FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT
UNDER SECTION 13 OR 15(D)
FORM 10-KSB
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 [No Fee Required]
For the fiscal year ended December 31, 1998
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required]
For the transition period from to
Commission file number 0-19242
UNITED INVESTORS GROWTH PROPERTIES II
(Name of small business issuer in its charter)
Missouri 43-1542902
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $1,742,000
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of December 31, 1998: No market exists for the limited
partnership interests of the Registrant, and, therefore, no aggregate market
value can be determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
ITEM 1. DESCRIPTION OF BUSINESS
United Investors Growth Properties II (the "Registrant" or "Partnership"), a
Missouri Limited Partnership, was organized as a limited partnership under the
laws of the State of Missouri on March 23, 1990. The Partnership is governed by
an Agreement of Limited Partnership dated February 22, 1991. United Investors
Real Estate, Inc. ("UIRE"), a Delaware corporation, is the sole general partner
(the "General Partner") of the Partnership. UIRE was wholly-owned by MAE GP
Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged into
Insignia Properties Trust ("IPT"), which is a subsidiary of Apartment Investment
and Management Company ("AIMCO"). Thus, the General Partner is now a wholly
owned subsidiary of AIMCO (see "Transfer of Control" below). The Partnership
Agreement provides that the Partnership is to terminate on December 31, 2020
unless terminated prior to such date.
The Registrant is engaged in the business of operating and holding existing real
estate properties for investment. The Registrant owns a 99.99% interest in a
limited partnership which owns an apartment complex and a 100% interest in a
limited liability corporation (a "LLC") which owns a second apartment complex
(See "Item 2. Description of Properties").
Commencing on or about June 18, 1990, the Partnership offered, pursuant to a
Registration Statement filed with the Securities and Exchange Commission, up to
a maximum of 80,000 Units of limited partnership interest (the "Units") at $250
per Unit with a minimum required purchase of eight Units or $2,000 (four Units
or $1,000 for an Individual Retirement Account). The offering was extended
beyond the initial termination date of June 18, 1992. On October 26, 1992, the
General Partner terminated the extended offering period. Upon termination of
the offering, the Partnership had accepted subscriptions for 20,661 Units
resulting in gross offering proceeds of approximately $5,165,000. Since its
initial offering, the Partnership has not received, nor are the limited partners
required to make, any additional capital contributions.
A further description of the Partnership's business is included in Management's
Discussion and Analysis or Plan of Operation included in "Item 6" of this Form
10-KSB.
The Registrant has no employees. Management and administrative services are
provided by the General Partner and by agents retained by the General Partner.
The property manager is responsible for the day-to-day operations of each
property. An affiliate of the General Partner has been providing such property
management services.
The business in which the Partnership is engaged is highly competitive. There
are other residential properties within the market area of the properties. The
number and quality of competitive properties, including those which may be
managed by an affiliate of the General Partner in such market area, could have a
material effect on the rental market for the apartments at the Registrant's
properties and the rents that may be charged for such apartments. While the
General Partner and its affiliates are a significant factor in the United States
in the apartment industry, competition for the apartments is local. In
addition, various limited partnerships have been formed by the General Partner
and/or its affiliates to engage in businesses which may be competitive with the
Registrant.
Both the income and expenses of operating the properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
an oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
financing, changes in zoning laws, or changes in patterns or needs of users. In
addition, there are risks inherent in owning and operating residential
properties because such properties are susceptible to the impact of economic and
other conditions outside of the control of the Partnership.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.
The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain
cases, environmental testing has been performed which resulted in no material
adverse conditions or liabilities. In no case has the Partnership received
notice that it is a potentially responsible party with respect to an
environmental clean up site.
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 ultimately acquired a 100%
ownership interest in Insignia Properties Trust ("IPT"), the entity which
controls 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.
ITEM 2. DESCRIPTION OF PROPERTIES:
The following table sets forth the Partnership's investments in properties:
Date of
Purchase Type of Ownership Use
Riverwalk Apartments 03/31/92 Fee ownership subject Apartment
Houston, TX to first mortgage (1) 104 units
Stone Ridge Apartments 07/01/92 Fee ownership subject Apartment
Overland Park, KS to first mortgage (2) 106 units
(1) Property is held by a limited partnership in which the Registrant owns a
99.99% interest.
(2) Property is held by a limited liability corporation in which the Registrant
owns a 100% interest.
SCHEDULE OF PROPERTIES:
Set forth below for each of the Registrant's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation and
Federal tax basis.
Gross
Carrying Accumulated Useful Federal
Property Value Depreciation Life Method Tax Basis
(in thousands) (in thousands)
Riverwalk $4,213 $ 989 5-27.5 S/L $3,202
Stone Ridge 4,072 920 5-27.5 S/L 3,159
Totals $8,285 $1,909 $6,361
See "Note A" of the consolidated financial statements included in "Item 7.
Financial Statements" for a description of the Partnership's depreciation
policy.
SCHEDULE OF PROPERTY INDEBTEDNESS:
The following table sets forth certain information relating to the loans
encumbering the Registrant's properties.
Principal Principal
Balance At Stated Balance
December 31, Interest Period Maturity Due At
Property 1998 Rate Amortized Date Maturity (1)
(in thousands) (in thousands)
Riverwalk $2,584 9.25% 30 years 04/01/02 $2,465
Stone Ridge 3,267 7.13% 30 years 12/01/04 3,018
Total $5,851 $5,483
(1) See "Item 7. Financial Statements - Note C" for information with respect to
the Registrant's ability to prepay the loans and other specific details
about the loan.
On November 3, 1997, the Partnership refinanced the mortgage encumbering Stone
Ridge Apartments. The refinancing replaced indebtedness of approximately
$2,297,000 with a new mortgage in the amount of $3,300,000. The new loan
requires monthly principal and interest payments of approximately $22,000, bears
interest at 7.13% per annum, is being amortized over 30 years and matures on
December 1, 2004. Total capitalized loan costs were approximately $5,000 and
$83,000 during the years ended December 31, 1998 and 1997, respectively. In
connection with the refinancing, the lender required that the property be placed
in a limited liability corporation (a "LLC"). Accordingly the Partnership
transferred ownership of this property to Stone Ridge Apartments, L.L.C., a
wholly-owned subsidiary of the Partnership.
SCHEDULE OF RENTAL RATES AND OCCUPANCY:
Average annual rental rate and occupancy for 1998 and 1997 for each property:
Average Annual Average Annual
Rental Rates Occupancy
Property 1998 1997 1998 1997
Riverwalk $7,880 $7,659 96% 96%
Stone Ridge 8,185 7,835 97% 96%
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other residential apartment complexes in the localities in
which they operate. The General Partner believes that all of the properties are
adequately insured. Each property is an apartment complex which leases its
units for lease terms of one year or less. No residential tenant leases 10% or
more of the available rental space. All of the properties are in good physical
condition, subject to normal depreciation and deterioration as is typical for
assets of this type and age.
SCHEDULE OF REAL ESTATE TAXES AND RATES:
Real estate taxes and effective rates in 1998 for each property were:
1998 1998
Taxes Rate
(in thousands)
Riverwalk $74 2.55%
Stone Ridge 48 1.08%
CAPITAL IMPROVEMENTS:
Riverwalk Apartments
Riverwalk Apartments spent approximately $75,000 on capital improvements for the
year ended December 31, 1998. These improvements consisted primarily of HVAC
condensing unit replacements, carpet replacements and appliances. These
improvements were funded from cash flow. 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 near-term. The Partnership has budgeted, but is not limited to, capital
improvements of approximately $214,000 for 1999 at this property consisting
primarily of landscaping, air conditioning unit replacement and carpet and vinyl
replacement.
Stone Ridge Apartments
Stone Ridge Apartments spent approximately $33,000 on capital improvements for
the year ended December 31, 1998, consisting primarily of signage improvements
and carpet and vinyl replacements. These improvements were funded from cash
flow. 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 near-term. The
Partnership has budgeted, but is not limited to, capital improvements of
approximately $117,000 for 1999 at this property consisting primarily of
landscaping, parking lot repairs, carpet and vinyl replacement and other
structural improvements.
The capital improvements planned for 1999 at the Partnership's properties will
be made only to the extent of cash available from operations and Partnership
reserves.
ITEM 3. 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 is unable to determine the costs associated with this claim at this
time.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended December 31, 1998, no matters were submitted to a vote
of Unit holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR PARTNERSHIP EQUITY AND RELATED PARTNER MATTERS
The Partnership, a publicly held limited partnership, offered and sold 20,661
limited partnership units aggregating approximately $5,165,000. The Partnership
currently has 564 holders of record owning an aggregate of 20,661 units.
Affiliates of the General Partner did not own any limited partnership units as
of December 31, 1998. No public trading market has developed for the Units, and
it is not anticipated that such a market will develop in the future.
During the year ended December 31, 1998, cash distributions were approximately
$1,319,000 ($63.21 per limited partnership unit). These distributions consisted
of approximately $920,000 ($44.09 per limited partnership unit) of proceeds from
the refinancing of Stone Ridge Apartments and approximately $399,000 ($19.12 per
limited partnership unit) from operations. Total cash distributed from
operations was approximately $139,000 ($6.68 per limited partnership unit) for
the year ended December 31, 1997. Future cash distributions will depend on the
levels of net cash generated from operations, property sales, refinancings, and
the availability of cash reserves. The Partnership's distribution policy will be
reviewed on a quarterly 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.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-KSB 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.
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
The Registrant's net income for the year ended December 31, 1998 was
approximately $25,000 as compared to a net loss of approximately $29,000 for the
year ended December 31, 1997. (See "Note E" of the consolidated financial
statements for a reconciliation of these amounts to the Registrant's Federal
taxable income). The increase in net income is due to an increase in total
revenue, partially offset by increased total expenses. Total revenue increased
primarily due to an increase in rental income as a result of average annual
rental rate increases at both properties during 1998. Total expenses increased
primarily due to increased interest expense. The increase in interest expense
was due to the refinancing of Stone Ridge in November 1997, as discussed below,
which resulted in approximately $1,003,000 of additional debt.
General and administrative expenses remained constant for the years ended
December 31, 1998 and 1997. Included in general and administrative expenses at
both December 31, 1998 and 1997 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 December 31, 1998, the Registrant had cash and cash equivalents of
approximately $316,000 as compared to approximately $1,508,000 at December 31,
1997. The decrease in cash and cash equivalents is due to approximately
$144,000 of cash used in investing activities and approximately $1,387,000 of
cash used in financing activities, which is partially offset by approximately
$339,000 of cash provided by operating activities. Cash used in investing
activities consisted primarily of property improvements and replacements and, to
a lesser extent, deposits to escrow accounts maintained by the mortgage lender.
Cash used in financing activities consisted primarily of distributions to
partners and, to a lesser extent, payments of principal made on the mortgages
encumbering the Registrant's properties and payment of loan costs. The
Registrant invests its working capital reserves in money market accounts.
On November 3, 1997, the Partnership refinanced the mortgage encumbering Stone
Ridge Apartments. The refinancing replaced indebtedness of approximately
$2,297,000 with a new mortgage in the amount of $3,300,000. The new loan
requires monthly principal and interest payments of approximately $22,000, bears
interest at 7.13% per annum, is being amortized over 30 years and matures on
December 1, 2004. Total capitalized loan costs were approximately $5,000 and
$83,000 for the years ended December 31, 1998 and 1997, respectively.
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. The Registrant has
budgeted, but is not limited to, approximately $331,000 in capital improvements
for all the Registrant's properties in 1999. Budgeted capital improvements at
Riverwalk include air conditioning unit replacements, carpet and vinyl
replacements and landscaping. Budgeted capital improvements at Stone Ridge
include carpet and vinyl replacements, landscaping, parking lot repairs, and
other structural improvements. The 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 $2,584,000 has a balloon payment of
approximately $2,465,000 due on April 1, 2002. Mortgage indebtedness for Stone
Ridge of approximately $3,267,000 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.
During the year ended December 31, 1998, cash distributions were approximately
$1,319,000. These distributions consisted of approximately $920,000 of proceeds
from the refinancing of Stone Ridge Apartments and approximately $399,000 from
operations. Total cash distributed from operations was approximately $139,000
for the year ended December 31, 1997. The Partnership's distribution policy
will be reviewed on a quarterly 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.
Year 2000
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 mainframe system used by the Managing Agent became fully
functional. In addition to the mainframe, PC-based network servers and 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
December 31, 1998, had completed approximately 75% 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 March
31, 1999.
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.
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 the testing process is
expected to be completed by March 31, 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 80% of the server operating systems. The remaining
server operating systems are planned to be upgraded to be Year 2000 compliant by
March 31, 1999.
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. The Managing Agent intends to have a third-party conduct an
audit of these systems and report their findings by March 31, 1999.
Any of the above operating equipment that has been found to be non-compliant to
date has been replaced or repaired. To date, these have consisted only of
security systems and phone systems. As of December 31, 1998 the Managing Agent
has evaluated approximately 86% of the operating equipment for the Year 2000
compliance.
The total cost incurred for all properties managed by the Managing Agent as of
December 31, 1998 to replace or repair the operating equipment was approximately
$400,000. The Managing Agent estimates the cost to replace or repair any
remaining operating equipment is approximately $325,000, which is expected to be
completed by April 30, 1999.
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 our 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 May 1999.
The Managing Agent has updated data transmission standards with two of the three
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 June 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 $2.8 million ($0.6 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.
ITEM 7. FINANCIAL STATEMENTS
UNITED INVESTORS GROWTH PROPERTIES II
LIST OF FINANCIAL STATEMENTS
Independent Auditors' Reports
Consolidated Balance Sheet - December 31, 1998
Consolidated Statements of Operations - Years ended December 31, 1998 and 1997
Consolidated Statements of Changes in Partners Capital (Deficit) - Years ended
December 31, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended December 31, 1998 and 1997
Notes to Consolidated Financial Statements
Independent Auditors' Report
The Partners
United Investors Growth Properties II (a Missouri Limited Partnership)
We have audited the accompanying consolidated balance sheet of United Investors
Growth Properties II (the "Partnership") as of December 31, 1998, and the
related consolidated statements of operations, changes in partners' capital
(deficit) and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Partnership as
of December 31, 1998, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
February 24, 1999
Independent Auditors' Report
The Partners
United Investors Growth Properties II
(A Missouri Limited Partnership)
We have audited the accompanying consolidated statements of operations, changes
in partners' capital (deficit) and cash flows of United Investors
Growth Properties II (A Missouri Limited Partnership) ("the Partnership") for
the year ended December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of the Partnership
for the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
February 17, 1999
(except for Note H, as to which the date is
March 17, 1999)
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED BALANCE SHEET
December 31, 1998
(in thousands, except unit data)
Assets
Cash and cash equivalents $ 316
Receivables and deposits 211
Restricted escrow 51
Other assets 120
Investment properties (Notes C and F):
Land $ 1,071
Buildings and related personal property 7,214
8,285
Less accumulated depreciation (1,909) 6,376
$ 7,074
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 13
Tenant security deposit liabilities 42
Other liabilities 87
Accrued property taxes 106
Mortgage notes payable (Note C) 5,851
Partners' Capital (Deficit):
General partner's $ (15)
Limited partners' (20,661 units issued
and outstanding) 990 975
$ 7,074
See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1998 1997
Revenues:
Rental income $1,632 $1,558
Other income 110 104
Total revenues 1,742 1,662
Expenses:
Operating 673 698
General and administrative 89 90
Depreciation 326 315
Interest 499 467
Property taxes 130 121
Total expenses 1,717 1,691
Net income (loss) $ 25 $ (29)
Net income (loss) allocated to general partner (1%) $ -- $ --
Net income (loss) allocated to limited partners (99%) 25 (29)
$ 25 $ (29)
Net income (loss) per limited partnership unit $ 1.21 $(1.40)
Distributions per limited partnership unit $63.21 $ 6.68
See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(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, 1996 20,661 $ (1) $ 2,438 $ 2,437
Partners' distributions -- (1) (138) (139)
Net loss for the year ended
December 31, 1997 -- -- (29) (29)
Partners' (deficit) capital at
December 31, 1997 20,661 (2) 2,271 2,269
Partners' distributions -- (13) (1,306) (1,319)
Net income for the year ended
December 31, 1998 -- -- 25 25
Partners' (deficit) capital at
December 31, 1998 20,661 $ (15) $ 990 $ 975
See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1998 1997
Cash flows from operating activities:
Net income (loss) $ 25 $ (29)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 326 315
Amortization of loan costs 25 23
Change in accounts:
Receivables and deposits (140) (10)
Other assets 12 (4)
Accounts payable (2) 7
Tenant security deposit liabilities (1) --
Accrued property taxes 106 (41)
Other liabilities (12) 42
Net cash provided by operating activities 339 303
Cash flows from investing activities:
Property improvements and replacements (108) (64)
Net (deposits to) receipts from
restricted escrows (36) 76
Net cash (used in) provided by
investing activities (144) 12
Cash flows from financing activities:
Payments on mortgage notes payable (63) (62)
Repayment of mortgage note payable -- (2,297)
Proceeds from mortgage note payable -- 3,300
Loan costs paid (5) (83)
Partners' distributions (1,319) (139)
Net cash (used in) provided by
financing activities (1,387) 719
Net (decrease) increase in cash and cash equivalents (1,192) 1,034
Cash and cash equivalents at beginning of year 1,508 474
Cash and cash equivalents at end of year $ 316 $ 1,508
Supplemental disclosure of cash flow information:
Cash paid for interest $ 493 $ 423
See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES II
Notes to Consolidated Financial Statements
December 31, 1998
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization: United Investors Growth Properties II (the "Partnership" or
"Registrant"), a Missouri Limited Partnership, was organized in March 1990, with
the initial group of limited partners being admitted on February 22, 1991.
Additional partners were admitted each month thereafter through October 1992.
The Partnership was formed to acquire and operate certain types of income-
producing real estate. United Investors Real Estate, Inc. (the "General
Partner"), is the general partner. The General Partner is a wholly-owned
subsidiary of Apartment Investment and Management Company ("AIMCO"). See "Note
B - Transfer of Control". The directors and officers of the General Partner
also serve as executive officers of AIMCO. The Partnership Agreement provides
that the Partnership is to terminate on December 31, 2020 unless terminated
prior to such date. The Partnership commenced operations on March 23, 1990, and
completed its acquisition of apartment properties on July 1, 1992. The
Partnership operates two apartment properties in the South.
Cash and cash equivalents: The Partnership considers all highly liquid
investments with a maturity, when purchased, of three months or less to be cash
equivalents. At certain times, the amount of cash deposited at a bank may
exceed the limit on insured deposits.
Tenant Security deposits: The Partnership requires security deposits from
lessees for the duration of the lease, and such deposits are included in
receivables and deposits. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged the apartment and is current on its rental
payments.
Principles of consolidation: The Partnership owns a 99.99% interest and is the
sole general partner in Riverwalk Apartments Limited Partnership (a Missouri
Limited Partnership) ("Riverwalk"), a 104 unit apartment complex located in
Houston, Texas. An unaffiliated individual is the sole limited partner. The
Partnership reflects its interest in Riverwalk utilizing full consolidation
whereby all of the accounts of Riverwalk are included in the consolidated
financial statements of the Partnership (with intercompany accounts being
eliminated). The Partnership has the ability to control the major operating and
financial policies of this Partnership. The minority interest of the limited
partner is not material to the Partnership.
In November 1997, the Partnership transferred ownership of the Stone Ridge
Apartments to Stone Ridge Apartments, LLC ("Stone Ridge"), a wholly-owned
subsidiary of the Partnership, which is consolidated with the Partnership's
financial statements.
Investment properties: Investment properties consist of two apartment complexes
and are stated at cost. Acquisition fees are capitalized as a cost of real
estate. In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", the Partnership records impairment losses on long-
lived assets used in operations when events and circumstances indicate that the
assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
No adjustments for impairment of value were necessary for the years ended
December 31, 1998 or 1997.
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the apartment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used (1)
for real property over 15 years for additions prior to March 16, 1984, 18 years
for additions after March 15, 1984 and before May 9, 1985, and 19 years for
additions after May 8, 1985, and before January 1, 1987, and (2) for personal
property over 5 years for additions after December 31, 1986, the modified
accelerated cost recovery method is used for depreciation of (1) real property
over 27 / years and (2) personal additions over 7 years.
Restricted Escrow: A replacement reserve account was established at both
properties when they were refinanced. Each property makes monthly deposits
to maintain a Replacement Reserve designated for repairs and replacements
at the properties. At December 31, 1998, this reserve totaled
approximately $51,000.
Loan Costs: Loan costs are deferred and are amortized as interest expense over
the terms of the related loans. Unamortized loan costs of approximately
$113,000 are included in other assets at December 31, 1998.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Fair Value of Financial Instruments: SFAS No. 107, "Disclosures about Fair Value
of Financial Instruments", as amended by SFAS No. 119, "Disclosures about
Derivative Financial Instruments and Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate fair value. Fair value is defined in the SFAS as the amount at which
the instruments could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The Partnership believes
that the carrying amount of its financial instruments (except for long term
debt) approximates their fair value due to the short term maturity of these
instruments. The fair value of the Partnership's long term debt, after
discounting the scheduled loan payments to maturity, approximates its carrying
balance.
Allocation of Net Income and Loss: In accordance with the Partnership
Agreement, net income and net loss (as defined in the Partnership Agreement,
income or loss of the Partnership determined without regard to gain or loss from
sale) shall be allocated 1% to the General Partner and 99% to the limited
partners.
Gain/Loss from a Sale: Gain from a sale shall be allocated as follows: (a)
first to each partner who has a negative capital account, an amount equal to (or
in proportion to if less than) such partner's negative capital account balance
and (b) second, 99% to the limited partners and 1% to the General Partner, until
each limited partner has been allocated an amount equal to (or in proportion to
if less than) the excess, if any, of such limited partner's adjusted capital
investment over his capital account.
Loss from a sale shall be allocated as follows: (a) first to each partner who
has a positive capital account, an amount equal to (or in proportion to if less
than) such partner's positive capital account balance and (b) second, 99% to the
limited partners and 1% to the General Partner.
Anything in the Partnership Agreement to the contrary notwithstanding, the
interests of the General Partner, in the aggregate, in each material item of
income, gain, loss, deduction and credit of the Partnership will be equal to at
least 1% of each item at all times during the existence of the Partnership.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs of approximately $38,000 and $32,000 for the years ended
December 31, 1998 and 1997, respectively, were charged to operating expense as
incurred.
Reclassifications: Certain reclassifications have been made to the 1997
information to conform to the 1998 presentation. These reclassifications had no
impact on net income (loss) or partners' capital (deficit) as previously
reported.
Leases: The Partnership generally leases apartment units for twelve-month terms
or less. The Partnership recognizes income as earned on its leases. In
addition, the General Partner's policy is to offer rental concessions during
periods of declining occupancy or in response to heavy competition from other
similar complexes in the area. Concessions are charged against rental income as
incurred.
Segment Reporting: In June 1997, the Financial Accounting Standards Board
issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" ("Statement 131"), which is effective for years beginning after
December 15, 1997. Statement 131 established standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. (See "Note G" for detailed disclosure of
the Partnership's segments.)
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, a publicly traded real
estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership
interest in Insignia Properties Trust ("IPT"), the entity which controls 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 - MORTGAGE NOTES PAYABLE
The principle terms of mortgage notes payable are as follows:
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1998 Interest Rate Date Maturity
(in thousands) (in thousands)
Riverwalk Apartments $2,584 $ 22 9.25% 04/01/02 $2,465
Stone Ridge Apartments 3,267 22 7.13% 12/01/04 3,018
Total $5,851 $ 44 $5,483
The mortgage notes payable are nonrecourse and are secured by pledge of the
respective Partnership's properties and by pledge of revenue from operations of
the respective rental properties. Both mortgage notes payable include
prepayment penalties if repaid prior to maturity. Further, the properties may
not be sold subject to existing indebtedness.
On November 3, 1997, the Partnership refinanced the mortgage encumbering Stone
Ridge Apartments. The refinancing replaced indebtedness of approximately
$2,297,000 with a new mortgage in the amount of $3,300,000. The new loan
requires monthly principal and interest payments and is being amortized over 30
years with a balloon payment due at maturity. Total capitalized loan costs were
approximately $5,000 and $83,000 during the years ended December 31, 1998 and
1997, respectively. In connection with the refinancing, the lender required
that the property be placed in a limited liability corporation (a "LLC").
Accordingly the Partnership transferred ownership of this property to Stone
Ridge Apartments, LLC, a wholly-owned subsidiary of the Partnership.
Scheduled principal payments on the mortgage notes payable subsequent to
December 31, 1998, are as follows (in thousands):
1999 $ 68
2000 74
2001 80
2002 2,519
2003 46
Thereafter 3,064
$5,851
NOTE D - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The Partnership Agreement provides for payments to affiliates for property
management services based on a percentage of revenue and for reimbursement of
certain expenses incurred by affiliates on behalf of the Partnership. The
following payments were made to affiliates of the General Partner during each of
the years ended December 31, 1998 and 1997:
1998 1997
(in thousands)
Property management fees (included in
operating expenses) $ 86 $ 83
Reimbursement for services of affiliates
(included in investment properties, general
and administrative expenses and operating
expenses) (1) 27 40
(1) Included in "Reimbursement for services of affiliates", for the years ended
December 31, 1998 and 1997, is approximately $2,000 and $5,000,
respectively, in reimbursements for construction oversight costs.
During the years ended December 31, 1998 and 1997, 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 $86,000 and $83,000 for
management fees for the years ended December 31, 1998 and 1997, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $27,000 and $40,000 for the
years ended December 31, 1998 and 1997, respectively.
For the period 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 receives 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.
NOTE E - INCOME TAX
The Partnership has received a ruling from the Internal Revenue Service that it
will be classified as a partnership for Federal income tax purposes.
Accordingly, taxable income or loss of the Partnership is reported in the income
tax returns of its partners. Accordingly, no provision for income taxes is made
in the consolidated financial statements of the Partnership.
The following is a reconciliation of reported net income (loss) and Federal
taxable income (loss) (in thousands, except for unit data):
1998 1997
Net income (loss) as reported $ 25 $ (29)
Add (deduct):
Deferred revenue and other liabilities (24) 15
Depreciation differences 17 6
Federal taxable income (loss) $ 18 $ (8)
Federal taxable income (loss)
per limited partnership unit $ .87 $(.38)
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets at December 31, 1998 (in thousands):
Net assets as reported $ 975
Differences in basis of assets and liabilities:
Investment properties at cost (12)
Accumulated depreciation 36
Deferred Revenue and other (9)
Syndication costs 681
Net assets - tax basis $1,671
NOTE F - REAL ESTATE AND ACCUMULATED DEPRECIATION
Initial Cost
To Partnership
(in thousands)
Buildings Net Costs
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
(in thousands) (in thousands)
Riverwalk $2,584 $ 646 $3,062 $ 505
Stone Ridge 3,267 425 3,265 382
Totals $5,851 $1,071 $6,327 $ 887
<TABLE>
<CAPTION>
Gross Amount At Which
Carried
At December 31, 1998
(in thousands)
Buildings
And Depreciable
Personal Accumulated Date of Date Life-
Description Land Property Total Depreciation Construction Acquired Years
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Riverwalk $ 646 $3,567 $4,213 $ 989 1985 03/31/92 5-27.5
Stone Ridge 425 3,647 4,072 920 1987 07/01/92 5-27.5
Totals $1,071 $7,214 $8,285 $1,909
</TABLE>
Reconciliation of "Real Estate and Accumulated Depreciation":
Years Ended December 31,
1998 1997
(in thousands)
Investment Properties
Balance at beginning of year $8,177 $8,113
Property improvements 108 64
Balance at end of year $8,285 $8,177
Accumulated Depreciation
Balance at beginning of year $1,583 $1,268
Depreciation expense 326 315
Balance at end of year $1,909 $1,583
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1998, is approximately $8,273,000. The accumulated depreciation
taken for Federal income tax purposes at December 31, 1998, is approximately
$1,911,000.
NOTE G - SEGMENT REPORTING
Description of the types of products and services from which the reportable
segment derives its revenue: As defined by SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", 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 people for terms that are typically twelve months or less.
Measurement of segment profit or loss: The Partnership evaluates performance
based on net income. The accounting policies of the reportable segment are the
same as those described in the summary of significant accounting policies.
Factors management used to identify the enterprise's reportable segment: 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 years 1998 and 1997 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
1998
Rental income $1,632 $ -- $1,632
Other income 85 25 110
Interest expense 499 -- 499
Depreciation 326 -- 326
General and administrative expense -- 89 89
Segment profit (loss) 89 (64) 25
Total assets 6,840 234 7,074
Capital expenditures for
Investment properties 108 -- 108
Residential Other Totals
1997
Rental income $1,558 $ -- $1,558
Other income 83 21 104
Interest expense 467 -- 467
Depreciation 315 -- 315
General and administrative expense -- 90 90
Segment profit (loss) 40 (69) (29)
Total assets 6,897 1,443 8,340
Capital expenditures for
Investment properties 64 -- 64
NOTE H - 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 is unable to determine the costs associated with this claim at this
time.
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 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective September 28, 1998, the Registrant dismissed its prior Independent
Auditors, Deloitte & Touche LLP ("Deloitte") and retained as its new Independent
Auditors, KPMG Peat Marwick LLP. Deloitte's Independent Auditor's Report on the
Registrant's consolidated financial statements for the calendar year ended
December 31, 1997 did not contain an adverse opinion or a disclaimer of opinion,
and was not qualified or modified as to uncertainty, audit scope or accounting
principles. The decision to change Independent Auditors was approved by the
General Partner's Directors. During the calendar year ended 1997 and through
September 28, 1998, there were no disagreements between the Registrant and
Deloitte on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope of procedure which disagreements if not
resolved to the satisfaction of Deloitte, would have caused it to make
references to the subject matter of the disagreements in connection with its
reports.
Effective September 28, 1998, the Registrant engaged KPMG Peat Marwick LLP as
its Independent Auditors. During the last two calendar years and through
September 28, 1998, the Registrant did not consult KPMG Peat Marwick LLP
regarding any of the matters or events set forth in Item 304 (a) (2) (i) and
(ii) of Regulation S-B.
PART III
ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
United Investors Growth Properties II (the "Registrant" or the "Partnership")
has no officers or directors. United Investors Real Estate, Inc. ("UIRE" or the
"General Partner") manages and controls the Partnership and has general
responsibility and authority in all matters affecting its business.
The names of the directors and executive officers of UIRE, their ages and the
nature of all positions with UIRE presently held are as follows:
Name Age Position
Patrick J. Foye 41 Executive Vice President and Director
Timothy R. Garrick 42 Vice President - Accounting and Director
Patrick J. Foye has been Executive Vice President and Director of the General
Partner since October 1, 1998. Mr. Foye has served as Executive Vice President
of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the
law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was
Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992
through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power
Authority and serves as a member of the New York State Privatization Council.
He received a B.A. from Fordham College and a J.D. from Fordham University Law
School.
Timothy R. Garrick has served as Vice President-Accounting of Aimco and Vice
President-Accounting and Director of the General Partner since October 1, 1998.
Prior to that date, Mr. Garrick served as Vice President-Accounting Services of
Insignia Financial Group since June of 1997. From 1992 until June of 1997, Mr.
Garrick served as Vice President of Partnership Accounting and from 1990 to 1992
as an Asset Manager for Insignia Financial Group. From 1984 to 1990, Mr. Garrick
served in various capacities with U.S. Shelter Corporation. From 1979 to 1984,
Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received
his B.S. Degree from the University of South Carolina and is a Certified Public
Accountant.
ITEM 10. EXECUTIVE COMPENSATION
No direct form of compensation or remuneration was paid by the Partnership to
any officer or director of the General Partner. The Partnership has no plan,
nor does the Partnership presently propose a plan, which will result in any
remuneration being paid to any officer or director upon termination of
employment. However, reimbursements and other payments have been made to the
Partnership's General Partner and its affiliates, as described in "Item 12"
below.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1998, no person was known by the Partnership to be the
beneficial owner of more than five percent of the outstanding Units of the
Partnership.
As of December 31, 1998, no Units were owned by the General Partner or any of
its officers and directors.
On October 1, 1998, Insignia Financial Group, Inc. merged into AIMCO, a real
estate investment trust, whose Class A Common Shares are listed on the New York
Stock Exchange. As a result of such merger, AIMCO and AIMCO Properties, L.P., a
Delaware limited partnership and the operating partnership of AIMCO ("AIMCO OP")
acquired indirect control of the General Partner. AIMCO and its affiliates
currently do not own any of the limited partnership interests in the
Partnership. There is a substantial likelihood that, within a short period of
time, AIMCO OP will offer to acquire limited partnership interests in the
Partnership for cash preferred units or common units of limited partnerships
interests in AIMCO OP. While such an exchange offer is possible, no definite
plans exist as to when or whether to commence such an exchange offer, or as to
the terms of any such exchange offer, and it is possible that none will occur.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Form 10-KSB shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there by any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to the registration or
qualification under the securities laws of any such state.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The General Partner received cash distributions of approximately $13,000 during
the year ended December 31, 1998. Of this amount, approximately $9,000 of these
distributions was from proceeds from refinancing Stone Ridge Apartments in 1997
and approximately $4,000 was from operations. The General Partner received
approximately $1,000 in distribution from cash from operations during the year
ended December 31, 1997. For a description of the share of cash distributions
from operations and refinancings, if any, to which the General Partner is
entitled, see "Note A" of the consolidated financial statements included in
"Item 7. Financial Statements".
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The Partnership Agreement provides for payments to affiliates for property
management services based on a percentage of revenue and for reimbursement of
certain expenses incurred by affiliates on behalf of the Partnership. The
following payments were made to affiliates of the General Partner during each of
the years ended December 31, 1998 and 1997:
1998 1997
(in thousands)
Property management fees $ 86 $ 83
Reimbursement for services of affiliates (1) $ 27 $ 40
(1) Included in "Reimbursement for services of affiliates" for the years ended
December 31, 1998 and 1997, is approximately $2,000 and $5,000,
respectively, in reimbursements for construction oversight costs.
During the years ended December 31, 1998 and 1997, 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 $86,000 and $83,000 for
management fees for the years ended December 31, 1998 and 1997, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $27,000 and $40,000 for the
years ended December 31, 1998 and 1997, respectively.
For the period 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 receives 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.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
See Exhibit Index contained herein.
(b) Reports on Form 8-K filed in the fourth quarter of fiscal year
1998:
Current Report on Form 8-K dated September 23, 1998 and filed
October 1, 1998, reporting the dismissal of Deloitte and Touche,
LLP as independent accountant and the engagement of KPMG Peat
Marwick, LLP.
Current Report on Form 8-K dated October 1, 1998 and filed on
October 16, 1998 disclosing Change in Control of Registrant from
Insignia Financial Group, Inc. to AIMCO.
Current Report on Form 8-K/A dated September 23, 1998 and filed on
October 27, 1998 providing letter from former independent
accountant regarding statements made in Form 8-K dated September
23, 1998 and filed on October 1, 1998.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Partnership
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNITED INVESTORS GROWTH PROPERTIES II
By: United Investors Real Estate, Inc.,
Its General Partner
By: /s/ Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Timothy R. Garrick
Timothy R. Garrick
Vice President - Accounting
Date: March 31, 1999
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
date indicated.
/s/ Patrick J. Foye Executive Vice President Date: March 31, 1999
Patrick J. Foye and Director
/s/ Timothy R. Garrick Vice President - Accounting Date: March 31, 1999
Timothy R. Garrick and Director
INDEX TO EXHIBITS
EXHIBIT
1 Form of Dealer Manager Agreement between the General Partner and the
Dealer Manager, including Form of Soliciting Broker Agreement;
incorporated by reference to Exhibit 1 to Amendment No. 1 to
Partnership's Registration Statement (File No. 33-34111) previously
filed on June 8, 1990.
2.1 Agreement and Plan of Merger, dated October 1, 1998 and filed October
16, 1998, by and between AIMCO and IPT (incorporated by reference to
Exhibit 2.1 filed with Registrant's Current Report on Form 8-K, dated,
October 1, 1998).
3 Certificate of Limited Partnership and Amendment thereto; incorporated
by reference to Exhibit 3 to Amendment No. 1 to Partnership's
Registration Statement previously filed on June 8, 1990.
4.1 Form of Subscription Agreement; incorporated by reference to Exhibit
4.1 to Amendment No. 1 to Partnership's Registration Statement
previously filed on June 8, 1990.
4.2 Agreement of Limited Partnership of Partnership dated February 22,
1991; incorporated by reference to Exhibit 4.2 to Partnership's Report
on Form 10-K previously filed on March 7, 1991.
4.2.1 Amended and Restated Agreement of Limited Partnership of Partnership
dated June 1, 1992; incorporated by reference to Exhibit 4.2.1 to
Partnership's Form 8-K, amending Partnership's Form 10-Q filed with
the Commission on May 15, 1992 previously filed on June 22, 1992.
4.3 Agreement of Joint Venture of Renaissance Village Associates dated
March 22, 1991 between United Investors Growth Properties (A Missouri
Limited Partnership) and United Investors Growth Properties II (A
Missouri Limited Partnership); incorporated by reference to Exhibit
4.3 to Partnership's Quarterly Report on Form 10-Q previously filed on
April 24, 1991.
10.1 Escrow Agreement among the Partnership, the Dealer Manager, and United
Missouri Bank of Kansas City, N.A.; incorporated by reference to
Exhibit 10.1 to Amendment No. 1 to Partnership's Registration
Statement previously filed on June 8, 1990.
10.1.1 Form of Amendment to Escrow Agreement; incorporated by reference to
Exhibit 10.1.1 to Amendment No. 5 to Partnership's Registration
Statement previously filed on February 24, 1992.
10.2 Agreement of Purchase and Sale, dated August 27, 1990, between United
Investors Real Estate, Inc., as purchaser, and Mueller Development
Company, as seller, relating to Renaissance Village Apartments, and
amendments thereto; incorporated by reference to Exhibit 10.2 to
Amendment No. 1 to Partnership's Registration Statement previously
filed on December 6, 1990.
10.2.1 Seventh and Eighth Amendments to Agreement of Purchase and Sale
between United Investors Real Estate, Inc., as purchaser, and Mueller
Development Company, as seller, relating to Renaissance Village
Apartments; incorporated by reference to Exhibit 10.2.1 to
Partnership's Quarterly Report on Form 10-Q previously filed on April
24, 1991.
10.3 Agreement of Joint Venture of Renaissance Village Associates dated
March 22, 1991; incorporated by reference to Exhibit 10.3 to Amendment
No. 3 to Partnership's Registration Statement previously filed on
April 10, 1991.
10.4 Promissory Note and Deed of Trust with respect to the Permanent Loan
on Renaissance Village Apartments; incorporated by reference to
Exhibit 10.3 to Partnership's Quarterly Report on Form 10-Q previously
filed on April 24, 1991.
10.5 Agreement of Purchase and Sale, dated January 9, 1992, between United
Investors Real Estate, Inc., as purchaser, and Normandy 104
Associates, Ltd., as seller, relating to Riverwalk Apartments, and
first and second amendments thereto; incorporated by reference to
Exhibit 10.5 to Amendment No. 5 to Partnership's Registration
Statement previously filed on February 24, 1992.
10.5.1 Third Amendment to the Agreement of Purchase and Sale, dated January
9, 1992 between United Investors Real Estate, Inc., as purchaser, and
Normandy 104 Associates, Ltd., as seller, relating to Riverwalk
Apartments; incorporated by reference to Exhibit 10.5.1 to
Partnership's Current Report on Form 8-K previously filed on April 13,
1992.
10.6 Promissory Note and Deed of Trust with respect to the Permanent Loan
on Riverwalk Apartments; incorporated by reference to Exhibit 10.6 to
Partnership's Current Report on Form 8-K previously filed on April 13,
1992.
10.7 Agreement of Limited Partnership of Riverwalk Associates, L.P., (a
Missouri Limited Partnership), dated March 23, 1992, between United
Investors Growth Properties II and Scott Wise; incorporated by
reference to Exhibit 10.7 to Partnership's Current Report on Form 8-K
previously filed on April 13, 1992.
10.8 Real Estate Sale Agreement between United Investors Real Estate, Inc.,
as purchaser, and The Travelers Insurance Company, as seller, relating
to Stone Ridge Apartments; incorporated by reference to Exhibit 10.8
to Amendment No. 9 to Partnership's Registration Statement previously
filed on June 1, 1992.
10.10 Promissory Note with respect to the General Partner loan on Stone
Ridge Apartments; incorporated by reference to Exhibit 10.10 to
Partnership's Quarterly Report on Form 10-Q previously filed on August
12, 1992.
10.11 Permanent Loan Commitment with respect to Stone Ridge Apartments;
incorporated by reference to Exhibit 10.11 to Partnership's Quarterly
Report on Form 10-Q previously filed on August 12, 1992.
10.12 Mortgage, Security Agreement and Fixture Filing with respect to the
Permanent Loan on Stone Ridge Apartments; incorporated by reference to
Exhibit 10.12 to Partnership's Quarterly Report on Form 10-Q
previously filed on November 12, 1992.
10.13 Mortgage Note with respect to the Permanent Loan on Stone Ridge
Apartments.
10.14 Stock Purchase Agreement dated December 4, 1992 showing the purchase
of 100% of the outstanding stock of United Investors Real Estate, Inc.
by MAE GP Corporation; incorporated by reference to Exhibit 10.14 to
Partnership's Current Report on Form 8-K previously filed on December
31, 1992.
10.15 Purchase and Sale Agreement, made as of the 19th of July, 1995, by and
between Kauri Investments, Ltd., a Washington corporation, and
Renaissance Village Associates, JV, a Kansas joint venture.
(Incorporated by reference to the Annual Report on Form 10-KSB for the
year ended December 31, 1995)
10.16 Amendment to Purchase and Sale Agreement, made as of the 10th day of
August, 1995, by and between Kauri Investments, Ltd., a Washington
corporation, and Renaissance Village Associates, JV, a Kansas joint
venture. (Incorporated by reference to the Annual Report on Form 10-
KSB for the year ended December 31, 1995)
10.17 Multifamily Note dated November 3, 1997, by and between Stone Ridge
Apartments, L.L.C., a South Carolina limited liability company and
Lehman Brothers Holdings, Inc., a Delaware corporation (Incorporated
by reference to the Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1997)
16 Letter dated October 1, 1998 from the Registrant's former independent
accountant regarding its concurrence with the statements made by the
Registrant in this current report (incorporated by reference to the
Registrant's Current Report on Form 8-K/A filed October 27, 1998.)
27 Financial Data Schedule
99.1 Portions of Partnership's Prospectus dated June 18, 1990; incorporated
by reference to Exhibit 99.1 to Partnership's Report on Form 10-K
previously filed on March 6, 1991.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from United
Investors Growth Properties II 1998 Year-End 10-KSB and is qualified in its
entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000862114
<NAME> UNITED INVESTORS GROWTH PROPERTIES II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 316
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 8,285
<DEPRECIATION> 1,909
<TOTAL-ASSETS> 7,074
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 5,851
0
0
<COMMON> 0
<OTHER-SE> 975
<TOTAL-LIABILITY-AND-EQUITY> 7,074
<SALES> 0
<TOTAL-REVENUES> 1,742
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,717
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 499
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25
<EPS-PRIMARY> 1.21<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
