FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT
UNDER SECTION 13 OR 15(D)
FORM 10-KSB
(Mark One)
[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, 1997
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required]
For the transition period from.........to.........
Commission file number 0-19243
UNITED INVESTORS INCOME PROPERTIES II
(Name of small business issuer in its charter)
Missouri 43-1542903
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
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 Interest
(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 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: $499,000
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 a specified date within the past 60 days: Market value
information for the registrant's partnership interests is not available. Should
a trading market develop for these interests, it is the general partner's belief
that the aggregate value of the voting partnership interests would not exceed
$25,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Prospectus of Registrant dated May 17, 1990 (included in
Registration Statement, No. 33-33965 of Registrant) are incorporated by
reference into Parts I and III.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
United Investors Income Properties II (the "Registrant" or "Partnership"), a
Missouri Limited Partnership, was organized as a limited partnership under the
laws of the State of Missouri pursuant to a Certificate of Limited Partnership
filed on March 20, 1990, with the Missouri Secretary of State. The Partnership
is governed by an Agreement of Limited Partnership dated September 24, 1990.
United Investors Real Estate, Inc., a Delaware corporation, is the sole general
partner (the "General Partner") of the Partnership. Effective December 31,
1992, 100% of the General Partner's common stock was purchased by MAE GP
Corporation ("MAE GP"), which was, prior to February 25, 1998, wholly-owned by
Metropolitan Asset Enhancement, L.P. ("MAE"), an affiliate of Insignia Financial
Group, Inc. ("Insignia"). Effective February 25, 1998, MAE GP was merged into
Insignia Properties Trust ("IPT"), which is an affiliate of Insignia. Thus the
General Partner is now a wholly-owned subsidiary of IPT.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership.
The Partnership is engaged in the business of acquiring and operating
multifamily residential and commercial properties and other income producing
real estate. The Partnership has acquired a 65% interest in a joint venture
which owns a professional office building (Corinth Square), a fee simple
interest in two commercial distribution facilities, and a 55% interest in a
joint venture which owns a mini-warehouse (Covington Pike). These properties
are further described in "Item 2. Description of Properties" below.
Commencing on or about May 17, 1990, the Partnership began offering through
United Investors Equity Services, Inc., a former affiliate of the Partnership
(the "Selling Agent"), 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). Limited partners (the "Limited Partners") are not required to make
any additional capital contributions. The Units were registered under the
Securities Act of 1933, as amended (the "Act"), under Registration Statement No.
33-33965, which Registration Statement was declared effective on May 17, 1990.
The offering was extended beyond the initial termination date of May 17, 1992.
On October 26, 1992, the General Partner terminated the extended offering
period. Upon termination of the offering, the Partnership had accepted
subscriptions for 32,601 Units resulting in Gross Offering Proceeds of
$8,150,250.
The real estate business is highly competitive. The Partnership's real property
investments are subject to competition from similar types of properties in the
vicinities in which they are located and the Partnership is not a significant
factor in its industry. In addition, various limited partnerships have been
formed by related parties to engage in businesses which may be competitive with
the Partnership.
The Partnership has no employees. Management and administrative services for
the commercial properties are performed by an affiliate of Insignia. An
unaffiliated entity, U-Store Management Corporation, performs management and
administrative services for Covington Pike. The property manager is responsible
for the day-to-day operations of each property. The General Partner has also
selected affiliates of Insignia to provide real estate advisory and asset
management services to the Partnership. As advisor, these affiliates provide
all partnership accounting and administrative services, investment management,
and supervisory services over property management and leasing. For a further
discussion of property and partnership management, see "Item 12. Certain
Relationships and Related Transactions", which descriptions are herein
incorporated by reference.
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.
ITEM 2. DESCRIPTION OF PROPERTIES:
The following table sets forth the Partnership's investments in properties:
Date of
Investment Properties Purchase Type of Ownership(1) Use
Keebler Distribution Center 08/01/91 Fee simple Distribution
Chesapeake, Virginia facility -
32,000 sq.ft.
Keebler Distribution Center 04/01/92 Fee simple Distribution
Columbia, South Carolina facility -
39,000 sq.ft.
Joint Venture Properties
Corinth Square Professional 10/01/90 Joint Venture; Partner- Medical office
Building ship owns a 65% interest building -
Prairie Village, Kansas 23,000
sq. ft.
Covington Pike 01/01/93 Joint Venture; Partner- Mini-storage
Memphis, Tennessee ship owns a 55% interest facility -
452 units
(1) None of the Partnership's properties are encumbered by mortgage financing.
SCHEDULE OF PROPERTIES (IN THOUSANDS):
Gross
Carrying Accumulated Useful Federal
Investment Properties Value Depreciation Life (1) Method Tax Basis
Keebler Distribution Center-VA $2,014 $ 319 31.5-40 S/L $ 1,667
Keebler Distribution Center-SC 2,103 321 31.5-40 S/L 1,758
Total $4,117 $ 640 $ 3,425
(1) See "Note B" of the Notes to Financial Statements included in
"Item 7. Financial Statements" for a description of the Partnership's
depreciation policy.
Joint Venture Properties (2)
Corinth Square Professional
Building $2,007 $ 315 7-40 S/L $ 1,709
Covington Pike 1,031 167 25 S/L 900
(2) Information for the Joint Venture Properties is shown at the Joint
Ventures' basis. The Partnership owns a 65% interest in Corinth Square
Professional Building and a 55% interest in Covington Pike.
SCHEDULE OF RENTAL RATES AND OCCUPANCY:
Average Annual Average Annual
Rental Rates Occupancy
1997 1996 1997 1996
Investment Properties
Keebler - Virginia $ 7.16/sq.ft. $ 6.94/sq.ft. 0% 67%
Keebler - South Carolina $ 6.22/sq.ft. $ 5.98/sq.ft. 100% 58%
Joint Venture Properties
Corinth Square $14.76/sq.ft. $13.86/sq.ft. 80% 80%
Covington Pike $667/unit $665/unit 99% 99%
The Keebler Company vacated the Columbia, South Carolina, facility in January of
1996 and the Chesapeake, Virginia, facility in August 1996. The Keebler Company
has indicated its intentions to honor its financial obligations to the
Partnership. Keebler is obligated to continue paying rent on the vacated space
through the years 2000 (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.
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other properties in the localities in which they operate. The
General Partner believes that all of the properties are adequately insured.
The following is a schedule of the lease expirations at Corinth Square for the
years 1998-2007:
Number of % of Gross
Expirations Square Feet Annual Rent Annual Rent
(in thousands)
1998 3 4,605 $ 60 23.0%
1999 4 6,867 104 40.0%
2000 1 1,396 18 7.0%
2001 2 2,022 30 11.7%
2002-2007 0 -- -- --
The following schedule reflects information on tenants leasing 10% or more of
the leasable square footage for each property:
Nature of Square Annual Rent Per Lease
Business Footage Square Foot Expiration
Leased
Keebler - Virginia
Distribution 32,000 $ 7.16 10/31/02
Facility
Keebler - South
Carolina
Distribution 39,000 $ 6.22 12/31/00
Facility
Corinth Square
Doctor's Office 3,007 $12.35 4/30/98
Doctor's Office 2,318 $10.53 5/31/99
SCHEDULE OF REAL ESTATE TAXES (IN THOUSANDS) AND RATES:
Investment Properties 1997 Taxes 1997 Rate
Keebler - Virginia $17 1.28%
Keebler - South Carolina 17 1.63%
The tenants of the Keebler Distribution Centers are responsible for paying the
real estate taxes on their respective properties.
1997 1997
Taxes Rate
Joint Venture Properties
Corinth Square Professional Building $ 44 2.86%
Covington Pike 25 6.34%
ITEM 3. LEGAL PROCEEDINGS
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature. The General Partner of the Partnership believes that all
such pending and outstanding litigation will be resolved without a material
adverse effect upon the business, financial condition, operations or cash flow
of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended December 31, 1997, no matters were submitted to a
vote of Unit holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR PARTNERSHIP EQUITY AND RELATED PARTNER MATTERS
As of December 31, 1997, the number of holders of record of Limited Partnership
Units was 785. No public trading market has developed for the Units and it is
not anticipated that such a market will develop in the future.
The Partnership made distributions of cash generated from operations of
approximately $569,000 and $567,000 during the years ended December 31, 1997 and
1996, respectively. A distribution of funds from operations of approximately
$141,000 was declared and paid in the first quarter of 1998. Future
distributions will depend on the levels of cash generated from operations,
property sales, and the availability of cash reserves.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This item should be read in conjunction with the financial statements and other
items contained elsewhere in this report.
Results of Operations
The Partnership realized net income for the year ended December 31, 1997 of
approximately $451,000 compared to net income for the year ended December 31,
1996 of approximately $436,000. All revenues and expenses remained stable. The
Partnership's 1996 financial statements have been restated to change the method
of accounting for its joint venture investments from consolidation to the equity
method. This change affects only the presentation and does not affect net
income nor distributions received from those joint ventures.
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
Exclusive of cash held by the Joint Ventures, at December 31, 1997, the
Partnership had cash and cash equivalents of approximately $834,000 compared to
approximately $699,000 at December 31, 1996. The net increase in cash and cash
equivalents for the year ended December 31, 1997 was $135,000 compared to a net
decrease of $29,000 for the year ended December 31, 1996. Net cash provided by
operating activities increased primarily due to an increase in accrued
liabilities due to the timing of payments. Net cash provided by investing
activities increased due to higher distributions from the joint venture
properties during 1997 than in 1996. Net cash used in financing activities
remained constant.
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 investment 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 $569,000 and $567,000 were made during the years ended
December 31, 1997 and 1996, respectively. A distribution of approximately
$141,000 was declared and paid in the first quarter of 1998. Future cash
distributions will depend on the levels of cash generated from operations,
property sales, and the availability of cash reserves.
The Keebler Company vacated the Columbia, South Carolina, facility in January of
1996 and 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 space through the years 2000
(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 sub-lease tenant is obligated to pay rent to
Keebler through December 31, 2000.
Year 2000
The Partnership is dependent upon the General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The General Partner believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the
Partnership.
Other
Certain items discussed in this annual report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this annual report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
ITEM 7. FINANCIAL STATEMENTS
UNITED INVESTORS INCOME PROPERTIES II
LIST OF FINANCIAL STATEMENTS
Independent Auditors' Report
Balance Sheet -- December 31, 1997
Statements of Operations -- Years ended December 31, 1997
and 1996
Statement of Changes in Partners' Capital (Deficit) -- Years ended
December 31, 1997 and 1996
Statements of Cash Flows -- Years ended December 31, 1997
and 1996
Notes to Financial Statements
INDEPENDENT AUDITORS' REPORT
The Partners
United Investors Income Properties II
(A Missouri Limited Partnership)
We have audited the accompanying balance sheet of United Investors Income
Properties II (A Missouri Limited Partnership) ("the Partnership") as of
December 31, 1997, and the related statements of operations, changes in
partners' capital (deficit) and cash flows for the each of the two years in the
period ended December 31, 1997. These 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, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 1997, and
the results of its operations and its cash flows for each of the two years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
As discussed in Note A, the accompanying 1996 financial statements have been
restated to account for the Partnership's investment in certain joint ventures
using the equity method of accounting. Previously, the Partnership financial
statements included these joint ventures on a fully consolidated basis.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
February 17, 1998
(except for Note J, as to which the date is
March 17, 1998)
UNITED INVESTORS INCOME PROPERTIES II
BALANCE SHEET
December 31, 1997
(in thousands, except unit data)
Assets
Cash and cash equivalents $ 834
Other assets 3
Investment in joint ventures (Notes A, C, and D) 2,123
Investment properties (Notes B and I):
Land $ 432
Buildings and related personal property 3,685
4,117
Less accumulated depreciation (640) 3,477
$6,437
Liabilities and Partners' Capital (Deficit)
Liabilities
Accrued liabilities $ 23
Partners' Capital (Deficit) (Note E)
General partner's $ (4)
Limited partners' (32,601 units issued and
outstanding) 6,418 6,414
$6,437
See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES II
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1997 1996
Revenues:
Rental income $ 467 $ 451
Other income 32 30
Total revenues 499 481
Expenses:
Operating 12 11
General and administrative 66 66
Depreciation 111 105
Total expenses 189 182
Equity in net income of joint
ventures (Notes A, C, and D) 141 137
Net income $ 451 $ 436
Net income allocated to general partner (1%) $ 5 $ 4
Net income allocated to limited partners (99%) 446 432
$ 451 $ 436
Net income per limited partnership unit $ 13.68 $ 13.25
Distributions per limited partner unit $ 17.27 $ 17.21
See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES II
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original capital contribution 32,601 $ -- $ 8,150 $ 8,150
Partners' (deficit) capital at
December 31, 1995 32,601 $ (1) $ 6,664 $ 6,663
Partners' distributions -- (6) (561) (567)
Net income for the year
ended December 31, 1996 -- 4 432 436
Partners' (deficit) capital at
December 31, 1996 32,601 (3) 6,535 6,532
Partners' distributions -- (6) (563) (569)
Net income for the year
ended December 31, 1997 -- 5 446 451
Partners' (deficit) capital at
December 31, 1997 32,601 $ (4) $ 6,418 $ 6,414
See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES II
STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1997 1996
Cash flows from operating activities:
Net income $ 451 $ 436
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in net income of joint ventures (141) (137)
Depreciation 111 105
Change in accounts:
Receivables and deposits 2 --
Other assets 7 6
Accrued liabilities 17 1
Net cash provided by operating activities 447 411
Cash flows from investing activities:
Distributions from joint venture 257 127
Net cash provided by investing activities 257 127
Cash flows from financing activities:
Partners' distributions (569) (567)
Net cash used in financing activities (569) (567)
Net increase (decrease) in cash and cash equivalents 135 (29)
Cash and cash equivalents at beginning of year 699 728
Cash and cash equivalents at end of year $ 834 $ 699
See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES II
Notes to Financial Statements
December 31, 1997
NOTE A - CHANGE IN METHOD OF REPORTING THE OWNERSHIP OF JOINT VENTURES
United Investors Income Properties II (the "Partnership") owns a 65% interest in
Corinth Square Professional Building ("Corinth") (see Note C) and a 55% interest
in Covington Pike ("Covington") (see Note D) (collectively, "The Joint
Ventures"). Through the third quarter of 1997, the Partnership reflected its
interests in the Joint Ventures utilizing full consolidation whereby all the
accounts of the Joint Ventures were included in the Partnership's financial
statements, with intercompany accounts being eliminated. The minority partners'
share of the Joint Ventures' assets and liabilities was reflected as a liability
in the balance sheet of the Partnership. During the fourth quarter of 1997,
management determined that the Partnership shares its authority over operating
and financial decisions of the Joint Ventures with its venture partners and,
accordingly, due to the absence of control, the Partnership began reflecting
its interest in Corinth and Covington utilizing the equity method.
Under the equity method, the original investment is increased by advances to the
Joint Ventures and by the Partnership's share of the earnings of the Joint
Ventures. The investment is decreased by distributions from the Joint Ventures
and by the Partnership's share of losses of the Joint Ventures.
The statements of operations and cash flows for the year ended December 31, 1996
have been restated to reflect this change. Additionally, certain
reclassifications were made in the 1996 statement of operations to conform to
the current year presentation. These changes had no effect on the net income of
the Partnership, the net income per limited partnership unit, or on partners'
capital (deficit).
NOTE B - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION: United Investors Income Properties II, a Missouri Limited
Partnership, was organized in March 1990, with the initial group of limited
partners being admitted on September 24, 1990. Additional partners were
admitted each month thereafter through October 1992.
The Partnership was formed to acquire and operate 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"),
an affiliate of Insignia Financial Group, Inc. ("Insignia"). Effective February
25, 1998, MAE GP was merged into Insignia Properties Trust ("IPT"), which is an
affiliate of Insignia. Thus the General Partner is now a wholly-owned
subsidiary of IPT.
BASIS OF ACCOUNTING: The accompanying financial statements of the Partnership
are prepared on the accrual basis whereby revenue is recorded as earned and
costs and expenses are recorded as incurred.
CASH AND CASH EQUIVALENTS: The Partnership considers all highly liquid
investments with a maturity, when purchased, of three months or less to be cash
equivalents. At certain times, the amount of cash deposited at a bank may
exceed the limit on insured deposits.
INCOME TAXES: For income tax purposes, the Partnership reports revenue and
costs and expenses on the accrual method. No income tax provisions have been
shown in the accompanying statements of operations since the partners are taxed
individually.
INVESTMENT PROPERTIES: Investment properties are stated at cost. Acquisition
fees are capitalized as a cost of real estate. In accordance with "Statement of
Financial Accounting Standards ("SFAS") 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.
Depreciation is computed using straight-line methods over estimated useful lives
of thirty-one and one half to forty years for buildings and improvements and
over the term of the lease for tenant improvements.
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 approximates their fair
value due to the short term maturity of these instruments.
OTHER ASSETS: Included in other assets is deferred rental income which is
amortized over the lives of the related leases.
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.
RECLASSIFICATIONS: Certain reclassifications have been made to the 1996
information to conform to the 1997 presentation.
NOTE C - INVESTMENT IN CORINTH SQUARE
The Partnership owns a 65% interest in Corinth, a joint venture with United
Investors Income Properties, an affiliated partnership, in which the General
Partner is also the sole general partner. Corinth is accounted for using the
equity method of accounting (see Note A).
The Partnership received distributions of approximately $133,000 in 1997 from
Corinth. No distributions were received in 1996.
The condensed balance sheet of Corinth at December 31, 1997, is summarized as
follows (in thousands):
Assets
Commercial properties, net $1,692
Other assets 119
Total $1,811
Liabilities and Partners' Capital
Liabilities $ 42
Partners' capital 1,769
Total $1,811
Condensed statements of operations of Corinth for the years ended December 31,
1997 and 1996, are as follows (in thousands):
Years Ended December 31,
1997 1996
Revenue $ 355 $ 369
Costs and Expenses (297) (325)
Net income $ 58 $ 44
NOTE D - INVESTMENT IN COVINGTON PIKE
As of December 31, 1992, the Partnership had advanced $1,057,698 to the General
Partner for the benefit of Covington, which was a joint venture between the
General Partner and an unaffiliated party. On January 1, 1993, the General
Partner assigned its interest in the joint venture to the Partnership with no
additional consideration beyond the funds advanced as of December 31, 1992. The
$1,057,698 consisted of land and building costs of approximately $1,031,000 and
cash of $26,155. Capital contributed by the unaffiliated partner was $82.
Covington is accounted for using the equity method of accounting (see Note A).
Any cash distributions of Covington are allocated annually as follows:
1. To the Partnership in the amount of 11% of its capital investment during
the year.
2. To the Partnership in the amount of 11% of its capital investment,
cumulative, reduced by the cumulative distributions paid in number 1 above.
3. To the other venturers in an amount of 9/11ths of the amount paid in number
1 above.
4. The balance, 55% to the Partnership and 45% to the other venturers.
Net income is allocated as follows:
1. To each venturer in an amount equal to (or in proportion to if less than)
cash distributions for the year.
2. To the Partnership in an amount equal to the excess of cumulative cash
distributions over cumulative net income allocated in number 1 above and
under this provision.
3. To the other venturers in the same manner as number 2 above.
4. The balance, 55% to the Partnership and 45% to the other venturers.
Net losses are allocated first to each venturer in proportion or equal to their
positive capital account, and then 55% to the Partnership and 45% to the other
venturers.
The Partnership received distributions of approximately $124,000 and $127,000
from Covington during 1997 and 1996, respectively.
The condensed balance sheet of Covington at December 31, 1997, is summarized
as follows (in thousands):
Assets
Commercial properties, net $ 864
Other assets 67
Total $ 931
Liabilities and Partners' Capital
Liabilities $ 67
Partners' capital 864
Total $ 931
Condensed statements of operations of Covington for the years ended December 31,
1997 and 1996, are as follows (in thousands):
Years Ended December 31,
1997 1996
Revenue $ 320 $ 316
Costs and Expenses (131) (119)
Net income $ 189 $ 197
NOTE E - PARTNERS' CAPITAL (DEFICIT)
ALLOCATIONS OF PROFITS AND LOSSES - In accordance with the partnership
agreement, all profits and losses are to 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. On February 15, 1998, the Partnership
paid a distribution to the partners of approximately $141,000.
NOTE F - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The partnership agreement provides for payments to affiliates for services based
on a percentage of revenue and for reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following payments were made to
affiliates of the General Partner in 1997 and 1996 (in thousands):
1997 1996
Property management fees (included in
operating expenses) $ 9 $ 9
Reimbursement for services of affiliates
(included in general and administrative
and operating expenses) 34 32
NOTE G - OPERATING LEASES
Keebler Distribution Center - South Carolina and Keebler Distribution Center -
Virginia are leased by a single tenant. The tenant vacated the South Carolina
property in January 1996 and vacated the Virginia property in August 1996. The
tenant is obligated under its leases through the years 2000 and 2002 on the
South Carolina and Virginia properties, respectively. Should the tenant fail to
honor its lease obligations, operating results would be adversely affected.
With the Partnership's approval, the South Carolina property was subleased to a
different tenant starting in July 1996.
The future minimum rental payments to be received under the two Keebler
Distribution Centers' operating leases that have initial or remaining
noncancellable lease terms in excess of one year as of December 31, 1997, are
set forth below. The leases have provisions which will adjust the future
minimum rental payments for changes in the Consumer Price Index ("CPI") with
minimum increases dictated by the leases. For these leases the Partnership has
included the base rent adjusted for the required minimum increase, before any
CPI changes, as the future minimum rental payment.
Years Ending December 31,
(in thousands)
1998 $ 492
1999 512
2000 533
2001 271
2002 233
Thereafter 0
Total $ 2,041
NOTE H - PARTNER TAX INFORMATION
The following is a reconciliation between net income as reported in the
financial statements and federal taxable income allocated to the partners in the
Partnership's tax return for the years ended December 31, 1997 and 1996 (in
thousands, except unit data):
1997 1996
Net income as reported $ 451 $ 436
Add (deduct) differences related to:
Accumulated depreciation (6) (12)
Deferred revenue 39 (6)
Accrued expenses 18 1
Deferred charges and other assets (25) 6
Federal taxable income $ 477 $ 425
Federal taxable income
per limited partnership unit $14.49 $12.91
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets at December 31, 1997 (in thousands):
Net assets as reported $6,414
Differences in basis of assets
and liabilities:
Accumulated depreciation (10)
Deferred revenue and other
liabilities 22
Accrued expenses 24
Deferred charges and other assets (40)
Syndication costs 1,194
Net assets - tax basis $7,604
NOTE I - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION
(IN THOUSANDS)
Initial Cost
To Partnership
Buildings Net Cost
and Related Capitalized
Personal Subsequent to
Description Land Property Acquisition
Keebler Distribution Center-VA $ 260 $1,625 $ 129
Keebler Distribution Center-SC 172 1,794 137
Totals $ 432 $3,419 $ 266
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1997
Buildings Accum-
And Related ulated Date of Date
Personal epreci- Constru- Acqu- Depreciable
Description Land Property Total ation ction ired Life-Years
<S> <C> <C> <C> <C> <C> <C> <C>
Keebler Distribution
Center, VA $ 260 $ 1,754 $ 2,014 $ 319 1987 08/01/91 31.5-40
Keebler Distribution
Center, SC 172 1,931 2,103 321 1986 04/01/92 31.5-40
Totals $ 432 $ 3,685 $ 4,117 $ 640
</TABLE>
Reconciliation of "Investment Properties and Accumulated Depreciation"
Years Ended December 31,
1997 1996
Investment Properties
Balance at beginning of year $4,117 $4,117
Property improvements -- --
Balance at end of Year $4,117 $4,117
Accumulated Depreciation
Balance at beginning of year $ 529 $ 424
Depreciation expense 111 105
Balance at end of year $ 640 $ 529
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1997, is $4,117,000. The accumulated depreciation taken for
Federal income tax purposes at December 31, 1997, is $692,000.
NOTE J - SUBSEQUENT EVENT
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements with Deloitte & Touche LLP regarding the 1997 or
1996 audits of the Partnership's financial statements.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The Partnership has no officers or directors. United Investor 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.
Effective December 31, 1992, 100% of the General Partner's common stock was
purchased by MAE GP Corporation ("MAE GP"), which is wholly owned by
Metropolitan Asset Enhancement, L.P. ("MAE"), an affiliate of Insignia Financial
Group, Inc. ("Insignia"). Effective February 25, 1998, MAE GP was merged into
Insignia Properties Trust ("IPT"), which is an affiliate of Insignia. Thus the
General Partner is now a wholly owned subsidiary of IPT.
The names of the directors and executive officers 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
Carroll D. Vinson 57 President and Director
Robert D. Long, Jr. 30 Vice President and
Chief Accounting
Officer
William H. Jarrard, Jr. 51 Vice President
Daniel M. LeBey 32 Secretary
Kelley M. Buechler 40 Assistant Secretary
Carroll D. Vinson has been President and Director of the General Partner and
President of MAE and subsidiaries since August of 1994. He has acted as Chief
Operating Officer of IPT since May 1997. During 1993 to August 1994, Mr. Vinson
was affiliated with Crisp, Hughes & Co. (regional CPA firm) and engaged in
various other investment and consulting activities which included portfolio
acquisitions, asset dispositions, debt restructurings and financial reporting.
Briefly, in early 1993, Mr. Vinson served as President and Chief Executive
Officer of Angeles Corporation, a real estate investment firm. From 1991 to
1993, Mr. Vinson was employed by Insignia in various capacities including
Managing Director - President during 1991.
Robert D. Long, Jr. has been Vice President and Chief Accounting Officer of the
General Partner since August 1994. Mr. Long joined MAE in September 1993.
Since 1994 he has acted as Vice President and Chief Accounting Officer of the
MAE subsidiaries. Mr. Long was an accountant for Insignia until joining MAE in
1993. Prior to joining Insignia, Mr. Long was an auditor for the State of
Tennessee and was associated with the accounting firm of Harsman Lewis and
Associates.
William H. Jarrard, Jr. has been Vice President of the General Partner since
December 1992. He has acted as Senior Vice President of IPT since May 1997.
Mr. Jarrard previously acted as Managing Director - Partnership Administration
of Insignia from January 1991 through September 1997 and served as Managing
Director - Partnership Administration and Asset Management of Insignia from July
1994 until January 1996.
Daniel M. LeBey has been Secretary of the General Partner since January 29, 1998
and Insignia's Assistant Secretary since April 30, 1997. Since July 1996 he has
also served as Insignia's Associate General Counsel. From September 1992 until
June 1996, Mr. LeBey was an attorney with the law firm of Alston & Bird LLP,
Atlanta, Georgia.
Kelley M. Buechler has been Assistant Secretary of the General Partner since
December 1992 and Assistant Secretary of Insignia since 1991.
ITEM 10. EXECUTIVE COMPENSATION
No direct form of compensation or remuneration was paid by the Partnership to
any officer or director of the General Partner. The Partnership has no plan,
nor does the Partnership presently propose a plan, which will result in any
remuneration being paid to any officer or director upon termination of
employment. However, reimbursements and other payments have been made to the
Partnership's General Partner and its affiliates, as described in "Item 12.
Certain Relationships and Related Transactions" below.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1997, no person was known by the Partnership to be the
beneficial owner of more than five percent of the outstanding Units of the
Partnership.
As of December 31, 1997, no Units were owned by the General Partner or any of
its officers and directors.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership.
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 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 in 1997 and 1996 (in thousands):
1997 1996
Property management fees $ 9 $ 9
Reimbursement for services of affiliates 34 32
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Exhibit Index contained herein.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal year 1997:
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNITED INVESTORS INCOME PROPERTIES II
By: United Investors Real Estate, Inc.
Its General Partner
By: /s/ Carroll D. Vinson
Carroll D. Vinson
President and Director
Date: March 31, 1998
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
date indicated.
/s/ Carroll D. Vinson President and Director March 31, 1998
Carroll D. Vinson
/s/ Robert D. Long, Jr. Vice President and Chief March 31, 1998
Robert D. Long, Jr. Accounting Officer
EXHIBIT INDEX
Exhibit
1. 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 Amendment No. 1 to
Partnership's Registration Statement (File No. 33-33965) previously
filed on May 7, 1990.
1.1 Form of Amendment to Dealer Manager Agreement; incorporated by
reference to Exhibit 1.1 to Amendment No. 6 to Partnership's
Registration Statement previously filed on February 14, 1992.
1.2 Form of Amendment to Soliciting Broker Agreement; incorporated by
reference to Exhibit 1.2 to Amendment No. 6 to Partnership's
Registration Statement previously filed on February 14, 1992.
3 Certificate of Limited Partnership and Amendment thereto; incorporated
by reference to Exhibit 3 to Amendment No. 1 to Partnership's
Registration Statement previously filed on May 7, 1990.
4.1 Form of Subscription Agreement; incorporated by reference to Exhibit
3.1 to Amendment No. 1 to Partnership's Registration Statement
previously filed on May 7, 1990.
4.2 Agreement of Limited Partnership of Partnership dated September 24,
1990; incorporated by reference to Exhibit 4.2 to Partnership's Report
on Form 10-K previously filed on March 6, 1991.
4.2.1 Amended and Restated Agreement of Limited Partnership of Partnership
dated May 1, 1992; incorporated by reference to Exhibit 4.2 to
Amendment No. 9 to Partnership's Registration Statement previously
filed on April 29, 1992.
10.1 Escrow Agreement among the Partnership, the Dealer Manager and United
Missouri Bank of Kansas City, N.A.; incorporated by reference to
Exhibit 10.1 to Amendment No. 1 to Partnership's Registration
Statement previously filed on May 7, 1990.
10.1.1 Form of Amendment to Escrow Agreement; incorporated by reference to
Exhibit 10.1.1 to Amendment No. 6 to Partnership's Registration
Statement previously filed on February 14, 1992.
10.2 Agreement of Purchase and Sale, dated June 29, 1990, between United
Investors Real Estate, Inc., as purchaser, and American Fire
Sprinkler, Corporation, as seller, relating to Corinth Square
Professional Building; incorporated by reference to Exhibit 10.1 to
Partnership's Quarterly Report on Form 10-Q previously filed on August
15, 1990.
10.3 Agreement of Joint Venture of Corinth Square Associates dated October
1, 1990 between the Partnership and United Investors Income Properties
(A Missouri Limited Partnership); incorporated by reference to Exhibit
4.3 to Partnership's Current Report on Form 8-K previously filed on
October 23, 1990.
10.4 Agreement of Purchase and Sale, dated December 6, 1990, between United
Investors Real Estate, Inc., as purchaser, and Keeva Properties, L.P.,
as seller, relating to the Keebler Distribution Center located in
Chesapeake, Virginia (the "Virginia Center") and the First Amendment
thereto; incorporated by reference to Exhibit 10.4 to Amendment No. 2
to Partnership's Registration Statement previously filed on February
27, 1991.
10.5 Lease, dated June 26, 1986, between Keeva Properties, a Missouri
Limited Partnership, as lessor, and Keebler Company, as lessee,
relating to the Virginia Center and amendments thereto; incorporated
by reference to Exhibit 10.5 to Amendment No. 2 to Partnership's
Registration Statement previously filed on February 27, 1991.
10.6 Agreement for Purchase and Sale, dated December 6, 1990, between
United Investors Real Estate, Inc., as purchaser, and Keecar
Properties, L.P., as seller, relating to the Keebler Distribution
Center located in Columbia, South Carolina (the "South Carolina
Center"), and First Amendment thereto; incorporated by reference to
Exhibit 10.6 to Amendment No. 2 to Partnership's Registration
Statement previously filed on February 27, 1991.
10.7 Lease, dated June 6, 1986, between Keecar Properties, a Missouri
Limited Partnership, as lessor, and Keebler Company, as lessee,
relating to the South Carolina Center, and amendment thereto;
incorporated by reference to Exhibit 10.7 to Amendment No. 2 to
Partnership's Registration Statement previously filed on February 27,
1991.
10.8 Form of Agreement between the Partnership and Colby Sandlian regarding
the Covington U-Stor Mini-Warehouse; incorporated by reference to
Exhibit 10.8 to Amendment No. 9 to Partnership's Registration
Statement previously filed on April 29, 1992.
10.9 Form of Agreement between the Partnership and Colby Sandlian regarding
the Harry Hines U-Stor Mini-Warehouse; incorporated by reference to
Exhibit 10.9 to Amendment No. 9 to Partnership's Registration
Statement previously filed on April 29, 1992.
10.10 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 10.10 to
Partnership's Current Report on Form 8-K previously filed on December
31, 1992.
27 Financial Data Schedule
99.1 Portions of Partnership's Prospectus dated May 17, 1990; incorporated
by reference to Exhibit 99.1 to Partnership's Report on Form 10-K
previously filed on March 6, 1991.
99.2 Portions of Partnership's Prospectus dated May 14, 1992.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from United
Investors Income Properties II 1997 Year-End 10-KSB and is qualified in its
entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000862028
<NAME> UNITED INVESTORS INCOME PROPERTIES II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 834
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 4,117
<DEPRECIATION> 640
<TOTAL-ASSETS> 6,437
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,414
<TOTAL-LIABILITY-AND-EQUITY> 6,437
<SALES> 0
<TOTAL-REVENUES> 499
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 189
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 451
<EPS-PRIMARY> 13.68<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
