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, 1998
[ ] 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.)
55 Beattie Place, 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: $541,000
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of December 31, 1998. No market exists for the limited
partnership interests of the Registrant, and therefore, no aggregate market
value can be determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
ITEM 1. DESCRIPTION OF BUSINESS
United Investors 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. 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"). Effective February 25,
1998, MAE GP was merged into Insignia Properties Trust ("IPT"), which was merged
into Apartment Investment and Management Company ("AIMCO") effective February
26, 1999. Thus the General Partner is now a wholly-owned subsidiary of AIMCO.
The Partnership Agreement is to terminate on December 31, 2020 unless terminated
prior to such date.
The Partnership is engaged in the business of operating and holding 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), two commercial distribution
facilities, and a 55% interest in a joint venture which owns a mini-warehouse
(Covington Pike), (see "Item 2. Description of Properties").
Commencing on or about May 17, 1990, the Partnership offered, pursuant to a
Registration Statement filed with the Securities and Exchange Commission up to a
maximum of 80,000 Units of limited partnership interest (the "Units") at $250
per Unit with a minimum required purchase of eight Units or $2,000 (four Units
or $1,000 for an Individual Retirement Account). Since its initial offering,
limited partners (the "Limited Partners") have not made, and are not required to
make any additional capital contributions. 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 approximately $8,150,000.
The real estate business in which the Partnership is engaged is highly
competitive. There are other commercial properties within the market area of
the Registrant's properties. The number and quality of competitive properties,
including those which may be managed by an affiliate of the General Partner in
such market area, could have a material effect on the rental market for
commercial space owned by the Registrant and the rents that may be charged for
such space. In addition, various limited partnerships have been formed by the
General Partner and/or affiliates to engage in business which may be competitive
with the Registrant.
The Partnership has no employees. Management and administrative services for
the commercial properties are provided by the General Partner and by agents
retained by the General Partner. Until September 30, 1998, property management
services were provided at the Partnership's properties by an affiliate of the
General Partner. Since October 1, 1998, an unrelated party has been providing
such property management services. 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 AIMCO 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.
Both the income and expenses of operating the remaining properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
an oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
financing, changes in zoning laws, or changes in patterns or needs of users. In
addition, there are risks inherent in owning and operating commercial properties
because such properties are susceptible to the impact of economic and other
conditions outside of the control of the Partnership.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.
The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain
cases, environmental testing has been performed which resulted in no material
adverse conditions or liabilities. In no case has the Partnership received
notice that it is a potentially responsible party with respect to an
environmental clean up site.
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, a publicly traded real
estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership
interest in Insignia Properties Trust ("IPT"), the entity which controls the
General Partner. The General Partner does not believe that this transaction
will have a material effect on the affairs and operations of the Partnership.
ITEM 2. DESCRIPTION OF PROPERTIES:
The following table sets forth the Registrant'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:
Set forth below for each of the Registrant's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation and
Federal tax basis.
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Useful Depreciation Federal
Investment Properties Value Depreciation Life (1) Method Tax Basis
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Keebler Distribution Center-VA $2,014 $ 369 31.5-40 S/L $ 1,607
Keebler Distribution Center-SC 2,103 383 31.5-40 S/L 1,700
Total $4,117 $ 752 $ 3,307
</TABLE>
(1) See "Note B" of the 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 $2,083 $ 375 7-40 S/L $ 1,721
Covington Pike 1,031 201 25 S/L 872
(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.
RENTAL RATES AND OCCUPANCY:
Average annual rental rates and occupancy for 1998 and 1997 for each property:
Average Annual Average Annual
Rental Rates Occupancy
1998 1997 1998 1997
Investment Properties
Keebler - Virginia $ 7.45/sq.ft. $7.16/sq.ft. 100% 0%
Keebler - South Carolina $ 6.47/sq.ft. $6.22/sq.ft. 100% 100%
Joint Venture Properties
Corinth Square $14.69/sq.ft. $14.76/sq.ft. 86% 80%
Covington Pike $673 / unit $667 / unit 99% 99%
The Keebler Company vacated the Columbia, South Carolina, facility in January of
1996 and the Chesapeake, Virginia, facility in August of 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 former 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 and January 1, 1998 for the
Chesapeake, Virginia facility. The new tenants are obligated to pay rent to
Keebler through December 31, 2000 and October 31, 2002, respectively.
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, (see
"Notes A and H" to the financial statements included in "Item 7. Financial
Statements" for information as to certain lease provisions). All of the
properties are in good physical condition, subject to normal depreciation and
deterioration as is typical for assets of this type and age.
The following is a schedule of the lease expirations at Corinth Square for the
years 1999-2008:
Number of % of Gross
Expirations Square Feet Annual Rent Annual Rent
(in thousands)
1999 4 6,867 $104 33.9%
2000 1 1,396 18 6.0%
2001 2 2,022 30 9.9%
2002 0 -- -- --
2003 2 1,401 22 7.1%
2004-2008 1 1,240 21 6.9%
The following schedule reflects information on tenants leasing 10% or more of
the leasable square footage for each property:
Square
Nature of Footage Annual Rent Per Lease
Business Leased Square Foot Expiration
Keebler - Virginia
Distribution 32,000 $ 7.45 10/31/02
Facility
Keebler - South
Carolina
Distribution 39,000 $ 6.47 12/31/00
Facility
Corinth Square
Doctor's Office 3,007 $13.00 Month-to-Month
Doctor's Office 2,318 $12.76 5/31/99
SCHEDULE OF REAL ESTATE TAXES AND RATES:
Real estate taxes and rates in 1998 for each property were:
Investment Properties 1998 Taxes 1998 Rate
Keebler - Virginia $18 1.28%
Keebler - South Carolina 18 1.70%
The tenants of the Keebler Distribution Centers are responsible for paying the
real estate taxes on their respective properties.
1998 1998
Taxes Rate
Joint Venture Properties
Corinth Square Professional Building $ 39 2.58%
Covington Pike 41 5.59
CAPITAL IMPROVEMENTS:
In 1998, the Partnership did not complete any capital improvements at either of
their commercial properties; nor has it budgeted capital improvements for 1999
at either of these properties.
ITEM 3. LEGAL PROCEEDINGS
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia, filed a complaint entitled Everest Properties, LLC, et.
al. v. Insignia Financial Group, Inc., et. al. in the Superior Court of the
State of California, County of Los Angeles. The action involves 44 real estate
limited partnerships (including the Partnership) in which the plaintiffs
allegedly own interests and which Insignia Affiliates allegedly manage or
control (the "Subject Partnerships"). This case was settled on March 3, 1999.
The Partnership is responsible for a portion of the settlement costs. The
General Partner does not anticipate that costs associated with this case, if
any, to be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal quarter ended December 31, 1998, 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
The Partnership, a publicly-held limited partnership, offered and sold 32,601
limited partnership units aggregating approximately $8,150,000. As of December
31, 1998 there were 789 holders of record owning an aggregate of 32,601 units.
Affiliates of the General Partner did not own any units at December 31, 1998.
There is no established market for the units and it is not anticipated that any
will develop in the future.
During the years ended December 31, 1998 and 1997, distributions of
approximately $565,000 ($17.15 per limited partnership unit) and $569,000
($17.27 per limited partnership unit) were paid from operations, respectively.
Future cash distributions will depend on the levels of net cash from operations,
debt financings, property sales, and the availability of cash reserves.
Subsequent to the Partnership's fiscal year-end, a distribution of cash
generated from operations of approximately $141,000 ($4.29 per limited
partnership unit) was paid in March 1999. The Partnership's distribution policy
is reviewed on a quarterly basis. There can be no assurance, however, that the
Partnership will generate sufficient funds from operations after required
capital expenditures to permit additional distributions to its partners in 1999
or subsequent periods.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-KSB and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussion of
the Registrant's business and results of operations, including forward-looking
statements pertaining to such matters, does not take into account the effects of
any changes to the Registrant's business and results of operation. Accordingly,
actual results could differ materially from those projected in the forward-
looking statements as a result of a number of factors, including those
identified herein.
This item should be read in conjunction with the financial statements and other
items contained elsewhere in this report.
Results of Operations
The Registrant's net income for the year ended December 31, 1998 was
approximately $485,000 as compared to approximately $451,000 for the year ended
December 31, 1997. (See "Note I" of the financial statements for a
reconciliation of these amounts to the Registrant's federal taxable losses).
The increase in net income is attributable to the increase in total revenue and
an increase in equity in net income of joint ventures, which was partially
offset by a decrease in expenses. Revenues increased due to an increase in
rental income. The increase in rental income is primarily attributable to an
increase in average annual rental rates at both investment properties. The
increase in equity in net income of joint ventures is due to an increase in net
income for the Registrant's joint venture property, Covington Pike.
Total expenses increased primarily due to an increase in operating expenses.
Operating expenses increased due to roof and other exterior building repairs at
Keebler _ Virginia during 1998.
General and administrative and depreciation expense remained relatively constant
for the comparable periods. Included in general and administrative expenses at
both December 31, 1998 and 1997 are management reimbursements to the General
Partner allowed under the Partnership Agreement. In addition, 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.
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 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, 1998, the
Partnership had cash and cash equivalents of approximately $809,000 as compared
to approximately $834,000 at December 31, 1997. The decrease in cash and cash
equivalents is due to approximately $565,000 of cash used in financing
activities offset by approximately $402,000 of cash provided by operating
activities and approximately $138,000 of cash provided by investing activities.
Cash provided by investing activities consisted of distributions from the joint
ventures. Cash used in financing activities consisted of distributions paid to
the Registrant's partners. The Registrant invests its working capital reserves
in money market accounts.
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 and to comply with Federal,
state and local legal and regulatory requirements. The Partnership has not
budgeted any capital improvements for the properties in 1999.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant.
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 and January 1, 1998 for the Chesapeake, Virginia
facility. The new tenants are obligated to pay rent to Keebler through December
31, 2000 and October 31, 2002, respectively.
During the years ended December 31, 1998 and 1997, distributions of
approximately $565,000 and $569,000 were paid from operations, respectively.
The Partnership's distribution policy is reviewed on a quarterly basis.
Subsequent to the Partnership's fiscal year-end, a distribution of cash
generated from operations of approximately $141,000 was paid in March 1999.
There can be no assurance, however, that the Partnership will generate
sufficient funds from operations to permit distributions to its partners in 1999
or subsequent periods.
Year 2000 Compliance
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology (IT) and Non-IT Systems
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership
is dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the computer programs or
hardware that have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
Over the past two years, the Managing Agent has determined that it will be
required to modify or replace significant portions of its software and certain
hardware so that those systems will properly utilize dates beyond December 31,
1999. The Managing Agent presently believes that with modifications or
replacements of existing software and certain hardware, the Year 2000 issue can
be mitigated. However, if such modifications and replacements are not made or
not completed in time, the Year 2000 issue could have a material impact on the
operations of the Partnership.
The Managing Agent's plan to resolve Year 2000 issues involves four Phases:
assessment, remediation, testing, and implementation. To date, the Managing
Agent has fully completed its assessment of all the information systems that
could be significantly affected by the Year 2000, and has begun the remediation,
testing and implementation phases on both hardware and software systems.
Assessments are continuing in regards to embedded systems. The status of each
is detailed below.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
Computer Hardware:
During 1997 and 1998, the Managing Agent identified all of the computer systems
at risk and formulated a plan to repair or replace each of the affected systems.
In August 1998, the mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, PC-based network servers and routers
and desktop PCs were analyzed for compliance. The Managing Agent has begun to
replace each of the non-compliant network connections and desktop PCs and, as of
December 31, 1998, had completed approximately 75% of this effort.
The total cost to the Managing Agent to replace the PC-based network servers,
routers and desktop PCs is expected to be approximately $1.5 million of which
$1.3 million has been incurred to date. The remaining network connections and
desktop PCs are expected to be upgraded to Year 2000 compliant systems by March
31, 1999.
Computer software:
The Managing Agent utilizes a combination of off-the-shelf, commercially
available software programs as well as custom-written programs that are designed
to fit specific needs. Both of these types of programs were studied, and
implementation plans written and executed with the intent of repairing or
replacing any non-compliant software programs.
During 1998, the Managing Agent began converting the existing property
management and rent collection systems to its management properties Year 2000
compliant systems. The estimated additional costs to convert such systems at
all properties, is $200,000, and the implementation and the testing process is
expected to be completed by March 31, 1999.
The final software area is the office software and server operating systems.
The Managing Agent has upgraded all non-compliant office software systems on
each PC and has upgraded 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
March 31, 1999.
Operating Equipment:
The Managing Agent has operating equipment, primarily at the property sites,
which needed to be evaluated for Year 2000 compliance. In September 1997, the
Managing Agent began taking a census and inventory of embedded systems
(including those devices that use time to control systems and machines at
specific properties, for example elevators, heating, ventilating, and air
conditioning systems, security and alarm systems, etc.).
The Managing Agent has chosen to focus its attention mainly upon security
systems, elevators, heating, ventilating and air conditioning systems, telephone
systems and switches, and sprinkler systems. While this area is the most
difficult to fully research adequately, management has not yet found any major
non-compliance issues that put the Managing Agent at risk financially or
operationally. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by March 31, 1999.
Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of December 31, 1998 the Managing Agent
has evaluated approximately 86% of the operating equipment for the Year 2000
compliance.
The total cost incurred for all properties managed by the Managing Agent as of
December 31, 1998 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by April 30, 1999.
The Managing Agent continues to have "awareness campaigns" throughout the
organization designed to raise awareness and report any possible compliance
issues regarding operating equipment within our enterprise.
Nature and Level of Importance of Third Parties and Their Exposure to the Year
2000
The Managing Agent continues to conduct surveys of its banking and other vendor
relationships to assess risks regarding their Year 2000 readiness. The Managing
Agent has banking relationships with three major financial institutions, all of
which have indicated their compliance efforts will be complete before May 1999.
The Managing Agent has updated data transmission standards with two of the three
financial institutions. The Managing Agent's contingency plan in this regard is
to move accounts from any institution that cannot be certified Year 2000
compliant by June 1, 1999.
The Partnership does not rely heavily on any single vendor for goods and
services, and does not have significant suppliers and subcontractors who share
information systems (external agent). To date the Partnership is not aware of
any external agent with a Year 2000 compliance issue that would materially
impact the Partnership's results of operations, liquidity, or capital resources.
However, the Partnership has no means of ensuring that external agents will be
Year 2000 compliant.
The Managing Agent does not believe that the inability of external agents to
complete their Year 2000 remediation process in a timely manner will have a
material impact on the financial position or results of operations of the
Partnership. However, the effect of non-compliance by external agents is not
readily determinable.
Costs to Address Year 2000
The total cost of the Year 2000 project to the Managing Agent is estimated at
$3.5 million and is being funded from operating cash flows. To date, the
Managing Agent has incurred approximately $2.8 million ($0.6 million expensed
and $2.2 million capitalized for new systems and equipment) related to all
phases of the Year 2000 project. Of the total remaining project costs,
approximately $0.5 million is attributable to the purchase of new software and
operating equipment, which will be capitalized. The remaining $0.2 million
relates to repair of hardware and software and will be expensed as incurred.
The Partnership's portion of these costs are not material.
Risks Associated with the Year 2000
The Managing Agent believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Managing Agent has not
yet completed all necessary phases of the Year 2000 program. In the event that
the Managing Agent does not complete any additional phases, certain worst case
scenarios could occur. The worst case scenarios could include elevators,
security and heating, ventilating and air conditioning systems that read
incorrect dates and operate with incorrect schedules (e.g., elevators will
operate on Monday as if it were Sunday). Although such a change would be
annoying to residents, it is not business critical.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also adversely affect the Partnership. The Partnership could be
subject to litigation for, among other things, computer system failures,
equipment shutdowns or failure to properly date business records. The amount of
potential liability and lost revenue cannot be reasonably estimated at this
time.
Contingency Plans Associated with the Year 2000
The Managing Agent has contingency plans for certain critical applications and
is working on such plans for others. These contingency plans involve, among
other actions, manual workarounds and selecting new relationships for such
activities as banking relationships and elevator operating systems.
ITEM 7. FINANCIAL STATEMENTS
UNITED INVESTORS INCOME PROPERTIES II
LIST OF FINANCIAL STATEMENTS
Independent Auditors' Reports
Balance Sheet - December 31, 1998
Statements of Operations - Years ended December 31, 1998 and 1997
Statements of Changes in Partners' Capital (Deficit) - Years ended December
31,1998 and 1997
Statements of Cash Flows - Years ended December 31, 1998 and 1997
Notes to Financial Statements
INDEPENDENT AUDITORS' REPORT
The Partners
United Investors Income Properties II
(A Missouri Limited Partnership)
We have audited the balance sheet of United Investors Income Properties II (A
Missouri Limited Partnership) ("the Partnership") as of December 31, 1998, and
the related statements of operations, changes in partners' capital (deficit) and
cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 1998, and
the results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
Greenville, South Carolina
February 23, 1999
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 year then ended. 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 audit.
We conducted our audit 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 audit provides 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 the year then ended in
conformity with generally accepted accounting principles.
/s/DELOITTE & TOUCHE LLP
Greenville, South Carolina
February 17, 1998
UNITED INVESTORS INCOME PROPERTIES II
BALANCE SHEET
December 31, 1998
(in thousands, except unit data)
Assets
Cash and cash equivalents $ 809
Receivables and deposits 21
Other assets 22
Investment in joint ventures (Notes A, D and E) 2,142
Investment properties (Note J):
Land $ 432
Buildings and related personal property 3,685
4,117
Less accumulated depreciation (752) 3,365
$6,359
Liabilities and Partners' Capital (Deficit)
Liabilities
Accrued liabilities $ 25
Partners' Capital (Deficit)
General partner's $ (5)
Limited partners' (32,601 units issued and
outstanding) 6,339 6,334
$6,359
See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES II
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1998 1997
Revenues:
Rental income $ 511 $ 467
Other income 30 32
Total revenues 541 499
Expenses:
Operating 33 12
General and administrative 68 66
Depreciation 112 111
Total expenses 213 189
Equity in net income of joint
ventures (Notes A, D, and E) 157 141
Net income $ 485 $ 451
Net income allocated to general partner (1%) $ 5 $ 5
Net income allocated to limited partners (99%) 480 446
$ 485 $ 451
Net income per limited partnership unit $ 14.72 $ 13.68
Distributions per limited partnership unit $ 17.15 $ 17.27
See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES II
STATEMENTS 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, 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
Partners' distributions -- (6) (559) (565)
Net income for the year
ended December 31, 1998 -- 5 480 485
Partners' (deficit) capital at
December 31, 1998 32,601 $ (5) $ 6,339 $ 6,334
See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES II
STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1998 1997
Cash flows from operating activities:
Net income $ 485 $ 451
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in net income of joint ventures (157) (141)
Depreciation 112 111
Change in accounts:
Receivables and deposits (21) 2
Other assets (19) 7
Accrued liabilities 2 17
Net cash provided by operating activities 402 447
Cash flows provided by investing activities:
Distributions from joint ventures 138 257
Cash flows used in financing activities:
Partners' distributions (565) (569)
Net (decrease) increase in cash and cash equivalents (25) 135
Cash and cash equivalents at beginning of year 834 699
Cash and cash equivalents at end of year $ 809 $ 834
See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES II
Notes to Financial Statements
December 31, 1998
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 D") and a 55%
interest in Covington Pike ("Covington") (see "Note E") (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.
NOTE B - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: The Partnership, 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").
Effective February 25, 1998, MAE GP was merged into Insignia Properties Trust
("IPT"), which was merged into Apartment Investment and Management Company
("AIMCO"). Thus the General Partner is now a wholly-owned subsidiary of AIMCO,
(see "Note C _ Transfer of Control").
Cash and cash equivalents: Includes cash on hand and in banks, money market
funds and certificates of deposit with original maturities less than 90 days.
At certain times, the amount of cash deposited at a bank may exceed the limit on
insured deposits.
Investment Properties: Investment properties consist of two distribution
facilities both of which 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. Costs of investment properties that have been permanently
impaired have been written down to appraised value. No adjustments for
impairment of value were necessary for the years ended December 31, 1998 or
1997.
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.
Leases: The Partnership leases certain commercial space to tenants under
various lease terms. For leases containing fixed rental increases during their
term, rents are recognized on a straight-line basis over the terms of the lease.
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.
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used (1)
for real property over 15 years for additions prior to March 16, 1984, 18 years
for additions after March 15, 1984 and before May 9, 1985, and 19 years for
additions after May 8, 1985, and before January 1, 1987, and (2) for personal
property over 5 years for additions prior to January 1, 1987. As a result of
the Tax Reform Act of 1986, for additions after December 31, 1986, the modified
accelerated cost recovery method is used for depreciation of (1) real property
over 27 1/2 years and (2) personal property additions over 7 years.
Segment Reporting: In June 1997, the Financial Accounting Standards Board
issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("Statement 131"), which is effective for years beginning after
December 15, 1997. Statement 131 established standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers (see "Note K" for detailed disclosure of
the Partnership's segments).
Reclassifications: Certain reclassifications have been made to the 1997
information to conform to the 1998 presentation.
NOTE C _ 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, a publicly traded real
estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership
interest in Insignia Properties Trust ("IPT"), the entity which controls the
General Partner. The General Partner does not believe that this transaction
will have a material effect on the affairs and operations of the Partnership.
NOTE D - INVESTMENT IN CORINTH SQUARE
The Partnership owns a 65% interest in Corinth Square, a joint venture with
United Investors Income Properties, an affiliated partnership, in which the
General Partner is also the sole general partner. The joint venture owns a
24,000 square foot medical office building located in Prairie Village, Kansas.
Corinth Square is accounted for using the equity method of accounting (see "Note
A").
The Partnership received distributions of approximately $100,000 and $133,000 in
1998 and 1997, respectively, from Corinth Square.
The condensed balance sheet of Corinth Square at December 31, 1998, is
summarized as follows (in thousands):
Assets
Commercial properties, net $1,708
Other assets 157
Total $1,865
Liabilities and Partners' Capital
Liabilities $ 38
Partners' capital 1,827
Total $1,865
Condensed statements of operations of Corinth for the years ended December 31,
1998 and 1997, are as follows (in thousands):
Years Ended December 31,
1998 1997
Revenues $ 375 $ 355
Expenses (317) (297)
Net income $ 58 $ 58
NOTE E - 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 Pike, 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 Pike is accounted for using the equity method of accounting (see "Note
A").
Any cash distributions of Covington Pike 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 $38,000 and $124,000
from Covington Pike during 1998 and 1997, respectively.
The condensed balance sheet of Covington Pike at December 31, 1998, is
summarized as follows (in thousands):
Assets
Commercial properties, net $ 830
Other assets 66
Total $ 896
Liabilities and Partners' Capital
Liabilities $ 67
Partners' capital 829
Total $ 896
Condensed statements of operations of Covington Pike for the years ended
December 31, 1998 and 1997, are as follows (in thousands):
Years Ended December 31,
1998 1997
Revenue $ 318 $ 320
Expenses (120) (131)
Net income $ 198 $ 189
NOTE F - 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.
NOTE G - 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 certain payments to affiliates for
services and as reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership. The following payments were made to affiliates of
the General Partner in 1998 and 1997:
1998 1997
(in thousands)
Property management fees (included in
operating expenses) $10 $ 9
Reimbursement for services of affiliates
(included in general and administrative
and operating expenses) 30 34
During the years ended December 31, 1997 and for the nine months ending
September 30, 1998 affiliates of the General Partner were entitled to varying
percentages of gross receipts from all of the Registrant's commercial properties
as compensation for providing property management services. These services were
provided by affiliates of the General Partner during 1997 and for the nine
months ending September 30, 1998 and were $9,000 and $10,000, respectively.
Effective October 1, 1998 (the effective date of the Insignia Merger (see "Note
C")) these services for the commercial properties were provided by an unrelated
party.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $30,000 and $34,000 for the
years ended December 31, 1998 and 1997, respectively.
NOTE H - 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, and January 1, 1998 for the Chesapeake,
Virginia facility. The new tenants are obligated to pay rent to Keebler through
December 31, 2000 and October 31, 2002, respectively.
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, 1998, 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)
1999 $ 512
2000 533
2001 271
2002 233
Thereafter 0
Total $ 1,549
NOTE I - PARTNER TAX INFORMATION
The Partnership has received a ruling from the Internal Revenue Service that it
will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the financial statements
of the Partnership. Taxable income or loss of the Partnership is reported in
the income tax returns of its partners.
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, 1998 and 1997 (in
thousands, except unit data):
1998 1997
Net income as reported $ 485 $ 451
Add (deduct) differences related to:
Accumulated depreciation (5) (6)
Deferred revenue (8) 39
Accrued expenses (23) 18
Deferred charges and other assets 16 (25)
Federal taxable income $ 465 $ 477
Federal taxable income
per limited partnership unit $14.13 $14.49
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets at December 31, 1998 (in thousands):
Net assets as reported $6,334
Differences in basis of assets
and liabilities:
Accumulated depreciation (31)
Deferred revenue and other
liabilities 14
Accrued expenses --
Deferred charges and other assets (15)
Syndication costs 1,194
Other 4
Net assets - tax basis $7,500
NOTE J - REAL ESTATE AND ACCUMULATED DEPRECIATION
Initial Cost
To Partnership
(in thousands)
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, 1998
(in thousands)
Buildings
and
Related
Personal Accumulated Date of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C> <C>
Keebler
Distribution
Center, VA $ 260 $ 1,754 $2,014 $ 369 1987 08/01/91 31.5-40
Keebler
Distribution
Center, SC 172 1,931 2,103 383 1986 04/01/92 31.5-40
Totals $ 432 $ 3,685 $4,117 $ 752
</TABLE>
Reconciliation of "Real Estate and Accumulated Depreciation"
Years Ended December 31,
1998 1997
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 $ 640 $ 529
Depreciation expense 112 111
Balance at end of year $ 752 $ 640
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1998 and 1997 is approximately $4,117,000 and $4,117,000,
respectively. The accumulated depreciation taken for Federal income tax
purposes at December 31, 1998 and 1997, is approximately $796,262 and $692,000,
respectively.
NOTE K _ SEGMENT REPORTING
Description of the types of products and services from which reportable segment
derives its revenues: As defined by SFAS No. 131, Disclosures about Segment of
an Enterprise and Related Information, the Partnership has one reportable
segment: commercial properties. The Partnership's commercial property segment
consists of two distribution facilities in two states in the United States. The
Partnership leases these distribution facilities to a single tenant. The tenant
is obligated under its leases through the years 2000 and 2002 on the South
Carolina and Virginia properties, respectively.
Measurement of segment profit or loss: The Partnership evaluates performance
based on net income. The accounting policies of the reportable segment are the
same as those described in the summary of significant accounting policies.
Factors management used to identify the enterprise's reportable segment: 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 years 1998 and 1997 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.
1998 Commercial Other Totals
Rental income $ 511 $ - $ 511
Other income - 30 30
Depreciation 112 - 112
General and administrative expense - 68 68
Equity in net income of joint ventures - 157 157
Segment profit 366 119 485
Total assets 3,450 2,909 6,359
1997 Commercial Other Totals
Rental income $ 467 $ - $ 467
Other income - 32 32
Depreciation 111 - 111
General and administrative expense - 66 66
Equity in net income of joint ventures - 141 141
Segment profit 344 107 451
Total assets 3,490 2,947 6,437
NOTE L _ LEGAL PROCEEDINGS
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC, et.
al. v. Insignia Financial Group, Inc., et. al. in the Superior Court of the
State of California, County of Los Angeles. The action involves 44 real estate
limited partnerships (including the Partnership) in which the plaintiffs
allegedly own interests and which Insignia Affiliates allegedly manage or
control (the "Subject Partnerships"). This case was settled on March 3, 1999.
The Partnership is responsible for a portion of the settlement costs. The
General Partner does not anticipate that costs associated with this case, if
any, to be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective September 30, 1998, the Registrant dismissed its prior Independent
Auditors, Deloitte & Touche, LLP ("Deloitte") and retained as its new
Independent Auditors, KPMG Peat Marwick LLP. Deloitte's Independent Auditor's
Report on the Registrant's financial statements for the calendar year ended
December 31, 1997 did not contain an adverse opinion or a disclaimer of opinion,
and was not qualified or modified as to uncertainty, audit scope or accounting
principles. The decision to change Independent Auditors was approved by the
Managing General Partner's Directors. During the calendar year ended 1997 and
through September 30, 1998, there were no disagreements between the Registrant
and Deloitte on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope of procedure which disagreements if not
resolved to the satisfaction of Deloitte, would have cause it to make references
to the subject matter of the disagreements in connection with its reports.
Effective September 30, 1998, the Registrant engaged KPMG Peat Marwick LLP as
its Independent Auditors. During the last two calendar years and through
September 30, 1998, the Registrant did not consult KPMG Peat Marwick LLP
regarding any of the matters or events set forth in Item 304 (a)(2)(i) and (ii)
of Regulation S-B.
PART III
ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
United Investors Income Properties II (the "Registrant" or 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"). Effective February 25, 1998, MAE GP was merged into
Insignia Properties Trust ("IPT"), which was merged into Apartment Investment
and Management Company ("AIMCO"). Thus the General Partner is now a wholly
owned subsidiary of AIMCO.
The names of the directors and executive officers of UIRE, their ages and the
nature of all positions with UIRE presently held by them are set forth below.
There are no family relationships between or among any officers and directors.
Name Age Position
Patrick J. Foye 41 Executive Vice President and Director
Timothy R. Garrick 42 Vice President - Accounting and Director
Patrick J. Foye has been Executive Vice President and Director of the General
Partner since October 1, 1998. Mr. Foye has served as Executive Vice President
of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the
law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was
Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992
through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power
Authority and serves as a member of the New York State Privatization Council.
He received a B.A. from Fordham College and a J.D. from Fordham University Law
School.
Timothy R. Garrick has served as Vice President-Accounting of AIMCO and Vice
President-Accounting and Director of the General Partner since October 1, 1998.
Prior to that date, Mr. Garrick served as Vice President-Accounting Services of
Insignia Financial Group since June of 1997. From 1992 until June of 1997, Mr.
Garrick served as Vice President of Partnership Accounting and from 1990 to 1992
as an Asset Manager for Insignia Financial Group. From 1984 to 1990, Mr.
Garrick served in various capacities with U.S. Shelter Corporation. From 1979
to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick
received his B.S. Degree from the University of South Carolina and is a
Certified Public Accountant.
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, 1998, 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, 1998, no Units were owned by the General Partner or any of
its officers and directors.
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 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 1998 and 1997:
1998 1997
(in thousands)
Property management fees $10 $ 9
Reimbursement for services of affiliates 30 34
During the years ended December 31, 1997 and for the nine months ending
September 30, 1998 affiliates of the General Partner were entitled to varying
percentages of gross receipts from all of the Registrant's commercial properties
as compensation for providing property management services. These services were
provided by affiliates of the General Partner during 1997 and for the nine
months ending September 30, 1998 and were $9,000 and $10,000, respectively.
Effective October 1, 1998 (the effective date of the Insignia Merger) these
services for the commercial properties were provided by an unrelated party.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $30,000 and $34,000 for the
years ended December 31, 1998 and 1997, respectively.
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 1998:
Form 8-K filed on September 30, 1998 to disclose a change in auditors.
Current Report on Form 8-K dated October 1, 1998 and filed on October 16,
1998 disclosing change in control of Registrant from Insignia Financial
Group, Inc. to AIMCO.
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/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Timothy R. Garrick
Timothy R. Garrick
Vice President - Accounting
Date: March 31, 1999
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/ Patrick J. Foye Executive Vice President Date: March 31, 1999
Patrick J. Foye and Director
/s/ Timothy R. Garrick Vice President - Accounting Date: March 31, 1999
Timothy R. Garrick and Director
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.
2.1 Agreement and Plan of Merger, dated as of October 1, 1998, by and between
AIMCO and IPT; incorporated by reference to the Registrant's Current
Report on Form 8-K dated October 1, 1998.
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 1998 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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 809
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 4,117
<DEPRECIATION> 752
<TOTAL-ASSETS> 6,359
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,359
<TOTAL-LIABILITY-AND-EQUITY> 6,359
<SALES> 0
<TOTAL-REVENUES> 541
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 213
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 485
<EPS-PRIMARY> 14.72<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
