interest Rate Date Maturity
Property (in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Terrace Royale $ 3,427 $ 26 6.51% 02/19 $ --
Cheyenne Woods 3,769 27 7.67% 09/07 3,360
Deerfield 3,529 25 7.34% 12/04 3,303
Total $10,725 $ 78 $ 6,663
</TABLE>
The mortgage notes payable are nonrecourse and are secured by pledge of the
respective properties and by pledge of revenues from operation of the respective
properties. The mortgage notes collateralized by the Terrace Royale Apartments,
Cheyenne Woods Apartments, and Deerfield Apartments each contain clauses
providing for prepayment penalties if the loans are repaid prior to maturity.
Further, the properties may not be sold subject to existing indebtedness.
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 $108,000.
Scheduled principal payments of the mortgage notes payable subsequent to
December 31, 1999 are as follows (in thousands):
2000 $ 173
2001 186
2002 199
2003 214
2004 3,528
Thereafter 6,425
$10,725
Note E - 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 years ended December 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in
operating expenses) $137 $159
Reimbursement for services of affiliates (included in
operating, and general and administrative expenses) 50 51
During the years ended December 31, 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
$137,000 and $133,000 for the years ended December 31, 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
$26,000. From October 1, 1998 (the effective date of the Insignia Merger)
through December 15, 1998 (the effective date of the property's foreclosure),
these services were performed by an unrelated party.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $50,000 and $51,000 for the
years ended December 31, 1999 and 1998, respectively.
Several tender offers were made by various parties, including affiliates of the
General Partner, during the years ended December 31, 1999 and 1998. As a result
of these tender offers, AIMCO and its affiliates currently own 10,079 limited
partnership units in the Partnership representing 25.655% of the 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. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
Note F - Income Tax
The following is a reconciliation between net (loss) income as reported in the
consolidated financial statements and Federal taxable loss allocated to the
partners in the Partnership's tax return for the years ended December 31, 1999
and 1998 (in thousands, except per unit data):
1999 1998
Net (loss) income as reported $ (162) $ 2,065
Add (deduct):
Deferred revenue and other liabilities -- (99)
Depreciation differences (11) (88)
Cumulative effect on prior year of change
in accounting principle (96) --
Accrued expenses -- (30)
Nondeductible reserves and allowances -- (2,923)
Other -- 4
Federal taxable loss $ (269) $(1,071)
Federal taxable loss per limited
partnership unit $ (6.77) $(27.00)
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets at December 31, 1999 (in thousands):
Net assets as reported $ 827
Differences in basis of assets
and liabilities:
Accumulated depreciation (138)
Cumulative effect on prior year
of change in accounting principle (96)
Other assets and liabilities 64
Syndication costs 1,362
Net assets - tax basis $ 2,019
Note G - Real Estate and Accumulated Depreciation
Initial Cost
To Partnership
(in thousands)
<TABLE>
<CAPTION>
Buildings Net Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Terrace Royale $ 3,427 $ 653 $ 3,496 $ 411
Cheyenne Woods 3,769 587 4,980 960
Deerfield 3,529 240 3,891 656
Totals $10,725 $ 1,480 $12,367 $ 2,027
</TABLE>
Gross Amount At Which
Carried
At December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
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>
Terrace Royale $ 653 $ 3,907 $ 4,560 $ 1,613 1987-1988 11/01/88 5-40
Cheyenne Woods 587 5,940 6,527 2,128 1988 04/18/89 5-40
Deerfield 240 4,547 4,787 1,563 1986 10/24/90 5-40
Totals $ 1,480 $14,394 $15,874 $ 5,304
</TABLE>
Reconciliation of "Real Estate and Accumulated Depreciation":
Years Ended December 31,
1999 1998
(in thousands)
Investment Properties
Balance at beginning of year $15,282 $17,195
Property improvements 496 218
Dispositions through foreclosure -- (2,131)
Cumulative effect on prior years
of change in accounting principle 96 --
Balance at end of year $15,874 $15,282
Accumulated Depreciation
Balance at beginning of year $ 4,692 $ 4,798
Additions charged to expense 585 571
Cumulative effect on prior years
of change in accounting principle 27 --
Accumulated depreciation on real
estate foreclosed -- (677)
Balance at end of year $ 5,304 $ 4,692
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1999 and 1998, is approximately $15,779,000 and $15,282,000,
respectively. The accumulated depreciation taken for Federal income tax purposes
is approximately $5,442,000 and $4,819,000 at December 31, 1999 and 1998,
respectively.
Note H - 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
year ended December 31, 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 year ended
December 31, 1998. This distribution represented a portion of the net proceeds
from the mortgage refinancing at Deerfield in November 1997.
Note I - 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 segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those of the Partnership as described in the summary of significant accounting
policies.
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 year ended December 31, 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.
<TABLE>
<CAPTION>
1999 Residential Other Totals
<S> <C> <C> <C>
Rental income $ 2,539 $ -- $ 2,539
Other income 139 43 182
Interest expense (income) 839 (3) 836
Depreciation 612 -- 612
General and administrative expense -- 139 139
Cumulative effect on prior years of
change in accounting principle 96 -- 96
Segment loss (66) (96) (162)
Total assets 11,314 692 12,006
Capital expenditures for investment
properties 496 -- 496
</TABLE>
<TABLE>
<CAPTION>
1998 Residential Other Totals
<S> <C> <C> <C>
Rental income $ 2,553 $ 536 $ 3,089
Other income 113 30 143
Interest expense 798 245 1,043
Depreciation 516 55 571
General and administrative expense -- 114 114
Gain on extraordinary item -- 2,242 2,242
Segment (loss) income (74) 2,139 2,065
Total assets 11,187 677 11,864
Capital expenditures for investment
properties 212 6 218
</TABLE>
Note J - 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.
Note K - Change in Accounting Principle
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping. The Partnership
believes that this accounting principle change is preferable because it provides
a better matching of expenses with the related benefit of the expenditures and
it is consistent with industry practice and the policies of the General Partner.
The effect of the change in 1999 was to decrease net loss by approximately
$42,000 ($1.07 per limited partnership unit). The cumulative effect adjustment
of approximately $96,000 is the result of applying the aforementioned change in
accounting principle retroactively and is included in income for 1999. The
proforma amounts shown on the statements of operations have been adjusted for
the effect of retroactive application of this change. The accounting principle
change will not have an effect on cash flow, funds available for distribution or
fees payable to the General Partner and affiliates.
The effect of the new method for each quarter of 1999 on net loss and net loss
per limited partnership unit before the cumulative effect is as follows:
Increase/(Decrease) in Per limited
Net income partnership unit
First Quarter $(7,000) $ (.18)
Second Quarter (7,000) (.18)
Third Quarter 10,000 .25
Fourth Quarter 46,000 1.17
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 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 option 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 LLP as its Independent
Auditors. During the last two calendar years and through September 23, 1998, the
Registrant did not consult KPMG LLP regarding any of the matters or events set
forth in Item 304(a) (2) (i) and (ii) of Regulation S-B.
During the year ended December 31, 1999, there were no disagreements with KPMG
LLP.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act
United Investors Growth Properties (the "Registrant" or "Partnership") has no
officers or directors. United Investors Real Estate, Inc. ("UIRE" or the
"General Partner") manages and controls the Partnership and has general
responsibility and authority in all matters affecting its business.
The names of the directors and executive officers of UIRE, 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 42 Executive Vice President and Director
Martha L. Long 40 Senior Vice President and Controller
Patrick J. Foye has been Executive Vice President and Director of the Managing
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.
Martha L. Long has been Senior Vice President and Controller of the General
Partner and AIMCO since October 1998, as a result of the acquisition of Insignia
Financial Group, Inc. From June 1994 until January 1997, she was the Controller
for Insignia, and was promoted to Senior Vice President - Finance and Controller
in January 1997, retaining that title until October 1998. From 1988 to June
1994, Ms. Long was Senior Vice President and Controller for The First Savings
Bank, FSB in Greenville, South Carolina.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Registrant under Rule 16a-3(e) during the Registrant's most recent fiscal
year and Form 5 and amendments thereto furnished to the Registrant with respect
to its most recent fiscal year, the Registrant is not aware of any director,
officer, beneficial owner of more than ten percent of the units of limited
partnership interest in the Registrant that failed to file on a timely basis, as
disclosed in the above Forms, reports required by section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal years.
Item 10. Executive Compensation
Neither the director nor the officers received any remuneration from the
Partnership during the year ended December 31, 1999.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Except as provided below as of December 31, 1999, no person was known by the
Partnership to be the beneficial owner of more than 5 percent (5%) of the Units
of the Partnership:
Entity Number of Units Percentage of Total
AIMCO Properties LP 6,143 15.636%
(an affiliate of AIMCO)
United Investors Real Estate, Inc. 3,926 9.993%
(the General Partner and an
affiliate of AIMCO)
Insignia Properties LP 10 .026%
(an affiliate of AIMCO)
Insignia Properties LP and United Investors Real Estate, Inc. are indirectly
ultimately owned by AIMCO. Their business address is 55 Beattie Place,
Greenville, South Carolina, 29602.
AIMCO Properties LP is indirectly ultimately controlled by AIMCO. Its business
address is 2000 South Colorado Boulevard, Denver, Colorado 80222.
No director or officer of the General Partner owns any Units.
Item 12. Certain Relationships and Related Transactions
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 years ended December 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees $137 $159
Reimbursement for services of affiliates 50 51
During the years ended December 31, 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
$137,000 and $133,000 for the years ended December 31, 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
$26,000. From October 1, 1998 (the effective date of the Insignia Merger)
through December 15, 1998 (the effective date of the property's foreclosure),
these services were performed by an unrelated party.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $50,000 and $51,000 for the
years ended December 31, 1999 and 1998, respectively.
Several tender offers were made by various parties, including affiliates of the
General Partner, during the years ended December 31, 1999 and 1998. As a result
of these tender offers, AIMCO and its affiliates currently own 10,079 limited
partnership units in the Partnership representing 25.655% of the 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. Under the Partnership Agreement, unitholders holding a majority of the
Units are entitled to take action with respect to a variety of matters. When
voting on matters, AIMCO would in all likelihood vote the Units it acquired in a
manner favorable to the interest of the General Partner because of their
affiliation with the General Partner.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 18, Independent Accountants' Preferability Letter for Change
in Accounting Principle, is filed as an exhibit to this report.
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
(b) Reports on Form 8-K filed in the fourth quarter of calendar year
1999:
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Partnership
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:
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Partnership and in the capacities and on the
date indicated.
/s/Patrick J. Foye Executive Vice President Date:
Patrick J. Foye and Director
/s/Martha L. Long Senior Vice President Date:
Martha L. Long and Controller
<PAGE>
UNITED INVESTORS GROWTH PROPERTIES
INDEX TO EXHIBITS
Exhibit
1.0 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.
33-21114) previously filed on June 9, 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.
2.1 Agreement and Plan of Merger, dated as of October 1, 1998, by
and between AIMCO and IPT; incorporated by reference to
Exhibit 2.1 filed with Registrant's Current Report on Form 8-K
dated October 1, 1998.
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 June 9, 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 June 9, 1988.
4.3 Seventh 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.
4.4 Agreement of Joint Venture of Renaissance Village Associates
dated March 22, 1991 between United Investors Growth
Properties (A Missouri Limited Partnership) and United
Investors Growth Properties II (A Missouri Limited
Partnership); incorporated by reference to Exhibit 4.4 to
Partnership's Quarterly Report on Form 10-Q previously filed
on April 24, 1991.
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 June
9, 1988.
10.1.1 Amendment to Escrow Agreement; incorporated by reference to
Exhibit 10.1.1 to Partnership's Quarterly Report on Form 10-Q
previously filed on November 3, 1989.
10.2 Agreement of Purchase and Sale, dated June 9, 1988, with
amendments dated June 27, 1988 and July 5, 1988, respectively,
between United Investors Real Estate, Inc., as nominee for
United Investors Growth Properties, as purchaser, and
Domion-Bothell Associates, as seller, relating to Terrace
Royale 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 Promissory Note, dated October 3, 1988, between United
Investors Real Estate, Inc., as nominee for United Investors
Growth Properties, as borrower, and Confederation Life
Insurance Company, as lender; incorporated by reference to
Exhibit 10.1 to Partnership's Quarterly Report on Form 10-Q
previously filed on November 14, 1988.
10.4 Deed of Trust, dated October 3, 1988, between United Investors
Real Estate, Inc., as nominee for United Investors Growth
Properties, as grantor, and Confederation Life Insurance
Company, as beneficiary; incorporated by reference to Exhibit
10.2 to Partnership's Quarterly Report on Form 10-Q previously
filed on November 14, 1988.
10.5 Agreement of Purchase and Sale, dated October 31, 1988,
between United Investors Real Estate, Inc., as purchaser, and
Cheyenne Woods Limited Partnership, as seller, relating to
Cheyenne Woods Apartments; incorporated by reference to
Exhibit 10.5 to Post-Effective Amendment No. 1 to
Partnership's Registration Statement previously filed on
February 1, 1989.
10.6 Promissory Note and Deed of Trust with respect to the
Permanent Loan on Cheyenne Woods Apartments; incorporated by
reference to Exhibit 10.6 to Partnership's Current Report on
Form 8-K previously filed on April 28, 1989.
10.7 Agreement of Purchase and Sale, between United Investors
Growth Properties (A Missouri Limited Partnership), as
purchaser, and Central Life Assurance Company, as seller,
executed by the parties on August 11 and August 14, 1989,
relating to Greystone South Plaza Center, and amendments
thereto; incorporated by reference to Exhibit 10.7 to
Partnership's Current Report on Form 8-K previously filed on
December 12, 1989.
10.8 Promissory Note and First Mortgage and Security Agreement with
respect to the Permanent Loans on Greystone South Plaza
Center; incorporated by reference to Exhibit 10.8 to
Partnership's Current Report on Form 8-K previously filed on
December 12, 1989.
10.8.1 Modification Agreement between United Investors Growth
Properties and Central Life Assurance Company with respect to
the Permanent Loans on Greystone South Plaza Center;
incorporated by reference to Exhibit 10.8.1 to Partnership's
Quarterly Report on Form 10-Q previously filed on August 13,
1991.
10.9 Master Lease dated November 27, 1989 between United Investors
Growth Properties and Central Life Assurance Company;
incorporated by reference to Exhibit 10.9 to Partnership's
Current Report on Form 8-K previously filed on December 12,
1989.
10.9.1 Lease Termination Agreement between United Investors Growth
Properties and Central Life Assurance Company, with respect to
the Master Lease dated November 27, 1989; incorporated by
reference to Exhibit 10.9.1 to Partnership's Quarterly Report
on Form 10-Q previously filed on November 12, 1991.
10.10 Agreement of Purchase and Sale, between United Investors
Growth Properties (a Missouri limited partnership), as
purchaser, and Deerfield Apartments Limited (A Tennessee
Limited Partnership), as seller, dated July 18, 1990, relating
to Deerfield Apartments; incorporated by reference to Exhibit
10.10 to Partnership's Quarterly Report on Form 10-Q
previously filed on August 15, 1990.
10.11 Promissory Note and Deed of Trust with respect to the
Permanent Loan on Deerfield Apartments; incorporated by
reference to Exhibit 10.11 to Partnership's Quarterly Report
on Form 10-Q previously filed on November 8, 1990.
10.12 Standby Loan Commitment with respect to the financing of
Deerfield Apartments; incorporated by reference to Exhibit
10.12 to Partnership's Quarterly Report on Form 10-Q
previously filed on November 8, 1990.
10.13 Agreement of Purchase and Sale, dated August 27, 1990, between
United Investors Real Estate, Inc., as purchaser, and Mueller
Development Company, as seller, relating to Renaissance Village
Apartments, and amendments thereto; incorporated by reference to
Exhibit 10.2 to Partnership's Post-Effective Amendment No. 1
Registration Statement (File No. 33-34111) of United Investors
Growth Properties II previously filed on December 6, 1990.
10.13.1 Seventh and Eighth Amendments to Agreement of Purchase and
Sale between United Investors Real Estate, Inc., as purchaser,
and Mueller Development Company, as seller, relating to
Renaissance Village Apartments; incorporated by reference to
Exhibit 10.13.1 to Partnership's Quarterly Report on Form 10-Q
previously filed on April 24, 1991.
10.14 Promissory Note and Deed of Trust with respect to the
Permanent Loan on Renaissance Village Apartments; incorporated
by reference to Exhibit 10.14 to Partnership's Quarterly
Report on Form 10-Q previously filed on April 24, 1991.
10.15 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 10.15 to Partnership's Current Report on
Form 8-K previously filed on January 14, 1993.
10.16 Purchase and Sale Agreement, made as of the 19th of July 1995,
by and between Kauri Investments, Ltd., a Washington
Corporation, and Renaissance Village Associates, JV, a Kansas
joint venture. (Incorporated by reference to the Annual Report
on Form 10-KSB for the year ended December 31, 1995.)
10.17 Amendment to Purchase and Sale Agreement, made as of the 10th
day of August 1995, by and between Kauri Investments, Ltd., a
Washington Corporation, and Renaissance Village Associates,
JV, a Kansas joint venture. (Incorporated by reference to the
Annual Report on Form 10-KSB for the year ended December 31,
1995.)
10.18 Multifamily Note dated August 7, 1997, by and between Cheyenne
Woods, L.L.C., a South Carolina limited liability company, and
Green Park Financial Limited Partnership, a District of
Columbia Limited Partnership (Incorporated by reference to the
Annual Report on Form 10-KSB for the year ended December 31,
1995.)
10.19 Promissory Note dated November 20, 1997, by and between Deerfield
Apartments, L.L.C., a South Carolina limited liability company
and Lehman Brothers Holdings, Inc., a Delaware corporation.
10.20 Promissory Note dated January 29, 1999, by and between AIMCO
Terrace Royale, L.L.C., a South Carolina limited liability
company and GMAC Commercial Mortgage Corporation, a California
Corporation.
16 Letter dated November 11, 1998 from the Registrant's former
independent accountants regarding its concurrence with the
statements made by the Registrant; incorporated by reference
to Exhibit C filed with the Registrant's Current Report on
Form 8-K dated September 23, 1998.
18 Independent Accountants' Preferability Letter for Change in
Accounting Principle.
27 Financial Data Schedule
99.1 Portions of Prospectus of Partnership dated June 13, 1988;
incorporated by reference to Exhibit 99.1 to Partnership's
Report on Form 10-K previously filed on March 6, 1991.
Exhibit 18
February 25, 2000
Mr. Patrick J. Foye
Executive Vice President
United Investors Real Estate, Inc.
General Partner of United Investors Growth Properties
55 Beattie Place
P.O. Box 1089
Greenville, South Carolina 29602
Dear Mr. Foye:
Note K of Notes to the Consolidated Financial Statements of United Investors
Growth Properties included in its Form 10-KSB for the year ended December 31,
1999 describes a change in the method of accounting to capitalize exterior
painting and major landscaping, which would have been expensed under the old
policy. You have advised us that you believe that the change is to a preferable
method in your circumstances because it provides a better matching of expenses
with the related benefit of the expenditures and is consistent with policies
currently being used by your industry and conforms to the policies of the
General Partner.
There are no authoritative criteria for determining a preferable method based on
the particular circumstances; however, we conclude that the change in the method
of accounting for exterior painting and major landscaping is to an acceptable
alternative method which, based on your business judgment to make this change
for the reasons cited above, is preferable in your circumstances.
Very truly yours,
/s/KPMG LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from United
Investors Growth Properties 1999 Fourth Quarter 10-KSB and is qualified in its
entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000831663
<NAME> UNITED INVESTORS GROWTH PROPERTIES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 774
<SECURITIES> 0
<RECEIVABLES> 257
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 15,874
<DEPRECIATION> (5,304)
<TOTAL-ASSETS> 12,006
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 10,725
0
0
<COMMON> 0
<OTHER-SE> 827
<TOTAL-LIABILITY-AND-EQUITY> 12,006
<SALES> 0
<TOTAL-REVENUES> 2,721
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,979
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 836
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (162)
<EPS-BASIC> (4.07)<F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
