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 0-19242
UNITED INVESTORS GROWTH PROPERTIES II
(Name of small business issuer in its charter)
Missouri 43-1542902
(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: $1,675,000
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 Partnership's partnership interests is not available.
Should a trading market develop for these interests, it is the General Partner's
belief that the aggregate market value of the voting partnership interest would
not exceed $25,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Prospectus of Partnership dated June 18, 1990 (included in
Registration Statement, No. 33-34111 of Registrant) are incorporated by
reference into Parts I and III.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
United Investors Growth 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 23, 1990, with the Missouri Secretary of State. The Partnership
is governed by an Agreement of Limited Partnership dated February 22, 1991.
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 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. 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 owns a 99.99% interest in a limited partnership
which owns an apartment complex and a 100% interest in a limited liability
corporation (a "LLC") which owns a second apartment complex. In addition, the
Partnership owned a 40% interest in a joint venture which owned an apartment
complex. During the third quarter of 1995, the joint venture's property was
sold, and the joint venture was liquidated during the second quarter of 1996
(see "Note B" of the Notes to Consolidated Financial Statements, included in
"Item 7. Financial Statements"). The remaining properties are further described
in "Item 2. Description of Properties" below.
Commencing on or about June 18, 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.
33-34111, which Registration Statement was declared effective on June 18, 1990.
The offering was extended beyond the initial termination date of June 18, 1992.
On October 26, 1992, the General Partner terminated the extended offering
period. Upon termination of the offering, the Partnership had accepted
subscriptions for 20,661 Units resulting in Gross Offering Proceeds of
$5,165,250.
The Partnership has no employees. Management and administrative services are
performed by affiliates of Insignia. 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
Partnerships and Related Transactions", which descriptions are herein
incorporated by reference.
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.
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
Purchase Type of Ownership Use
Riverwalk Apartments 03/31/92 General Partnership Apartment
Houston, TX interest 104 units
Stone Ridge Apartments 07/01/92 Fee ownership subject Apartment
Overland Park, KS to first mortgage. 106 units
SCHEDULE OF PROPERTIES (IN THOUSANDS):
Gross
Carrying Accumulated Useful Federal
Property Value Depreciation Life Method Tax Basis
Riverwalk $4,137 $ 820 5-27.5 S/L $ 3,287
Stone Ridge 4,040 763 5-27.5 S/L 3,276
Totals $8,177 $1,583 $ 6,563
See "Note A" of the Notes to Consolidated Financial Statements included in "Item
7. Financial Statements" for a description of the Partnership's depreciation
policy.
SCHEDULE OF MORTGAGES (IN THOUSANDS):
Principal Principal
Balance At Stated Balance
December 31, Interest Period Maturity Due At
Property 1997 Rate Amortized(a) Date Maturity
Riverwalk $2,614 9.25% 30 years 04/01/02 $2,465
Stone Ridge 3,300 7.13% 30 years 12/01/04 3,018
Total $5,914
a) The mortgage loans on each of the properties mature at various times with
balloon payments due at maturity.
On November 3, 1997, the Partnership refinanced the mortgage encumbering Stone
Ridge Apartments. The refinancing replaced indebtedness of approximately
$2,297,000 with a new mortgage in the amount of $3,300,000. The new loan
requires monthly principal and interest payments of approximately $22,000, bears
interest at 7.13% per annum, is being amortized over 30 years and matures on
December 1, 2004. Total capitalized loan costs were approximately $83,000. In
connection with the refinancing the lender required that the property be placed
in a limited liability corporation (a "LLC"). Accordingly the Partnership
transferred ownership of this property to Stone Ridge Apartments, L.L.C., a
wholly-owned subsidiary of the Partnership.
SCHEDULE OF RENTAL RATES AND OCCUPANCY:
Average Annual Average Annual
Rental Rates (per unit) Occupancy
Property 1997 1996 1997 1996
Riverwalk $7,659 $7,433 96% 96%
Stone Ridge 7,835 7,387 96% 96%
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 residential apartment complexes in the localities in
which they operate. The General Partner believes that all of the properties are
adequately insured. The multi-family residential properties' lease terms are
for one year or less. No residential tenant leases 10% or more of the available
rental space.
SCHEDULE OF REAL ESTATE TAXES (IN THOUSANDS) AND RATES:
1997 1997
Taxes Rate
Riverwalk Apartments $ 74 2.69%
Stone Ridge Apartments 50 1.21%
ITEM 3. LEGAL PROCEEDINGS
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature. Management of the Partnership believes that all such
pending or outstanding litigation will be resolved without a material adverse
effect upon the business, financial condition, or operations 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
At January 1, 1998, the number of holders of record of Limited Partnership Units
was 563. 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 $139,000 and $138,000 for the years ended December 31, 1997 and
1996, respectively. A distribution of $335,000 was declared and paid in the
first quarter of 1998. This distribution represents a portion of the net
proceeds from the mortgage refinancing at Stone Ridge, see discussion below.
Future cash distributions will depend on the levels of net cash generated from
operations, property sales, refinancings, 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 loss for the year ended December 31, 1997, of
approximately $29,000 compared to a net loss for the year ended December 31,
1996 of approximately $143,000. The decrease in net loss is primarily
attributable to increased rental income at both properties and decreased
operating expenses. Rental income increased as a result of rate increases at
both properties during 1997. Operating expenses decreased at both properties as
a result of major exterior rehabilitation projects being completed in 1996.
Included in operating expenses for the year ended December 31, 1996 is
approximately $185,000 of major repairs and maintenance comprised primarily of
exterior painting and exterior building repairs at both properties. Included in
operating expenses for the year ended December 31, 1997 is approximately $54,000
of major repairs and maintenance comprised primarily of exterior building and
parking lot repairs. Partially offsetting the increased rental income and
decreased operating expense was an increase in general and administrative
expenses due to legal costs incurred in the third quarter of 1997.
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 expense. As part of this plan,
the General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. However, due to changing market conditions, which
can result in the use of rental concessions and rental reductions to offset
softening market conditions, there is no guarantee that the General Partner will
be able to sustain such a plan.
Liquidity and Capital Resources
At December 31, 1997, the Partnership had cash and cash equivalents of
approximately $1,508,000 compared to approximately $474,000 at December 31,
1996. The net increase in cash and cash equivalents for the year ended December
31, 1997 was $1,034,000 compared to a net decrease of $8,000 for the year ended
December 31, 1996. Net cash provided by operating activities increased primarily
due to the increase in rental income and the decrease in operating expenses, as
discussed above. Partially offsetting the decreased loss was a decrease in
accrued property taxes due to the timing of payments. Net cash provided by
investing activities increased due to an increase in receipts from restricted
escrows. Net cash provided by financing activities increased primarily due to
the net proceeds received from the debt refinancing of Stone Ridge Apartments of
approximately $920,000, as described below.
On November 3, 1997, the Partnership refinanced the mortgage encumbering Stone
Ridge Apartments. The refinancing replaced indebtedness of approximately
$2,297,000 with a new mortgage in the amount of $3,300,000. The new loan
requires monthly principal and interest payments of approximately $22,000, bears
interest at 7.13% per annum, is being amortized over 30 years and matures on
December 1, 2004. Total capitalized loan costs were approximately $83,000.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various 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.
The mortgage indebtedness of $5,914,000 matures at various times with balloon
payments due at maturity, at which time the properties will either be refinanced
or sold. Cash distributions of approximately $139,000 were made during 1997
compared to approximately $138,000 during 1996. The distributions were made
from cash generated by property operations. A distribution of $335,000 was
declared and paid in the first quarter of 1998. This distribution represents a
portion of the net proceeds from the mortgage refinancing at Stone Ridge. Future
cash distributions will depend on the levels of net cash generated from
operations, property sales, refinancings, and the availability of cash
reserves. The General Partner of the Partnership anticipates that the
Partnership will continue to make cash distributions, as property operations
permit, throughout 1998.
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 GROWTH PROPERTIES II
LIST OF FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheet - December 31, 1997
Consolidated Statements of Operations - Years ended December 31, 1997 and 1996
Consolidated Statement of Changes in Partners Capital (Deficit) -
Years ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows - Years ended December 31, 1997 and 1996
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
The Partners
United Investors Growth Properties II
(A Missouri Limited Partnership)
We have audited the accompanying consolidated balance sheet of United Investors
Growth Properties II (A Missouri Limited Partnership) ("the Partnership") as of
December 31, 1997, and the related consolidated statements of operations,
changes in partners' capital (deficit), and cash flows for 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 consolidated 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.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
February 17, 1998,
(except for Note H, as to which the date is
March 17, 1998)
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED BALANCE SHEET
December 31, 1997
(in thousands, except unit data)
Assets
Cash and cash equivalents $ 1,508
Receivables and deposits 71
Restricted escrow 15
Other assets 152
Investment properties (Notes A and G):
Land $ 1,071
Buildings and related personal property 7,106
8,177
Less accumulated depreciation (1,583) 6,594
$ 8,340
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 15
Tenant security deposits payable 43
Other liabilities 99
Mortgage notes payable (Note C) 5,914
Partners' Capital (Deficit) (Note D)
General partner's $ (2)
Limited partners' (20,661 units issued
and outstanding) 2,271 2,269
$ 8,340
See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1997 1996
Revenues:
Rental income $1,571 $1,497
Other income 104 118
Total revenues 1,675 1,615
Expenses:
Operating 711 774
General and administrative 90 68
Depreciation 315 302
Interest 467 465
Property taxes 121 145
Total expenses 1,704 1,754
Equity in net loss of joint venture (Note B) -- (4)
Net loss $ (29) $ (143)
Net loss allocated to general partner (1%) $ -- $ (1)
Net loss allocated to limited partners (99%) (29) (142)
$ (29) $ (143)
Net loss per limited partnership unit $(1.40) $(6.87)
Distributions per Limited Partnership Unit $ 6.68 $ 6.63
See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 20,661 $ -- $5,165 $5,165
Partners' capital at
December 31, 1995 20,661 $ 1 $2,717 $2,718
Partners' distributions -- (1) (137) (138)
Net loss for the year ended
December 31, 1996 -- (1) (142) (143)
Partners' (deficit) capital
at December 31, 1996 20,661 (1) 2,438 2,437
Partners' distributions -- (1) (138) (139)
Net loss for the year ended
December 31, 1997 -- -- (29) (29)
Partners' (deficit) capital
at December 31, 1997 20,661 $ (2) $ 2,271 $2,269
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1997 1996
Cash flows from operating activities:
Net loss $ (29) $ (143)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Equity in net loss of joint venture -- 4
Depreciation 315 302
Amortization of loan costs 23 23
Change in accounts:
Receivables and deposits (10) 16
Other assets (4) 3
Accounts payable 7 --
Tenant security deposits payable -- (2)
Accrued property taxes (41) 16
Other liabilities 42 7
Net cash provided by operating activities 303 226
Cash flows from investing activities:
Property improvements and replacements (64) (76)
Liquidating distribution from joint venture -- 61
Net receipts from (deposits to) restricted escrows 76 (21)
Net cash provided by (used in)
investing activities 12 (36)
Cash flows from financing activities:
Payments on mortgage notes payable (62) (60)
Repayment of mortgage debt (2,297) --
Proceeds from debt refinancing 3,300 --
Loan costs paid (83) --
Partners' distributions (139) (138)
Net cash provided by (used in)
financing activities 719 (198)
Net increase (decrease) in cash and cash equivalents 1,034 (8)
Cash and cash equivalents at beginning of year 474 482
Cash and cash equivalents at end of year $1,508 $ 474
Supplemental disclosure of cash flow information:
Cash paid for interest $ 423 $ 406
See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES II
Notes to Consolidated Financial Statements
December 31, 1997
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization: United Investors Growth Properties II (the "Partnership"), a
Missouri Limited Partnership, was organized in March 1990, with the initial
group of limited partners being admitted on February 22, 1991. 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 and, therefore, 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.
Security deposits: The Partnership requires security deposits from lessees for
the duration of the lease, and such deposits are included in receivables and
deposits. The security deposits are refunded when the tenant vacates, provided
the tenant has not damaged its space and is current on its rental payments.
Principles of consolidation: The Partnership owns a 99.99% interest and is the
sole general partner in Riverwalk Apartments Limited Partnership (a Missouri
Limited Partnership) ("Riverwalk"), a 104 unit apartment complex located in
Houston, Texas. An unaffiliated individual is the sole limited partner. The
Partnership reflects its interest in Riverwalk utilizing full consolidation
whereby all of the accounts of Riverwalk are included in the consolidated
financial statements of the Partnership (with intercompany accounts being
eliminated). The Partnership has the ability to control the major operating and
financial policies of this Partnership. The minority interest of the limited
partner is not material to the Partnership.
In November 1997, the Partnership transferred ownership of the Stone Ridge
Apartments to Stone Ridge Apartments, LLC ("Stone Ridge"), a wholly-owned
subsidiary of the Partnership.
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 fifteen to twenty-seven and one half years for buildings and improvements and
five to seven years for furniture and fixtures.
Loan Costs: Loan costs are deferred and are amortized as interest expense over
the terms of the related loans. Unamortized loan costs of approximately
$132,000 are included in other assets at December 31, 1997.
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.
Fair Value of Financial Instruments: "SFAS No. 107, Disclosures about Fair Value
of Financial Instruments," as amended by "SFAS No. 119, Disclosures about
Derivative Financial Instruments and Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate fair value. Fair value is defined in the SFAS as the amount at which
the instruments could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The Partnership believes
that the carrying amount of its financial instruments (except for long term
debt) approximates their fair value due to the short term maturity of these
instruments. The fair value of the Partnership's long term debt, after
discounting the scheduled loan payments to maturity, approximates its carrying
balance.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising expense, included in operating expenses, was $32,000 and $19,000 for
the years ended December 31, 1997 and 1996, respectively.
Reclassifications: Certain reclassifications have been made to the 1996
information to conform to the 1997 presentation.
NOTE B - INVESTMENT IN JOINT VENTURE
The Partnership owned a 40% interest in Renaissance Village Associates, a joint
venture with United Investors Growth Properties, an affiliated partnership in
which the General Partner is also the sole General Partner. The joint venture
owned a 124 unit apartment complex located in Seattle, Washington.
On August 30, 1995, Renaissance Village Apartments was sold to an unaffiliated
party, Kauri Investments, Ltd. The Partnership's share of the gain recognized
on the sale of the joint venture's property was approximately $66,000. All the
remaining liabilities of the joint venture have been satisfied, and the
remaining assets of the joint venture were distributed to the joint venturers
with the Partnership receiving a liquidating distribution of $61,000 during
1996.
NOTE C - MORTGAGE NOTES PAYABLE
The principle terms of mortgage notes payable are as follows (in thousands):
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1997 Interest Rate Date Maturity
Riverwalk Apartments $2,614 $ 22 9.25% 04/01/02 $2,465
Stone Ridge Apartments 3,300 22 7.13% 12/01/04 3,018
Total $5,914 $ 44
The mortgage notes payable are nonrecourse and are secured by pledge of the
Partnership's properties and by pledge of revenue from operations of the
respective rental properties. Both mortgage loans include prepayment penalties
if repaid prior to maturity.
On November 3, 1997, the Partnership refinanced the mortgage encumbering Stone
Ridge Apartments. The refinancing replaced indebtedness of approximately
$2,297,000 with a new mortgage in the amount of $3,300,000. The new loan
requires monthly principal and interest payments and is being amortized over 30
years with a balloon payment due at maturity. Total capitalized loan costs were
approximately $83,000. In connection with the refinancing the lender required
that the property be placed in a limited liability corporation (a "LLC").
Accordingly the Partnership transferred ownership of this property to Stone
Ridge Apartments, LLC, a wholly-owned subsidiary of the Partnership.
Scheduled principal payments on the mortgage notes payable subsequent to
December 31, 1997, are as follows (in thousands):
Years Ending December 31,
1998 $ 63
1999 68
2000 74
2001 80
2002 2,519
Thereafter 3,110
$ 5,914
NOTE D - PARTNERS' CAPITAL (DEFICIT)
ALLOCATIONS OF NET INCOME AND LOSS - In accordance with the partnership
agreement, net income and net loss (as defined in the Partnership Agreement,
income or loss of the Partnership determined without regard to gain or loss from
sale) shall be allocated 1% to the General Partner and 99% to the limited
partners.
DISTRIBUTIONS - The Partnership allocates distributions 1% to the General
Partner and 99% to the limited partners. On February 15, 1998, the Partnership
made a distribution to the partners of approximately $335,000.
GAIN/LOSS FROM A SALE - Gain from a sale shall be allocated as follows: (a)
first to each partner who has a negative capital account, an amount equal to (or
in proportion to if less than) such partner's negative capital account balance
and (b) second, 99% to the limited partners and 1% to the General Partner, until
each limited partner has been allocated an amount equal to (or in proportion to
if less than) the excess, if any, of such limited partner's adjusted capital
investment over his capital account.
Loss from a sale shall be allocated as follows: (a) first to each partner who
has a positive capital account, an amount equal to (or in proportion to if less
than) such partner's positive capital account balance and (b) second, 99% to the
limited partners and 1% to the General Partner.
Anything in the Partnership Agreement to the contrary notwithstanding, the
interests of the General Partner, in the aggregate, in each material item of
income, gain, loss, deduction and credit of the Partnership will be equal to at
least 1% of each item at all times during the existence of the Partnership.
NOTE E - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The partnership agreement provides for payments to affiliates for property
management 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 during each of
the years ended December 31, 1997 and 1996 (in thousands):
1997 1996
Property management fees (included in
operating expenses) $83 $79
Reimbursement for services of affiliates,
including $5,000 and $6,000 of
construction service reimbursements in
1997 and 1996, respectively (included
in investment properties, general and
administrative expenses and operating
expenses) 40 38
For the period January 1, 1996 to August 31, 1997, the Partnership insured its
properties under a master policy through an agency and insurer unaffiliated with
the General Partner. An affiliate of the General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent who placed the master policy. The
agent assumed the financial obligations to the affiliate of the General Partner
who received payment on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
General Partner by virtue of the agent's obligations is not significant.
NOTE F - PARTNER TAX INFORMATION
The following is a reconciliation between net loss as reported in the
consolidated financial statements and federal taxable loss allocated to the
partners in the Partnership's tax return for the years ended December 31, 1997
and 1996 (in thousands, except per unit data):
1997 1996
Net loss as reported (29) $ (143)
Add (deduct):
Deferred revenue and other liabilities 15 (9)
Depreciation differences 6 3
Federal taxable loss $ (8) $ (149)
Federal taxable loss
per limited partnership unit $ (.38) $(7.13)
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 $ 2,269
Differences in basis of assets and liabilities:
Investment properties at cost (12)
Accumulated depreciation (19)
Deferred Revenue and other 53
Syndication costs 681
Net assets - tax basis $ 2,972
NOTE G - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION
(in thousands)
<TABLE>
<CAPTION>
Initial Cost
To Partnership
Buildings Net Costs
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
<S> <C> <C> <C> <C>
Riverwalk $2,614 $ 646 $3,062 $ 429
Stone Ridge 3,300 425 3,265 350
Totals $5,914 $1,071 $6,327 $ 779
</TABLE>
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1997
Buildings
And
Personal Accumulated Date of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C> <C>
Riverwalk $ 646 $3,491 $4,137 $ 820 1985 03/31/92 5-27.5
Stone Ridge 425 3,615 4,040 763 1987 07/01/92 5-27.5
Totals $1,071 $7,106 $8,177 $1,583
</TABLE>
Reconciliation of "Investment Properties and Accumulated Depreciation":
Years Ended December 31,
1997 1996
Investment Properties
Balance at beginning of year $8,113 $8,037
Property improvements 64 76
Balance at end of year $8,177 $8,113
Accumulated Depreciation
Balance at beginning of year $1,268 $ 966
Depreciation expense 315 302
Balance at end of year $1,583 $1,268
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1997, is $8,165,000. The accumulated depreciation taken for
Federal income tax purposes at December 31, 1997, is $1,602,000.
NOTE H - 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. 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 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
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"
below.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 1, 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 January 1, 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 property
management 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 during each of
the years ended December 31, 1997 and 1996 (in thousands):
1997 1996
Property management fees $83 $79
Reimbursement for services of affiliates,
including $5,000 and $6,000 of
construction service reimbursements in
1997 and 1996, respectively 40 38
During both 1997 and 1996, the General Partner received distributions of
approximately $1,000.
For the period January 1, 1996 to August 31, 1997, the Partnership insured its
properties under a master policy through an agency and insurer unaffiliated with
the General Partner. An affiliate of the General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent who placed the master policy. The
agent assumed the financial obligations to the affiliate of the General Partner
who received payment on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
General Partner by virtue of the agent's obligations is not significant.
ITEM 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 Partnership
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNITED INVESTORS GROWTH PROPERTIES II
By: United Investors Real Estate, Inc.,
Its General Partner
By: /s/ Carroll D. Vinson
Carroll D. Vinson
President and Director
Date: March 26, 1998
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Partnership and in the capacities and on the
date indicated.
/s/ Carroll D. Vinson President and March 26, 1998
Carroll D. Vinson Director
/s/ Robert D. Long, Jr. Vice President and March 26, 1998
Robert D. Long, Jr. Chief Accounting
Officer
INDEX TO EXHIBITS
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. 33-34111) previously
filed on June 8, 1990.
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 June 8, 1990.
4.1 Form of Subscription Agreement; incorporated by reference to Exhibit
4.1 to Amendment No. 1 to Partnership's Registration Statement
previously filed on June 8, 1990.
4.2 Agreement of Limited Partnership of Partnership dated February 22,
1991; incorporated by reference to Exhibit 4.2 to Partnership's Report
on Form 10-K previously filed on March 7, 1991.
4.2.1 Amended and Restated Agreement of Limited Partnership of Partnership
dated June 1, 1992; incorporated by reference to Exhibit 4.2.1 to
Partnership's Form 8-K, amending Partnership's Form 10-Q filed with
the Commission on May 15, 1992 previously filed on June 22, 1992.
4.3 Agreement of Joint Venture of Renaissance Village Associates dated
March 22, 1991 between United Investors Growth Properties (A Missouri
Limited Partnership) and United Investors Growth Properties II (A
Missouri Limited Partnership); incorporated by reference to Exhibit
4.3 to Partnership's Quarterly Report on Form 10-Q previously filed on
April 24, 1991.
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 June 8, 1990.
10.1.1 Form of Amendment to Escrow Agreement; incorporated by reference to
Exhibit 10.1.1 to Amendment No. 5 to Partnership's Registration
Statement previously filed on February 24, 1992.
10.2 Agreement of Purchase and Sale, dated August 27, 1990, between United
Investors Real Estate, Inc., as purchaser, and Mueller Development
Company, as seller, relating to Renaissance Village Apartments, and
amendments thereto; incorporated by reference to Exhibit 10.2 to
Amendment No. 1 to Partnership's Registration Statement previously
filed on December 6, 1990.
10.2.1 Seventh and Eighth Amendments to Agreement of Purchase and Sale
between United Investors Real Estate, Inc., as purchaser, and Mueller
Development Company, as seller, relating to Renaissance Village
Apartments; incorporated by reference to Exhibit 10.2.1 to
Partnership's Quarterly Report on Form 10-Q previously filed on April
24, 1991.
10.3 Agreement of Joint Venture of Renaissance Village Associates dated
March 22, 1991; incorporated by reference to Exhibit 10.3 to Amendment
No. 3 to Partnership's Registration Statement previously filed on
April 10, 1991.
10.4 Promissory Note and Deed of Trust with respect to the Permanent Loan
on Renaissance Village Apartments; incorporated by reference to
Exhibit 10.3 to Partnership's Quarterly Report on Form 10-Q previously
filed on April 24, 1991.
10.5 Agreement of Purchase and Sale, dated January 9, 1992, between United
Investors Real Estate, Inc., as purchaser, and Normandy 104
Associates, Ltd., as seller, relating to Riverwalk Apartments, and
first and second amendments thereto; incorporated by reference to
Exhibit 10.5 to Amendment No. 5 to Partnership's Registration
Statement previously filed on February 24, 1992.
10.5.1 Third Amendment to the Agreement of Purchase and Sale, dated January
9, 1992 between United Investors Real Estate, Inc., as purchaser, and
Normandy 104 Associates, Ltd., as seller, relating to Riverwalk
Apartments; incorporated by reference to Exhibit 10.5.1 to
Partnership's Current Report on Form 8-K previously filed on April 13,
1992.
10.6 Promissory Note and Deed of Trust with respect to the Permanent Loan
on Riverwalk Apartments; incorporated by reference to Exhibit 10.6 to
Partnership's Current Report on Form 8-K previously filed on April 13,
1992.
10.7 Agreement of Limited Partnership of Riverwalk Associates, L.P., (a
Missouri Limited Partnership), dated March 23, 1992, between United
Investors Growth Properties II and Scott Wise; incorporated by
reference to Exhibit 10.7 to Partnership's Current Report on Form 8-K
previously filed on April 13, 1992.
10.8 Real Estate Sale Agreement between United Investors Real Estate, Inc.,
as purchaser, and The Travelers Insurance Company, as seller, relating
to Stone Ridge Apartments; incorporated by reference to Exhibit 10.8
to Amendment No. 9 to Partnership's Registration Statement previously
filed on June 1, 1992.
10.10 Promissory Note with respect to the General Partner loan on Stone
Ridge Apartments; incorporated by reference to Exhibit 10.10 to
Partnership's Quarterly Report on Form 10-Q previously filed on August
12, 1992.
10.11 Permanent Loan Commitment with respect to Stone Ridge Apartments;
incorporated by reference to Exhibit 10.11 to Partnership's Quarterly
Report on Form 10-Q previously filed on August 12, 1992.
10.12 Mortgage, Security Agreement and Fixture Filing with respect to the
Permanent Loan on Stone Ridge Apartments; incorporated by reference to
Exhibit 10.12 to Partnership's Quarterly Report on Form 10-Q
previously filed on November 12, 1992.
10.13 Mortgage Note with respect to the Permanent Loan on Stone Ridge
Apartments.
10.14 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 10.14 to
Partnership's Current Report on Form 8-K previously filed on December
31, 1992.
10.15 Purchase and Sale Agreement, made as of the 19th of July, 1995, by and
between Kauri Investments, Ltd., a Washington corporation, and
Renaissance Village Associates, JV, a Kansas joint venture.
(Incorporated by reference to the Annual Report on Form 10-KSB for the
year ended December 31, 1995)
10.16 Amendment to Purchase and Sale Agreement, made as of the 10th day of
August, 1995, by and between Kauri Investments, Ltd., a Washington
corporation, and Renaissance Village Associates, JV, a Kansas joint
venture. (Incorporated by reference to the Annual Report on Form 10-
KSB for the year ended December 31, 1995)
10.17 Multifamily Note dated November 3, 1997, by and between Stone Ridge
Apartments, L.L.C., a South Carolina limited liability company and
Lehman Brothers Holdings, Inc., a Delaware corporation (Incorporated
by reference to the Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1997)
27 Financial Data Schedule
99.1 Portions of Partnership's Prospectus dated June 18, 1990; incorporated
by reference to Exhibit 99.1 to Partnership's Report on Form 10-K
previously filed on March 6, 1991.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from United
Investors Growth Properties II 1997 Year-End 10-KSB and is qualified in its
entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000862114
<NAME> UNITED INVESTORS GROWTH PROPERTIES II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,508
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 81,277
<DEPRECIATION> 1,583
<TOTAL-ASSETS> 8,340
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,914
0
0
<COMMON> 0
<OTHER-SE> 2,269
<TOTAL-LIABILITY-AND-EQUITY> 8,340
<SALES> 0
<TOTAL-REVENUES> 1,675
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,704
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 467
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29)
<EPS-PRIMARY> (1.40)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
