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 September 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 (I.R.S. Employer
incorporation or organization) Identification No.)
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)
September 30, 1999
Assets
Cash and cash equivalents $ 397
Receivables and deposits 185
Restricted escrows 49
Other assets 111
Landstment properties: $ 1,071
Buildings and related personal property 7,424
8,495
Less accumulated depreciation (2,148) 6,347
$ 7,089
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 19
Tenant security deposit liabilities 47
Accrued property taxes 96
Other liabilities 84
Mortgage notes payable 5,801
Partners' (Deficit) Capital
General partner $ (14)
Limited partners (20,661 units
issued and outstanding) 1,056 1,042
$ 7,089
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 Nine Months Ended
September 30, September 30,
Revenues: 1999 1998 1999 1998
Rental income $ 423 $ 411 $ 1,249 $ 1,220
Other income 19 23 67 90
Total revenues 442 434 1,316 1,310
Expenses:
Operating 159 182 458 510
General and administrative 34 17 92 64
Depreciation 80 82 239 243
Interest 123 125 371 375
Property taxes 32 33 89 98
Total expenses 428 439 1,249 1,290
Net income (loss) $ 14 $ (5) $ 67 $ 20
Net income allocated
to general partner (1%) $ -- $ -- $ 1 $ --
Net income (loss) allocated
to limited partners (99%) 14 (5) 66 20
$ 14 $ (5) $ 67 $ 20
Net income (loss) per limited
partnership unit $ .68 $ (.24) $ 3.19 $ .97
Distributions per limited
partnership unit $ -- $ 7.19 $ -- $ 61.57
See Accompanying Notes to Consolidated Financial Statements
c)
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(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 nine months
ended September 30, 1999 -- 1 66 67
Partners' (deficit) capital
at September 30, 1999 20,661 $ (14) $ 1,056 $ 1,042
See Accompanying Notes to Consolidated Financial Statements
d)
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
Cash flows from operating activities: 1999 1998
Net income $ 67 $ 20
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 239 243
Amortization of loan costs 19 18
Change in accounts:
Receivables and depits 26 (114)
Other assets (10) 4
Accounts payable 6 (4)
Tenant security deposit liabilities 5 --
Accrued property taxes (10) 98
Other liabilities (3) (23)
Net cash provided by operating activities 339 242
Cash flows from investing activities:
Property improvements and replacements (210) (85)
Net receipts from (deposits to) restricted escrows 2 (27)
Net cash used in investing activities (208) (112)
Cash flows from financing activities:
Payments on mortgage note payable (50) (47)
Loan costs paid -- (5)
Partners' distributions -- (1,285)
Net cash used in financing activities (50) (1,337)
Net increase (decrease) in cash and cash equivalents 81 (1,207)
Cash and cash equivalents at endiofiperiodperiod $ 397 $ 1,301
Supplemental disclosure of cash flow information:
Cash paid for interest $ 353 $ 375
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 nine month periods ended
September 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
nine month periods ended September 30, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expenses) $ 65 $ 64
Reimbursement for services of affiliates (included in
investment properties and general and administrative
and operating expenses) 21 20
During the nine months ended September 30, 1999 and 1998, affiliates of the
General Partner were entitled to receive 5% of gross receipts from both of the
Registrant's properties as compensation for providing property management
services. The Registrant paid to such affiliates approximately $65,000 and
$64,000, respectively, for management fees for the nine month periods ended
September 30, 1999 and 1998, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $21,000 and $20,000 for the
nine months ended September 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 (approximately 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 1,270.00 units.
As a result, AIMCO and its affiliates currently own 1,270.00 units of limited
partnership interest in the Partnership representing approximately 6.15% 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 - DISTRIBUTIONS
No cash distributions were made to the partners during the nine months ended
September 30, 1999. During the nine months ended September 30, 1998, cash
distributions were approximately $1,285,000 (approximately $1,272,000 to the
limited partners or $61.57 per limited partnership unit). These distributions
consisted of approximately $920,000 (approximately $911,000 to the limited
partners or $44.09 per limited partnership unit) of proceeds from the
refinancing of Stone Ridge Apartments in November of 1997 and approximately
$365,000 (approximately $361,000 to the limited partners or $17.48 per limited
partnership unit) from operations.
NOTE E - 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 nine months ended September 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.
1999 Residential Other Totals
Rental income $ 1,249 $ -- $ 1,249
Other income 61 6 67
Interest expense 371 -- 371
Depreciation 239 -- 239
General and administrative expense -- 92 92
Segment profit (loss) 153 (86) 67
Total assets 6,888 201 7,089
Capital expenditures for investment
properties 210 -- 210
1998 Residential Other Totals
Rental income $ 1,220 $ -- $ 1,220
Other income 67 23 90
Interest expense 375 -- 375
Depreciation 243 -- 243
General and administrative expense -- 64 64
Segment profit (loss) 61 (41) 20
Total assets 6,851 248 7,099
Capital expenditures for investment
properties 85 -- 85
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
SecuritiessandnExchangenCommission madeSbyathetRegistrantifromstimehtohtime.
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 nine month periods ended September 30, 1999 and 1998:
Average Occupancy
Property 1999 1998
Riverwalk Apartments 96% 97%
Houston, Texas
Stone Ridge Apartments 97% 97%
Overland Park, Kansas
Results of Operations
The Registrant's net income for the nine months ended September 30, 1999, was
approximately $67,000 as compared to net income of approximately $20,000 for the
nine months ended September 30, 1998. The Registrant's net income for the three
months ended September 30, 1999, was approximately $14,000 as compared to a net
loss of approximately $5,000 for the three months ended September 30, 1998. The
increase in net income for the three and nine months ended September 30, 1999,
is due to a decrease in total expenses and a slight increase in total revenues.
Total revenues increased slightly due to an increase in rental income which was
offset by a decrease in other income. Rental income increased primarily as a
result of average annual rental rate increases at both properties which was
partially offset by an occupancy decrease at Riverwalk Apartments. Other income
decreased primarily due to a decrease in interest income due to decreased cash
balances in intereset-bearing accounts.
Total expenses decreased primarily due to decreased operating expenses and, to a
lesser extent, decreased property tax expenses which is partially offset by
increased general and administrative expenses. Operating expenses decreased due
to decreased maintenance expenses at both the Partnership's properties and
decreased insurance premiums at both properties due to lower rates provided by a
new insurance carrier late in 1998. Property tax expense decreased due to the
timing of receipt of property tax bills for 1999 and 1998 which affected the
accruals as of September 30, 1999 and 1998. General and administrative expenses
increased due to increased legal expenses due to the settlement of a legal case
as previously disclosed in the Partnership's Form 10-QSB for the quarterly
period ended June 30, 1999. Included in general and administrative expenses at
both September 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 September 30, 1999, the Registrant had cash and cash equivalents of
approximately $397,000 as compared to approximately $301,000 at September 30,
1998. The increase in cash and cash equivalents of approximately $81,000 from
the Partnership's year ended December 31, 1998, is due to approximately $339,000
of cash provided by operating activities, which was partially offset by
approximately $208,000 of cash used in investing activities, and to a lesser
extent, to approximately $50,000 of cash used in financing activities. Cash
used in investing activities consisted primarily of property improvements and
replacements which was slightly 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 Partnership 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 $165,000 on capital improvements for
the nine months ended September 30, 1999. These improvements consisted
primarily of air conditioning unit replacement, cabinets, carpet and vinyl
replacement and other structural improvements. The air conditioning unit
replacement and structural improvements are substantially complete as of
September 30, 1999. 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
TheuPartnershipihasebudgeted,0butfisanotalimitedvto,ncapital improvements ofars.
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 $45,000 on capital improvements for
the nine months ended September 30, 1999, consisting primarily of exterior
building enhancements, landscaping, grounds lighting, and carpet and vinyl
replacements. The grounds lighting is complete as of September 30, 1999. 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 resurfacing, 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 $2,560,000 has a balloon payment of
approximately $2,465,000 due on April 1, 2002. The mortgage indebtedness for
Stone Ridge of approximately $3,241,000 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 properties cannot be refinanced or sold for a sufficient amount,
the Registrant will risk losing such properties through foreclosure.
No cash distributions were made to partners during the nine months ended
September 30, 1999. During the nine months ended September 30, 1998, cash
distributions were approximately $1,285,000 (approximately $1,272,000 to the
limited partners or $61.57 per limited partnership unit). These distributions
consisted of approximately $920,000 (approximately $911,000 to the limited
partners or $44.09 per limited partnership unit) of proceeds from the
refinancing of Stone Ridge Apartments in November of 1997 and approximately
$365,000 (approximately $361,000 to the limited partners or $17.48 per limited
partnership unit) 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
Registrant's distribution policy is reviewed on an annual basis. There can be no
assurance, however, that the Partnership will generate sufficient funds from
operations after required capital improvements to permit any distributions to
its partners during the remainder of 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 (approximately 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 1,270.00 units.
As a result, AIMCO and its affiliates currently own 1,270.00 units of limited
partnership interest in the Partnership representing approximately 6.15% of the
total outstanding units. It is possible that AIMCO or its affiliates 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 Complaint, 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 September 30, 1999, had virtually completed 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.
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
complaint system. 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 virtually all of the server operating systems.
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 virtually
no Year 2000 issues. A complete, formal assessment of all the properties by the
Managing Agent was virtually completed by September 30, 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
September 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 has banking relationships with three major financial
institutions, all of which have designated their compliance. The Managing Agent
has updated data transmission standards with all of the financial institutions.
All financial institutions have communicated that they are Year 2000 compliant
and accordingly no accounts were required to be moved from the existing
financial institutions.
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 expenses
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 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended September 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/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from United
Investors Growth Properties II 1999 Third Quarter 10-QSB and is qualified in its
entirety by reference to such 10-QSB filing.
</LEGEND>
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<NAME> UNITED INVESTORS GROWTH PROPERTIES II
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 397
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<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
