FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT of 1934
For the quarterly period ended June 30, 2000
[ ] 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___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2000
Assets
Cash and cash equivalents $ 364
Receivables and deposits 128
Restricted escrows 122
Other assets 260
Investment properties:
Land $ 1,480
Buildings and related personal property 14,548
16,028
Less accumulated depreciation (5,642) 10,386
$11,260
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 61
Tenant security deposit liabilities 79
Accrued property taxes 35
Other liabilities 116
Mortgage notes payable 10,639
Partners' (Deficit) Capital
General partner $ (2)
Limited partners (39,287 units
issued and outstanding) 332 330
$11,260
See Accompanying Notes to Consolidated Financial Statements
b)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Revenues: (restated) (restated)
<S> <C> <C> <C> <C>
Rental income $ 664 $ 643 $1,311 $1,258
Other income 53 43 99 74
Total revenues 717 686 1,410 1,332
Expenses:
Operating 281 288 568 570
General and administrative 48 37 83 70
Depreciation 171 146 338 287
Interest 200 197 397 409
Property taxes 69 46 121 106
Total expenses 769 714 1,507 1,442
Loss before cumulative effect of a
change in accounting principle (52) (28) (97) (110)
Cumulative effect on prior years of
a change in accounting for the
cost of exterior painting and
major landscaping -- -- -- 96
Net loss $ (52) $ (28) $ (97) $ (14)
Net loss allocated to
general partner (1%) $ (1) $ -- $ (1) $ --
Net loss allocated to
limited partners (99%) (51) (28) (96) (14)
$ (52) $ (28) $ (97) $ (14)
Per limited partnership unit:
Loss before cumulative effect of
change in accounting principle (1.30) (.72) (2.44) (2.77)
Cumulative effect on prior year
of change in accounting for
the cost of exterior painting
and major landscaping -- -- -- 2.42
$(1.30) $ (.72) $(2.44) $ (.35)
Distributions per limited
partnership unit $10.07 $ -- $10.07 $ --
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
c)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(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' capital at
December 31, 1999 39,287 $ 3 $ 824 $ 827
Distribution to partners -- (4) (396) (400)
Net loss for the six months
ended June 30, 2000 -- (1) (96) (97)
Partners' (deficit) capital at
June 30, 2000 39,287 $ (2) $ 332 $ 330
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
d)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
(Restated)
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (97) $ (14)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 338 287
Amortization of loan costs 15 11
Cumulative effect on prior years of a change in
accounting principle -- (96)
Change in accounts:
Receivables and deposits 129 4
Other assets (2) 26
Accounts payable (100) (43)
Tenant security deposit liabilities 3 4
Accrued property taxes (12) 2
Other liabilities (54) (50)
Net cash provided by operating activities 220 131
Cash flows from investing activities:
Property improvements and replacements (154) (123)
Net withdrawals from (deposits to) restricted escrows 10 (70)
Net cash used in investing activities (144) (193)
Cash flows from financing activities:
Payments on mortgage note payable (86) (72)
Payoff of mortgage note payable -- (2,397)
Proceeds from debt refinancing -- 3,500
Loan costs paid -- (99)
Distributions to partners (400) --
Net cash (used in) provided by financing
activities (486) 932
Net (decrease) increase in cash and cash equivalents (410) 870
Cash and cash equivalents at beginning of period 774 693
Cash and cash equivalents at end of period $ 364 $ 1,563
Supplemental disclosure of cash flow information:
Cash paid for interest $ 384 $ 418
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
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 six month periods ended June
30, 2000, are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000. 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 year ended December 31, 1999.
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 assets 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.
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.
This accounting change was first reported during the fourth quarter of 1999.
Accordingly, net income for the first six months of 1999 has been restated to
reflect the accounting change as if it were reported then. This adjustment
decreased income before the cumulative effect of the accounting change for the
first six months of 1999 by approximately $13,000 ($0.33 per limited partnership
unit). For the second quarter of 1999 this adjustment decreased income by
approximately $6,000 ($.15 per limited partnership unit). The cumulative effect
adjustment of approximately $96,000 ($2.42 per limited partnership unit) is the
result of applying retroactively the aforementioned accounting principle change
and is included in income for the six months ended June 30, 1999. The accounting
principle change will not have an affect on cash flow, funds available for
distribution or fees payable to the General Partner and affiliates.
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
has had or 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 six month periods ended June 30, 2000 and
1999:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $ 72 $ 67
Reimbursement for services of affiliates (included in
general and administrative expenses) 31 25
During the six months ended June 30, 2000 and 1999, 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
$72,000 and $67,000 for the six months ended June 30, 2000 and 1999,
respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $31,000 and $25,000 for the
six month periods ended June 30, 2000 and 1999, respectively.
AIMCO and its affiliates currently own 10,195 limited partnership units in the
Partnership representing 25.95% of the outstanding units. A number of these
units were acquired pursuant to tender offers made by AIMCO or its affiliates.
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 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 $108,000.
Note E - Segment Reporting
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of three apartment complexes
located 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 Partnership's Annual Report on Form
10-KSB for the year ended December 31, 1999.
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 six months ended June 30, 2000 and 1999, 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>
Three Months Ended June 30, 2000 Residential Other Totals
<S> <C> <C> <C>
Rental income $ 664 $ -- $ 664
Other income 46 7 53
Interest expense 202 (2) 200
Depreciation 171 -- 171
General and administrative expense -- 48 48
Segment loss (13) (39) (52)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000 Residential Other Totals
<S> <C> <C> <C>
Rental income $ 1,311 $ -- $ 1,311
Other income 86 13 99
Interest expense 399 (2) 397
Depreciation 338 -- 338
General and administrative expense -- 83 83
Segment loss (29) (68) (97)
Total assets 11,146 114 11,260
Capital expenditures for investment
properties 154 -- 154
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999 Residential Other Totals
(Restated)
<S> <C> <C> <C>
Rental income $ 643 $ -- $ 643
Other income 28 15 43
Interest expense 196 1 197
Depreciation 146 -- 146
General and administrative expense -- 37 37
Segment loss (5) (23) (28)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999 Residential Other Totals
(Restated)
<S> <C> <C> <C>
Rental income $ 1,258 $ -- $ 1,258
Other income 52 22 74
Interest expense 408 1 409
Depreciation 287 -- 287
General and administrative expense -- 70 70
Cumulative effect on prior years of change in
accounting principle 96 -- 96
Segment income (loss) 35 (49) (14)
Total assets 11,339 1,455 12,794
Capital expenditures for investment
properties 123 -- 123
</TABLE>
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 six month periods ended June 30, 2000 and 1999:
Average Occupancy
Property 2000 1999
Terrace Royale Apartments 94% 95%
Bothell, Washington
Cheyenne Woods Apartments 93% 91%
North Las Vegas, Nevada
Deerfield Apartments 96% 95%
Memphis, Tennessee
Results of Operations
The Registrant's net loss for the six months ended June 30, 2000 was
approximately $97,000 compared to net loss, as restated, of approximately
$14,000 for the six months ended June 30, 1999. The increase in net loss for the
six month period ended June 30, 2000, is due primarily to the cumulative effect
on prior years of a change in accounting principle in the amount of
approximately $96,000 during the six months ended June 30, 1999, as discussed
below.
Excluding the cumulative effect on prior years of a change in accounting
principle, the Partnership had a loss of approximately $97,000 and $110,000 for
the six months ended June 30, 2000 and 1999, respectively. The decrease in net
loss is primarily attributable to an increase in total revenues which was
partially offset by an increase in total expenses. Total revenues increased for
the six months ended June 30, 2000 due to an increase in rental income and other
income. Rental income increased due to an increase in average rental rates at
all of the Partnership's properties, an increase in occupancy at Cheyenne Woods
Apartments and Deerfield Apartments, and decreased bad debt expenses at Cheyenne
Woods partially offset by a decrease in occupancy at Terrace Royale Apartments.
Other income increased due to increased utility income at Terrace Royale and
increased lease cancellation fees at Terrace Royale and Cheyenne Woods.
Total expenses increased as a result of an increase in general and
administrative, depreciation, and property tax expenses. Depreciation expense
increased due to property improvements and replacements placed into service
during the current year. Property tax expense increased due to the timing of
receipt of tax bills during 2000 and 1999 which affected the timing of the 1999
accruals. General and administrative expenses increased due to an increase in
management reimbursements, legal fees, and professional expenses that were
partially offset by a decrease in audit fees.
The registrant's net loss for the three months ended June 30, 2000 was
approximately $52,000 as compared to $28,000 for the three months ended June 30,
1999. The increase in net loss for the three month period is due primarily to an
increase in total expenses which was partially offset by an increase in total
revenues. Total expenses increased as a result of increases in general and
administrative, depreciation, and property tax expense as discussed above. Total
revenues increased as a result of an increase in both rental and other income as
discussed above.
Included in general and administrative expenses for the six months ended June
30, 2000 and 1999, 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.
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.
This accounting change was first reported during the fourth quarter of 1999.
Accordingly, net income for the first six months of 1999 has been restated to
reflect the accounting change as if it were reported then. This adjustment
decreased income before the cumulative effect of the accounting change for the
first six months of 1999 by approximately $13,000 ($0.33 per limited partnership
unit). For the second quarter of 1999 this adjustment decreased income by
approximately $6,000 ($0.15 per limited partnership unit). The cumulative effect
adjustment of approximately $96,000 ($2.42 per limited partnership unit) is the
result of applying retroactively the aforementioned accounting principle change
and is included in income for the six months ended June 30, 1999. The accounting
principle change will not have an affect 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 June 30, 2000, the Registrant had cash and cash equivalents of approximately
$364,000 as compared to approximately $1,563,000 at June 30, 1999. The decrease
in cash and cash equivalents of approximately $410,000 from the Registrant's
year ended December 31, 1999, is due to approximately $486,000 of cash used in
financing activities and approximately $144,000 of cash used in investing
activities which is partially offset by approximately $220,000 of cash provided
by operating activities.
Cash used in investing activities consisted of property improvements and
replacements which was partially offset by net withdrawals from escrow accounts
maintained by the mortgage lender. Cash used in financing activities consisted
of distributions to partners and to a lesser extent payments of principal made
on the mortgages encumbering the Registrant's properties. The Partnership
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 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.
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 six months ended June 30, 2000, the Partnership completed
approximately $19,000 of capital improvements at Terrace Royale Apartments
consisting primarily of floor covering replacements, recreation facility
upgrades, and appliances. These improvements were funded from cash flow from
operations. The Partnership has evaluated the capital improvement needs of the
property for the year. The amount budgeted is approximately $108,000, consisting
primarily of floor covering replacements and plumbing improvements.
Cheyenne Woods Apartments
During the six months ended June 30, 2000, the Partnership completed
approximately $75,000 of capital improvements at Cheyenne Woods Apartments,
consisting primarily of floor covering replacements, appliances, and other
interior building improvements. These improvements were funded from cash flow
from operations. The Partnership has evaluated the capital improvement needs of
the property for the year. The amount budgeted is approximately $97,000,
consisting primarily of submetering improvements, and floor covering and
appliances replacements.
Deerfield Apartments
During the six months ended June 30, 2000, the Partnership completed
approximately $60,000 of capital improvements at Deerfield Apartments consisting
primarily of plumbing upgrades, floor covering and appliance replacements, and
other interior building improvements. These improvements were funded from the
property's replacement reserves and operations. The Partnership has evaluated
the capital improvement needs of the property for the year. The amount budgeted
is approximately $81,000, consisting primarily of air conditioning unit
replacement, appliances and floor covering replacement.
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 $10,639,000 has maturity dates ranging from 2004
to 2019 with balloon payments due at maturity for the mortgages encumbering
Cheyenne Woods Apartments and Deerfield Apartments. 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.
During the six months ended June 30, 2000 the Partnership paid a distribution of
approximately $400,000 (approximately $396,000 to the limited partners or $10.07
per limited partnership unit) from refinancing proceeds at Terrace Royale
Apartments. During the six months ended June 30, 1999, the Partnership did not
pay any distributions to its partners. 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 further
distributions to its partners in 2000 or subsequent periods.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 2000.
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: August 2, 2000
