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 March 31, 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 registrant (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)
March 31, 1998
(in thousands, except unit data)
Assets
Cash and cash equivalents $1,205
Receivables and deposits 99
Restricted escrows 22
Other assets 142
Investment properties
Land $ 1,071
Buildings and related personal property 7,122
8,193
Less accumulated depreciation (1,662) 6,531
$7,999
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 8
Tenant security deposit liabilities 45
Accrued property taxes 32
Other liabilities 62
Mortgage notes payable 5,899
Partners' Capital (Deficit)
General partner's $ (5)
Limited partners' (20,661 units
issued and outstanding) 1,958 1,953
$7,999
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
March 31,
1998 1997
Revenues:
Rental income $ 401 $ 384
Other income 37 26
Total revenues 438 410
Expenses:
Operating 155 157
General and administrative 26 17
Depreciation 79 77
Interest 126 116
Property taxes 33 31
Total expenses 419 398
Net income $ 19 $ 12
Net income allocated to general partner (1%) $ -- $ --
Net income allocated to limited partners (99%) 19 12
$ 19 $ 12
Net income per limited partnership unit $ .92 $ .58
Distributions per limited partnership unit $16.07 $ 1.69
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 -- (3) (332) (335)
Net income for the three months
ended March 31, 1998 -- -- 19 19
Partners' (deficit) capital at
March 31, 1998 20,661 $ (5) $ 1,958 $ 1,953
See Accompanying Notes to Consolidated Financial Statements
d)
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net income $ 19 $ 12
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 79 77
Amortization of loan costs 6 6
Change in accounts:
Receivables and deposits (28) (28)
Other assets 9 5
Accounts payable (7) 6
Tenant security deposit liabilities 2 --
Accrued property taxes 32 16
Other liabilities (37) --
Net cash provided by operating activities 75 94
Cash flows from investing activities:
Property improvements and replacements (16) (8)
Net (receipts from) deposits to restricted escrows (7) 68
Net cash (used in) provided by
investing activities (23) 60
Cash flows from financing activities:
Payments on mortgage notes payable (15) (17)
Loan costs paid (5) --
Partners' distributions (335) (35)
Net cash used in financing activities (355) (52)
Net (decrease) increase in cash and cash equivalents (303) 102
Cash and cash equivalents at beginning of period 1,508 474
Cash and cash equivalents at end of period $1,205 $ 576
Supplemental disclosure of cash flow information:
Cash paid for interest $ 138 $ 110
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 month period ended March 31, 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"), 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 three months ended March 31, 1998 and
1997 (in thousands):
1998 1997
Property management fees
(included in operating expenses) $ 21 $ 20
Reimbursements for services of affiliates,
(included in general and administrative
and operating expenses) 6 9
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 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 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 three months ended March 31, 1998 and 1997:
Average
Occupancy
Property 1998 1997
Riverwalk
Houston, Texas 97% 97%
Stone Ridge
Overland Park, Kansas 99% 95%
The General Partner attributes the increased occupancy at Stone Ridge to
favorable market conditions, effective marketing and experienced property
management.
The Partnership realized net income of $19,000 for the three month period ended
March 31, 1998, compared to net income of $12,000 for the three month period
ended March 31, 1997. The increase in net income is primarily attributable to
increased rental income as a result of increased rental rates at both properties
and the increased occupancy at Stone Ridge, as discussed above. The increase in
rental revenue was 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.
Included in operating expense for the three month period ended March 31, 1998 is
approximately $3,000 of major repairs and maintenance comprised primarily of
exterior building repairs. Included in maintenance expense for the three month
period ended March 31, 1997 is approximately $11,000 of major repairs and
maintenance comprised primarily of exterior building repairs.
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 March 31, 1998, the Partnership had cash and cash equivalents of
approximately $1,205,000 compared to approximately $576,000 at March 31, 1997.
The net decrease in cash and cash equivalents for the three month period ended
March 31, 1998 was $303,000 compared to a net increase of $102,000 for the three
month period ended March 31, 1997. Net cash provided by operating activities
decreased primarily due to the decrease in other liabilities due to the timing
of payments for accrued interest. 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
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 at maturity. Total capitalized loan costs
through March 31, 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 $5,899,000 matures at various times with balloon
payments due at maturity, at which time the properties will either be refinanced
or sold. Cash distributions of $335,000 and $35,000 were made during the three
month periods ended March 31, 1998 and 1997, respectively. The 1998
distribution represented a portion of the net proceeds from the November 1997
Stone Ridge mortgage refinancing while the 1997 distribution represented cash
generated by property 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) 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 March 31, 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: May 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
United Investors Growth Properties II 1998 First 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,205
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<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 8,193
<DEPRECIATION> 1,662
<TOTAL-ASSETS> 7,999
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,899
0
0
<COMMON> 0
<OTHER-SE> 1,953
<TOTAL-LIABILITY-AND-EQUITY> 7,999
<SALES> 0
<TOTAL-REVENUES> 438
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<OTHER-EXPENSES> 419
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<FN>
<F1>Registrant has an unclassified balance sheet.
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