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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 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.)
55 Beattie Place, PO 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)
(in thousands, except unit data)
June 30, 1999
Assets
Cash and cash equivalents $ 402
Receivables and deposits 154
Restricted escrows 39
Other assets 114
Investment properties:
Land $ 1,071
Buildings and related personal property 7,325
8,396
Less accumulated depreciation (2,068) 6,328
$7,037
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 4
Tenant security deposit liabilities 44
Accrued property taxes 64
Other liabilities 79
Mortgage notes payable 5,818
Partners' Capital (Deficit)
General partner's $ (14)
Limited partners' (20,661 units
issued and outstanding) 1,042 1,028
$7,037
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,
1999 1998 1999 1998
Revenues:
Rental income $ 416 $ 408 $ 826 $ 809
Other income 20 30 48 67
Total revenues 436 438 874 876
Expenses:
Operating 150 173 299 328
General and administrative 39 21 58 47
Depreciation 75 82 159 161
Interest 124 124 248 250
Property taxes 30 32 57 65
Total expenses 418 432 821 851
Net income $ 18 $ 6 $ 53 $ 25
Net income allocated
to general partner (1%) $ -- $ -- $ 1 $ --
Net income allocated
to limited partners (99%) 18 6 52 25
$ 18 $ 6 $ 53 $ 25
Net income per limited
partnership unit $ .87 $ .29 $ 2.52 $ 1.21
Distributions per limited
partnership unit $ -- $38.28 $ -- $54.35
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 Partners Total
Original capital contributions 20,661 $ -- $ 5,165 $ 5,165
Partners' (deficit) capital
at December 31, 1998 20,661 $ (15) $ 990 $ 975
Net income for the six months
ended June 30, 1999 -- 1 52 53
Partners' (deficit) capital
at June 30, 1999 20,661 $ (14) $ 1,042 $ 1,028
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,
1999 1998
Cash flows from operating activities:
Net income $ 53 $ 25
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 159 161
Amortization of loan costs 12 12
Change in accounts:
Receivables and deposits 57 (80)
Other assets (6) 10
Accounts payable (9) (11)
Tenant security deposit liabilities 2 2
Accrued property taxes (42) 65
Other liabilities (8) (26)
Net cash provided by operating activities 218 158
Cash flows from investing activities:
Property improvements and replacements (111) (41)
Net receipts from (deposits to) restricted escrows 12 (17)
Net cash used in investing activities (99) (58)
Cash flows from financing activities:
Payments on mortgage notes payable (33) (31)
Loan costs paid -- (5)
Partners' distributions -- (1,134)
Net cash used in financing activities (33) (1,170)
Net increase (decrease) in cash and cash equivalents 86 (1,070)
Cash and cash equivalents at beginning of period 316 1,508
Cash and cash equivalents at end of period $ 402 $ 438
Supplemental disclosure of cash flow information:
Cash paid for interest $ 235 $ 256
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" or "Registrant") 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, 1999, are not necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 1999. 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, 1998.
Principles of Consolidation
The consolidated financial statements include all the accounts of the
Partnership and its 100% owned limited liability company, Stone Ridge
Apartments, L.L.C. and its 99.99% owned partnership, Riverwalk Apartments
Limited Partnership ("Riverwalk"). The Partnership is the sole general partner
of Riverwalk and an unaffiliated individual is the sole limited partner. The
Partnership is able to control the major operating and financial policies of
Riverwalk. As a result, the Partnership consolidates its interest in these two
entities, whereby all accounts are included in the consolidated financial
statements of the Partnership with all inter-entity accounts being eliminated.
The minority interest of the limited partner of Riverwalk is not material to the
Partnership.
NOTE B - 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 ("AIMCO"), a publicly
traded real estate investment trust, with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
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 C - 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 for the six
month periods ended June 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expenses) $ 43 $ 43
Reimbursements for services of affiliates (included in
investment properties and general and administrative
and operating expenses) 15 14
During the six months ended June 30, 1999 and 1998, affiliates of the General
Partner were entitled to receive 5% of gross receipts from all of the
Registrant's properties as compensation for providing property management
services. The Registrant paid to such affiliates approximately $43,000 for
management fees for both the six month periods ended June 30, 1999 and 1998.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $15,000 and $14,000 for the
six months ended June 30, 1999 and 1998, respectively, including approximately
$2,000 in construction service reimbursements for both periods.
On May 19, 1999, AIMCO Properties, L.P., an affiliate of the General Partner
commenced a tender offer to purchase up to 9,297.45 (45.00% of the total
outstanding units) units of limited partnership interest in the Partnership for
a purchase price of $59 per unit. The offer expired on July 30, 1999. Pursuant
to the offer, AIMCO Properties, L.P. acquired 1,166.00 units. As a result,
AIMCO and its affiliates currently own 1,166.00 units of limited partnership
interest in the Partnership representing 5.64% of the total outstanding units.
It is possible that AIMCO or its affiliate will make one or more additional
offers to acquire additional limited partnership interests in the Partnership
for cash or in exchange for units in the operating partnership of AIMCO.
NOTE D - SEGMENT REPORTING
The Partnership has one reportable segment: residential properties. The
Registrant's residential property segment consists of two apartment complexes,
one located in Houston, Texas and another located in Overland Park, Kansas. The
Partnership rents apartment units to tenants for terms that are typically twelve
months or less.
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segment are the same as those of the Partnership as
described in the Partnership's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1998.
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 six months ended June 30, 1999 and 1998, is shown in
the tables below (in thousands). The "Other" column includes Partnership
administration related items and income and expense not allocated to reportable
segments.
Residential Other Totals
1999
Rental income $ 826 $ -- $ 826
Other income 44 4 48
Interest expense 248 -- 248
Depreciation 159 -- 159
General and administrative expense -- 58 58
Segment profit (loss) 107 (54) 53
Total assets 6,810 227 7,037
Capital expenditures for
investment properties 111 -- 111
Residential Other Totals
1998
Rental income $ 809 $ -- $ 809
Other income 47 20 67
Interest expense 250 -- 250
Depreciation 161 -- 161
General and administrative expense -- 47 47
Segment profit (loss) 52 (27) 25
Total assets 6,891 339 7,230
Capital expenditures for
investment properties 41 -- 41
NOTE E - DISTRIBUTIONS
During the six months ended June 30, 1998, cash distributions were approximately
$1,134,000 (approximately $1,123,000 to the limited partners or $54.35 per
limited partnership unit). These distributions consisted of approximately
$920,000 of proceeds from the refinancing of Stone Ridge Apartments in November
of 1997 and approximately $214,000 from operations.
NOTE F - 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. This case was
settled on April 9, 1999. The Partnership is responsible for a portion of the
settlement costs. The costs associated with the settlement are included in
total expenses for the six months ended June 30, 1999, and did not have a
material effect on 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB 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.
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, 1999 and 1998:
Average Occupancy
Property 1999 1998
Riverwalk
Houston, Texas 95% 97%
Stone Ridge
Overland Park, Kansas 96% 98%
Results of Operations
The Registrant's net income for the six months ended June 30, 1999, was
approximately $53,000 as compared to net income of approximately $25,000 for the
six months ended June 30, 1998. The Registrant's net income for the three
months ended June 30, 1999, was approximately $18,000 as compared to net income
of approximately $6,000 for the three months ended June 30, 1998. The increase
in net income is due to a decrease in total expenses which is partially offset
by a slight decrease in total revenues. Total revenues decreased slightly due
to a decrease in other income which was offset by an increase in rental income.
Other income decreased due to a decrease in interest income due to decreased
cash balances in interest-bearing accounts. Rental income increased primarily
as a result of average annual rental rate increases at both properties during
the three and six months ended June 30, 1999, which was partially offset by
occupancy decreases at both properties.
Total expenses decreased primarily due to decreased operating expenses and to a
lessor extent, decreased property tax expenses which is partially offset by
increased general and administrative expenses. Operating expenses decreased due
to decreased maintenance expenses at Riverwalk and decreased insurance premiums
at both properties due to a change in insurance companies. Property tax expense
decreased due to the timing of receipt of property tax bills for 1999 and 1998
which affected the accruals as of June 30, 1999 and 1998. General and
administrative expenses increased due to increased legal expenses due to the
settlement of the Bond Purchase L.L.C. v. United Investors Growth II, L.P., et
al legal case. Included in general and administrative expenses at both June 30,
1999 and 1998, are reimbursements to the General Partner allowed under the
Partnership Agreement associated with its management of the Partnership. 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 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 June 30, 1999, the Registrant had cash and cash equivalents of approximately
$402,000 as compared to approximately $438,000 at June 30, 1998. The increase
in cash and cash equivalents of approximately $86,000 since the Partnership's
year-ended December 31, 1998, is due to approximately $218,000 of cash provided
by operating activities, which was partially offset by approximately $99,000 of
cash used in investing activities and approximately $33,000 of cash used in
financing activities. Cash used in investing activities consisted primarily of
property improvements and replacements which was partially offset by net
receipts from escrow accounts maintained by the mortgage lender. Cash used in
financing activities consisted of payments of principal made on the mortgages
encumbering the Registrant's properties. 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 Registrant and to comply with Federal,
state, and local legal and regulatory requirements. Capital improvements
planned for each of the Registrant's properties are detailed below.
Riverwalk Apartments
Riverwalk Apartments spent approximately $82,000 on capital improvements for the
six months ended June 30, 1999. These improvements consisted primarily of air
conditioning unit replacement, cabinets, carpet and vinyl replacement and other
structural improvements. These improvements were funded from operating cash
flow and Partnership reserves. Based on a report received from an independent
third party consultant analyzing necessary exterior improvements and estimates
made by the General Partner on interior improvements, it is estimated that the
property requires approximately $198,000 of capital improvements over the next
few years. The Partnership has budgeted, but is not limited to, capital
improvements of approximately $214,000 for 1999 at this property which include
certain of the required improvements and consist primarily of landscaping, air
conditioning unit replacement and carpet and vinyl replacement.
Stone Ridge Apartments
Stone Ridge Apartments spent approximately $29,000 on capital improvements for
the six months ended June 30, 1999, consisting primarily of landscaping, grounds
lighting, and carpet and vinyl replacements. These improvements were funded
from operating cash flow and Partnership reserves. Based on a report received
from an independent third party consultant analyzing necessary exterior
improvements and estimates made by the General Partner on interior improvements,
it is estimated that the property requires approximately $115,000 of capital
improvements over the next few years. The Partnership has budgeted, but is not
limited to, capital improvements of approximately $117,000 for 1999 at this
property which include certain of the required improvements and consist
primarily of landscaping, parking lot repairs, carpet and vinyl replacement and
other structural improvements.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness for Riverwalk of approximately $2,568,000 has a balloon payment of
approximately $2,465,000 due on April 1, 2002. The mortgage indebtedness for
Stone Ridge of approximately $3,250,000 has a balloon payment of approximately
$3,018,000 due on December 1, 2004. The General Partner will attempt to
refinance such indebtedness and/or sell the properties prior to their maturity
dates. If the property cannot be refinanced or sold for a sufficient amount, the
Registrant will risk losing such property through foreclosure.
No cash distributions were made to partners during the six months ended June 30,
1999. During the six months ended June 30, 1998, cash distributions were
approximately $1,134,000 (approximately $1,123,000 to the limited partners or
$54.35 per limited partnership unit). These distributions consisted of
approximately $920,000 of proceeds from the refinancing of Stone Ridge
Apartments in November of 1997 and approximately $214,000 from operations.
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves and the timing of debt maturities,
refinancings and/or property sales. The Partnership's distribution policy will
be reviewed on an annual basis. There can be no assurance, however, that the
Partnership will generate sufficient funds from operations after required
capital expenditures to permit any distributions to its partners in 1999 or
subsequent periods.
Tender Offer
On May 19, 1999, AIMCO Properties, L.P., an affiliate of the General Partner
commenced a tender offer to purchase up to 9,297.45 (45.00% of the total
outstanding units) units of limited partnership interest in the Partnership for
a purchase price of $59 per unit. The offer expired on July 30, 1999. Pursuant
to the offer, AIMCO Properties, L.P. acquired 1,166.00 units. As a result,
AIMCO and its affiliates currently own 1,166.00 units of limited partnership
interest in the Partnership representing 5.64% of the total outstanding units.
It is possible that AIMCO or its affiliate will make one or more additional
offers to acquire additional limited partnership interests in the Partnership
for cash or in exchange for units in the operating partnership of AIMCO.
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 main computer system used by the Managing Agent became fully
functional. In addition to the main computer system, PC-based network servers,
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 June 30, 1999, had completed approximately 90% 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
September 30, 1999. The completion of this process is scheduled to coincide
with the release of a compliant version of the Managing Agent's operating
system.
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.
In April, 1999 the Managing Agent embarked on a data center consolidation
project that unifies its core financial systems under its Year 2000 compliant
system. The estimated completion date for this project is October, 1999.
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 testing process was
completed in June, 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 90% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
September, 1999. The completion of this process is scheduled to coincide with
the release of a compliant version of the Managing Agent's operating system.
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.
A pre-assessment of the properties by the Managing Agent has indicated no Year
2000 issues. A complete, formal assessment of all the properties by the
Managing Agent is in process and will be completed in September, 1999. Any
operating equipment that is found non-compliant will be repaired or replaced.
The total cost incurred for all properties managed by the Managing Agent as of
June 30, 1999 to replace or repair the operating equipment was approximately
$75,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $125,000.
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 its 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 July,
1999. The Managing Agent has updated data transmission standards with all of the
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 September 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 $2.9 million ($0.7 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.
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. This case was
settled on April 9, 1999. The Partnership is responsible for a portion of the
settlement costs. The costs associated with the settlement are included in
total expenses for the six months ended June 30, 1999, and did not have a
material effect on the Partnership's overall operations.
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, 1999.
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/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Carla R. Stoner
Carla R. Stoner
Senior Vice President - Finance
and Administration
Date: August 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from United
Investors Growth Properties II Second Quarter 10-QSB and is qualified in its
entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000862114
<NAME> CENTURTY PROPERTIES GROWTH FUND XXII
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 402
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 8,396
<DEPRECIATION> 2,068
<TOTAL-ASSETS> 7,037
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,818
0
0
<COMMON> 0
<OTHER-SE> 1,028
<TOTAL-LIABILITY-AND-EQUITY> 7,037
<SALES> 0
<TOTAL-REVENUES> 874
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 821
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 248
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53
<EPS-BASIC> 2.52<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
