FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from_________to_________
Commission file number 0-19242
UNITED INVESTORS GROWTH PROPERTIES II
(Exact name of small business issuer as specified in its charter)
Missouri 43-1542902
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, 1998
(in thousands, except unit data)
Assets
Cash and cash equivalents $ 438
Receivables and deposits 151
Restricted escrows 32
Other assets 135
Investment properties:
Land $ 1,071
Buildings and related personal property 7,147
8,218
Less accumulated depreciation (1,744) 6,474
$ 7,230
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 4
Tenant security deposit liabilities 45
Accrued property taxes 65
Other liabilities 73
Mortgage notes payable 5,883
Partners' Capital (Deficit)
General partner's $ (13)
Limited partners' (20,661 units
issued and outstanding) 1,173 1,160
$ 7,230
See Accompanying Notes to Consolidated Financial Statements
b)
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues:
Rental income $ 408 $ 389 $ 809 $ 773
Other income 30 25 67 51
Total revenues 438 414 876 824
Expenses:
Operating 173 194 328 351
General and administrative 21 20 47 37
Depreciation 82 78 161 155
Interest 124 115 250 231
Property taxes 32 29 65 60
Total expenses 432 436 851 834
Net income (loss) $ 6 $ (22) $ 25 $ (10)
Net income (loss) allocated
to general partner (1%) $ -- $ -- $ -- $ --
Net income (loss) allocated
to limited partners (99%) 6 (22) 25 (10)
$ 6 $ (22) $ 25 $ (10)
Net income (loss) per limited
partnership unit $ .29 $(1.06) $ 1.21 $ (.48)
Distributions per limited
partnership unit $38.28 $ 1.60 $54.35 $ 3.29
See Accompanying Notes to Consolidated Financial Statements
c)
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original capital contributions 20,661 $ -- $ 5,165 $ 5,165
Partners' (deficit) capital
at December 31, 1997 20,661 $ (2) $ 2,271 $ 2,269
Distributions to partners -- (11) (1,123) (1,134)
Net income for the six months
ended June 30, 1998 -- -- 25 25
Partners' (deficit) capital at
June 30, 1998 20,661 $ (13) $ 1,173 $ 1,160
See Accompanying Notes to Consolidated Financial Statements
d)
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Net income (loss) $ 25 $ (10)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 161 155
Amortization of loan costs 12 12
Change in accounts:
Receivables and deposits (80) (23)
Other assets 10 (6)
Accounts payable (11) 12
Tenant security deposit liabilities 2 --
Accrued property taxes 65 21
Other liabilities (26) 8
Net cash provided by operating activities 158 169
Cash flows from investing activities:
Property improvements and replacements (41) (28)
Net (deposits to) receipts from restricted escrows (17) 84
Net cash (used in) provided by
investing activities (58) 56
Cash flows from financing activities:
Payments on mortgage notes payable (31) (34)
Loan costs paid (5) --
Partners' distributions (1,134) (69)
Net cash used in financing activities (1,170) (103)
Net (decrease) increase in cash and cash equivalents (1,070) 122
Cash and cash equivalents at beginning of period 1,508 474
Cash and cash equivalents at end of period $ 438 $ 596
Supplemental disclosure of cash flow information:
Cash paid for interest $ 256 $ 219
See Accompanying Notes to Consolidated Financial Statements
e)
UNITED INVESTORS GROWTH PROPERTIES II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of United Investors
Growth Properties II (the "Partnership") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of United Investors Real Estate, Inc. (the "General Partner"), a
Delaware corporation, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended June 30, 1998, are not
necessarily indicative of the results that may be expected for the fiscal year
ended December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Partnership's annual
report on Form 10-KSB for the fiscal year ended December 31, 1997.
Reclassifications
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
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 Apartments ("Riverwalk") is 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.
NOTE B - 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.
Prior to February 25, 1998, the General Partner was wholly-owned 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. 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 for the
six month periods ended June 30, 1998 and 1997 (in thousands):
1998 1997
Property management fees (included in operating expenses) $ 43 $ 41
Reimbursements for services of affiliates, (included
in general and administrative expenses) 12 16
In addition, the Partnership paid approximately $2,000 and $4,000 during the six
month periods ended June 30, 1998 and 1997, respectively, to an affiliate of the
General Partner for construction oversight reimbursements related to capital
improvements and major repair projects. These costs are included in investment
properties and operating expense.
For the period from January 1, 1997, to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
General Partner with an 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 which received payments on
these obligations from the agent. The amount of the Partnership's insurance
premiums that accrued to the benefit of the affiliate of the General Partner by
virtue of the agent's obligations was not significant.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT,
with Apartment Investment and Management Company ("AIMCO"). The closing, which
is anticipated to happen in September or October 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for each of
the six month periods ended June 30, 1998 and 1997:
Average
Occupancy
Property 1998 1997
Riverwalk
Houston, Texas 97% 96%
Stone Ridge
Overland Park, Kansas 98% 96%
The Partnership realized net income of approximately $25,000 for the six month
period ended June 30, 1998, compared to a net loss of approximately $10,000 for
the six month period ended June 30, 1997. The Partnership realized net income of
approximately $6,000 for the three month period ended June 30, 1998, compared to
a net loss of approximately $22,000 for the six month period ended June 30,
1997. The increase in net income is primarily attributable to increased rental
income as a result of increased rental rates and increased occupancy at both
properties. Also contributing to the increase in net income was a decrease in
operating expenses. Included in operating expense for the six month period ended
June 30, 1998 was approximately $13,000 of major repairs and maintenance
comprised primarily of parking lot repairs, landscaping and exterior building
repairs. Included in operating expense for the six month period ended June 30,
1997 was approximately $38,000 of major repairs and maintenance comprised
primarily of exterior building and parking lot repairs. These major repairs and
maintenance items were incurred primarily in the three months ended June 30,
1997. The increased rental revenue and decreased operating expenses were
partially offset by increased general and administrative expense and increased
interest expense. General and administrative expense increased as a result of
increased professional fees. Interest expense increased due to the refinancing
of Stone Ridge in November 1997, resulting in approximately $1,003,000 of
additional debt.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment properties to assess
the feasibility of increasing rents, maintaining or increasing occupancy levels
and protecting the Partnership from increases in expenses. As part of this
plan, the General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. However, due to changing market conditions, which
can result in the use of rental concessions and rental reductions to offset
softening market conditions, there is no guarantee that the General Partner will
be able to sustain such a plan.
At June 30, 1998, the Partnership had cash and cash equivalents of approximately
$438,000 compared to approximately $596,000 at June 30, 1997. The net decrease
in cash and cash equivalents for the six month period ended June 30, 1998 was
approximately $1,070,000 compared to a net increase of approximately $122,000
for the six month period ended June 30, 1997. Net cash provided by operating
activities decreased primarily due to the increase in cash used for receivables
and deposits and the decrease in other liabilities due to the timing of
payments. Net cash used in investing activities increased due to decreased
receipts from restricted escrows in addition to increased property improvements
and replacements. Net cash used in financing activities increased primarily due
to increased distributions paid to the partners in 1998.
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 on December 1, 2004. Total capitalized loan
costs through June 30, 1998, were approximately $88,000. In connection with the
refinancing the lender required that the property be placed in a limited
liability corporation. Accordingly the Partnership transferred ownership of
this property to Stone Ridge Apartments, LLC, a wholly-owned subsidiary of the
Partnership.
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 $5,883,000 matures at various times with balloon
payments due at maturity, at which time the properties will either be refinanced
or sold. Cash distributions of $1,134,000 and $69,000 were made during the six
month periods ended June 30, 1998 and 1997, respectively. The 1998
distributions represent approximately $920,000 in net proceeds from the November
1997 Stone Ridge mortgage refinancing and $214,000 of cash generated by
operations. The 1997 distribution represented cash generated by operations.
Future cash distributions will depend on the levels of net cash generated from
operations, property sales and the availability of cash reserves. The General
Partner 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 quarterly 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 quarterly 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, a limited partner of the Partnership commenced an action in the
Circuit Court for Jackson County, Missouri entitled Bond Purchase LLC v. United
Investors Growth II, L.P., et al. The complaint claims that the Partnership and
the General Partner breached certain contractual and fiduciary duties allegedly
owed to the claimant and seeks damages and injunctive relief. The General
Partner believes the claims to be without merit and intends to vigorously defend
the claims.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The General Partner 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 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibits 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 1998
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNITED INVESTORS GROWTH PROPERTIES II
By: United Investors Real Estate, Inc.
Its General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President and Director
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President and
Chief Accounting Officer
Date: August 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
United Investors Growth Properties II 1998 Second Quarter 10-QSB
and is qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000862114
<NAME> UNITED INVESTORS GROWTH PROPERTIES II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 438
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 8,218
<DEPRECIATION> 1,744
<TOTAL-ASSETS> 7,230
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,883
0
0
<COMMON> 0
<OTHER-SE> 1,160
<TOTAL-LIABILITY-AND-EQUITY> 7,230
<SALES> 0
<TOTAL-REVENUES> 876
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 851
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 250
<INCOME-PRETAX> 0
<INCOME-TAX> 0
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<NET-INCOME> 25
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<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
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