FORM 10-QSB.--QUARTERLY OR TRANSITIONAL REPORT
UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] 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 0-19243
UNITED INVESTORS INCOME PROPERTIES II
(Exact name of small business issuer as specified in its charter)
Missouri 43-1542903
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) UNITED INVESTORS INCOME PROPERTIES II
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 935
Restricted-tenant security deposits 5
Accounts receivable, net of $11 allowance 10
Escrow for taxes 34
Other assets 36
Investment properties:
Land $ 1,026
Buildings and related personal property 6,119
7,145
Less accumulated depreciation (1,070) 6,075
$ 7,095
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 2
Tenant security deposits 11
Accrued taxes 41
Other liabilities 27
Minority interest 572
Partners' Capital (Deficit)
General partner's $ (4)
Limited partners' (32,601 units
issued and outstanding) 6,446 6,442
$ 7,095
See Accompanying Notes to Consolidated Financial Statements
b) UNITED INVESTORS INCOME PROPERTIES II
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 280 $ 273 $ 819 $ 827
Other income 16 14 47 51
Total revenues 296 287 866 878
Expenses:
Operating 54 54 147 155
General and administrative 20 15 54 48
Maintenance 22 12 50 41
Depreciation 47 47 142 140
Property taxes 18 15 54 47
Total expenses 161 143 447 431
Minority interest in net
income of joint ventures (26) (29) (81) (93)
Net income $ 109 $ 115 $ 338 $ 354
Net income allocated to
general partner (1%) $ 1 $ 1 $ 3 $ 4
Net income allocated to
limited partners (99%) 108 114 335 350
$ 109 $ 115 $ 338 $ 354
Net income per limited
partnership unit $ 3.31 $ 3.50 $10.28 $10.74
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
c) UNITED INVESTORS INCOME PROPERTIES II
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner's Partners' Total
<S> <C> <C> <C> <C>
Original capital contributions 32,601 $ -- $ 8,150 $ 8,150
Partners' (deficit) capital at
December 31, 1996 32,601 $ (3) $ 6,535 $ 6,532
Partners' distributions -- (4) (424) (428)
Net income for the nine months
ended September 30, 1997 -- 3 335 338
Partners' (deficit) capital
at September 30, 1997 32,601 $ (4) $ 6,446 $ 6,442
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
d) UNITED INVESTORS INCOME PROPERTIES II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 338 $ 354
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interest in net income of
joint ventures 81 93
Depreciation 142 140
Amortization of lease commissions 2 2
Change in accounts:
Accounts receivable 15 (2)
Escrow for taxes (12) (21)
Other assets 9 (2)
Accounts payable (12) 1
Accrued taxes 19 10
Other liabilities 12 12
Net cash provided by operating activities 594 587
Cash flows from investing activities:
Property improvements and replacements (5) --
Net cash used in investing activities (5) --
Cash flows from financing activities:
Distributions to minority interests (140) (79)
Partners' distributions (428) (426)
Net cash used in financing activities (568) (505)
Net increase in unrestricted cash and cash equivalents 21 82
Unrestricted cash and cash equivalents at beginning
of period 914 889
Unrestricted cash and cash equivalents at end of period $ 935 $ 971
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
e) UNITED INVESTORS INCOME PROPERTIES II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of United Investors
Income Properties II (the "Partnership"), have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of United Investors Real Estate, Inc. (the "General Partner"), a
Delaware corporation, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine month periods ended September 30, 1997, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1997. For further information, refer to the financial
statements and footnotes thereto included in the Partnership's annual report on
Form 10-KSB for the fiscal year ended December 31, 1996.
NOTE B - BASIS OF ACCOUNTING
The Partnership owns a 65% interest in Corinth Square Associates ("Corinth") and
a 55% interest in Covington Pike Associates ("Covington"). The Partnership
consolidates its interest in the joint ventures (whereby all accounts of the
joint ventures are included in the Partnership's financial statements with
intercompany accounts being eliminated). The minority partners' share of the
joint ventures' net assets are reflected as minority interest in the balance
sheet of the Partnership. Earnings and losses attributable to the minority
partners' ownership of the joint ventures are reflected as a reduction or
addition to income in the statement of operations.
NOTE C - REPURCHASE OF UNITS
The Partnership's partnership agreement contains a provision which states that
the General Partner shall purchase up to 10% of the limited partnership Units
outstanding at the fifth anniversary date of the last Additional Closing Date
and become a limited partner with respect to such units. Any Limited Partner
desiring to sell all or any of his Units to the General Partner was required to
submit a written request to the General Partner beginning 30 days prior to the
fifth anniversary date. As of the date of this report, the fifth anniversary
date had passed. The General Partner was unable to honor its purchase
obligation due to its inability to raise sufficient funds.
NOTE D - TRANSACTIONS WITH AFFILIATED PARTNERS
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The partnership agreement provides for payments to affiliates for services based
on a percentage of revenue and for reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following payments were made to
affiliates of the General Partner for each of the nine month periods ended
September 30, 1997 and 1996 (in thousands):
1997 1996
Property management fees (included in operating
expenses) $ 23 $ 23
Reimbursement for services of affiliates
(included in general and administrative expenses) 29 24
For the period of January 1, 1996 to August 31, 1997, the Partnership insured
Corinth Square under a master policy through an agency and insurer unaffiliated
with the General Partner. An affiliate of the General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent who placed the master policy. The
agent assumed the financial obligations to the affiliate of the General Partner
who received payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
General Partner by virtue of the agent's obligations is not significant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of two distribution centers, an
office building, and a mini-storage facility. The following table sets forth
the average occupancy of the properties for each of the nine months ended
September 30, 1997 and 1996:
Average
Occupancy
Property 1997 1996
Keebler Distribution Center
Chesapeake, Virginia 0% 89%
Keebler Distribution Center
Columbia, South Carolina 100% 44%
Corinth Square Professional Building
Prairie Village, Kansas 80% 80%
U-Stor Covington Pike Mini-warehouse
Memphis Tennessee 99% 99%
The Keebler Company vacated the Columbia, South Carolina facility in January of
1996 and Keebler also vacated the Chesapeake, Virginia facility in August, 1996.
The Keebler Company has indicated its intentions to honor its financial
obligations. Keebler is obligated to continue paying rent on the vacated spaces
through the years 2001 (Columbia, South Carolina) and 2002 (Chesapeake,
Virginia). Should the tenant fail to honor its lease obligations, operating
results would be adversely affected. The tenant has thus far paid the scheduled
rental payments on the vacated facilities. In addition, Keebler, with approval
from the Partnership, entered into a sub-lease agreement effective July 1, 1996,
for the Columbia, South Carolina facility. The tenant is obligated to pay rent
to Keebler through December 31, 2000.
The Partnership realized net income of approximately $338,000 for the nine
months ended September 30, 1997, compared to approximately $354,000 for the nine
months ended September 30, 1996. The Partnership realized net income of
approximately $109,000 for the three months ended September 30, 1997, compared
to approximately $115,000 for the three months ended September 30, 1996. The
decrease in net income for the nine month period is primarily related to the
decrease in rental revenues at Corinth Square. The decrease in rental revenue
resulted from a reduction in tenant reimbursements. The decrease in tenant
reimbursements is primarily attributable to fewer operating expenses at Corinth
Square due to a decrease in salary expenses. Also contributing to the decrease
in net income is an increase in maintenance expenses associated with increased
trash removal expense and a new security system at Covington Pike. The minority
interest in net income of the joint ventures decreased due to decreases in
income at Corinth Square and Covington Pike as discussed above. During the nine
months ended September 30, 1997 and 1996, the Partnership did not have any
expenditures for major repairs and maintenance.
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. As discussed above, occupancy at the Keebler
distribution centers had fluctuated in 1996 and 1997. However, Keebler is
continuing to pay rent on these vacated spaces and is obligated to continue
paying rent through the years 2001 (Columbia, South Carolina) and 2002
(Chesapeake, Virginia).
At September 30, 1997, the Partnership held unrestricted cash and cash
equivalents of $935,000 compared to $971,000 at September 30, 1996. Net cash
provided by operating activities increased primarily due to the decrease in the
balances of accounts receivable and other assets. Net cash used in investing
activities increased due to increased property improvements and replacements in
1997. Net cash used in financing activities increased primarily due to greater
distributions to minority interest joint venturers in 1997.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership. Such assets are currently
thought to be sufficient for any near-term needs of the Partnership. Cash
distributions of $428,000 and $426,000 were made during the first nine months of
1997 and 1996, respectively. Future cash distributions will depend on the
levels of cash generated from operations, property sales, and the availability
of reserves.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27 - Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1997.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED INVESTORS INCOME PROPERTIES II
By: United Investors Real Estate, Inc.,
Its General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President/CAO
Date: November 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from United
Investors Income Properties II 1997 Third Quarter 10-QSB and is qualified in its
entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000862028
<NAME> UNITED INVESTORS INCOME PROPERTIES II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 935
<SECURITIES> 0
<RECEIVABLES> 21
<ALLOWANCES> 11
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 7,145
<DEPRECIATION> 1,070
<TOTAL-ASSETS> 7,095
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,442
<TOTAL-LIABILITY-AND-EQUITY> 7,095
<SALES> 0
<TOTAL-REVENUES> 866
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 447
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 338
<EPS-PRIMARY> 10.28<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
