FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
[ ] 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.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No___
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2000
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $ 430
Receivables and deposits 66
Restricted escrows 7
Other assets 149
Investment properties:
Land $ 1,071
Buildings and related personal property 7,628
8,699
Less accumulated depreciation (2,356) 6,343
$ 6,995
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 7
Tenant security deposit liabilities 44
Accrued property taxes 50
Other liabilities 54
Mortgage notes payable 6,212
Partners' (Deficit) Capital
General partner $ (18)
Limited partners (20,661 units
issued and outstanding) 646 628
$ 6,995
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
b)
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
Revenues: (Restated)
<S> <C> <C>
Rental income $ 426 $ 410
Other income 26 28
Total revenues 452 438
Expenses:
Operating 157 149
General and administrative 25 19
Depreciation 95 88
Interest 102 124
Property taxes 22 27
Total expenses 401 407
Income before cumulative effect of a change in
accounting principle 51 31
Cumulative effect on prior years of a change in
accounting for the cost of exterior painting and major
landscaping -- 46
Net income $ 51 $ 77
Net income allocated to general partner (1%) $ 1 $ 1
Net income allocated to limited partners (99%) 50 76
$ 51 $ 77
Per limited partnership unit:
Income before cumulative effect of a change in
accounting principle 2.42 1.48
Cumulative effect on prior years of a change in
accounting for the cost of exterior painting and
major landscaping -- 2.20
Net income $ 2.42 $ 3.68
Distributions per limited partnership unit $19.17 $ --
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
c)
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 20,661 $ -- $ 5,165 $ 5,165
Partners' (deficit) capital at
December 31, 1999 20,661 $ (15) $ 992 $ 977
Partners' distributions -- (4) (396) (400)
Net income for the three months
ended March 31, 2000 -- 1 50 51
Partners' (deficit) capital
at March 31, 2000 20,661 $ (18) $ 646 $ 628
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
d)
UNITED INVESTORS GROWTH PROPERTIES II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
Cash flows from operating activities: (Restated)
<S> <C> <C>
Net income $ 51 $ 77
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 95 88
Amortization of loan costs 6 6
Cumulative effect on prior years of a change in
accounting principle -- (46)
Change in accounts:
Receivables and deposits 187 26
Other assets (12) (9)
Accounts payable (98) (8)
Tenant security deposit liabilities (2) 1
Accrued property taxes 18 (22)
Other liabilities (18) (16)
Net cash provided by operating activities 195 97
Cash flows from investing activities:
Property improvements and replacements (31) (23)
Net receipts from restricted escrows 22 4
Net cash used in investing activities (9) (19)
Cash flows from financing activities:
Payments on mortgage notes payable (20) (16)
Loan costs paid (16) --
Partners' distributions (400) --
Net cash used in financing activities (404) (16)
Net (decrease) increase in cash and cash equivalents (218) 62
Cash and cash equivalents at beginning of period 648 316
Cash and cash equivalents at end of period $ 430 $ 378
Supplemental disclosure of cash flow information:
Cash paid for interest $ 96 $ 118
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
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 month period ended March 31,
2000, are not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2000. 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, 1999.
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.
Change in Accounting Principle
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping. The Partnership
believes that this accounting principle change is preferable because it provides
a better matching of expenses with the related benefit of the expenditures and
it is consistent with industry practice and the policies of the General Partner.
This accounting change was first reported during the fourth quarter of 1999.
Accordingly, net income for the first quarter of 1999 has been restated to
reflect the accounting change as if it were reported then. This adjustment
decreased income before the cumulative effect of the accounting change for the
first quarter of 1999 by approximately $4,000 ($0.19 per limited partnership
unit). The cumulative effect adjustment of approximately $46,000 ($2.20 per
limited partnership unit) is the result of applying retroactively the
aforementioned accounting principle change and is included in income for the
three months ended March 31, 1999. The accounting change will not have an affect
on cash flow, funds available for distribution or fees payable to the General
Partner and affiliates.
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
has had or will have a material effect on the affairs and operations of the
Partnership.
<PAGE>
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 during
each of the three month periods ended March 31, 2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $ 23 $ 21
Reimbursement for services of affiliates (included in
general and administrative expenses) 6 6
During the three months ended March 31, 2000 and 1999, 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 $23,000 and
$21,000, respectively, for management fees for the three month periods ended
March 31, 2000 and 1999, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $6,000 for both of the three
month periods ended March 31, 2000 and 1999.
AIMCO and its affiliates currently own 1,950 limited partnership units in the
Partnership representing 9.438% of the outstanding units. A number of these
units were acquired pursuant to tender offers made by AIMCO or its affiliates.
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. Under
the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters. When voting on
matters, AIMCO would in all likelihood vote the Units it acquired in a manner
favorable to the interest of the General Partner because of their affiliation
with the General Partner.
Note D - Distributions
During the three months ended March 31, 2000, the Partnership paid cash
distributions of approximately $400,000 (approximately $396,000 to the limited
partners or $19.17 per limited partnership unit) of which approximately $111,000
(approximately $110,000 to the limited partners or $5.33 per limited partnership
unit) represented cash from operations and approximately $289,000 (approximately
$286,000 to the limited partners or $13.84 per limited partnership unit)
represented proceeds from the refinancing of Riverwalk Apartments in December
1999. No cash distributions were made to the partners during the three months
ended March 31, 1999.
Note E - Mortgage Refinancing
On December 29, 1999, the Partnership refinanced the mortgage encumbering
Riverwalk Apartments. The refinancing replaced indebtedness of approximately
$2,551,000 with a new mortgage in the amount of $3,000,000. The new loan
requires monthly principal and interest payments and is being amortized over 20
years. Total capitalized loan costs were approximately $47,000 during the year
ended December 31, 1999. The Partnership spent approximately $16,000 on
additional loan costs during the three months ended March 31, 2000.
Note F - 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 segment profit (loss) before
depreciation. 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, 1999.
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 three months ended March 31, 2000 and 1999 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.
2000 Residential Other Totals
Rental income $ 426 $ -- $ 426
Other income 22 4 26
Interest expense 102 -- 102
Depreciation 95 -- 95
General and administrative expense -- 25 25
Segment profit (loss) 72 (21) 51
Total assets 6,848 147 6,995
Capital expenditures for investment
properties 31 -- 31
1999 Residential Other Totals
(Restated)
Rental income $ 410 $ -- $ 410
Other income 26 2 28
Interest expense 124 -- 124
Depreciation 88 -- 88
General and administrative expense -- 19 19
Cumulative effect of a change in accounting
principle 46 -- 46
Segment profit (loss) 94 (17) 77
Total assets 7,208 256 7,464
Capital expenditures for investment
properties 23 -- 23
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for each of
the three month periods ended March 31, 2000 and 1999:
Average Occupancy
Property 2000 1999
Riverwalk Apartments 96% 95%
Houston, Texas
Stone Ridge Apartments 96% 95%
Overland Park, Kansas
Results of Operations
The Registrant's net income for the three months ended March 31, 2000 was
approximately $51,000 as compared to net income of approximately $77,000 (as
restated) for the three months ended March 31, 1999. The decrease in net income
is primarily due to the cumulative effect on prior years of a change in
accounting principle during the three months ended March 31, 1999 as discussed
below.
Excluding the cumulative effect on prior years of a change in accounting
principle, the Partnership had income of approximately $51,000 for the three
months ended March 31, 2000 and approximately $31,000 for the three months ended
March 31, 1999. Income increased for the three months ended March 31, 2000
compared to the three months ended March 31, 1999 due to an increase in total
revenues and a decrease in total expenses. Total revenues increased due to an
increase in rental income, which was slightly offset by a decrease in other
income. Rental income increased as a result of average rental rate increases and
occupancy increases at both properties. Other income decreased primarily due to
a decrease in income from the rental of corporate units at Riverwalk Apartments.
Total expenses decreased primarily due to decreased interest expense which is
partially offset by increased operating expense, depreciation expense, and
general and administrative expense. Interest expense decreased due to the
refinancing of Riverwalk Apartments at a lower interest rate. Operating expenses
increased due to increased insurance premiums at both properties and increased
commissions and bonuses at both properties. Depreciation expense increased due
to property improvements and replacements completed during the past twelve
months that are now being depreciated. General and administrative expenses
increased due to increased professional fees. Included in general and
administrative expenses at both March 31, 2000 and 1999, 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.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping. The Partnership
believes that this accounting principle change is preferable because it provides
a better matching of expenses with the related benefit of the expenditures and
it is consistent with industry practice and the policies of the General Partner.
This accounting change was first reported during the fourth quarter of 1999.
Accordingly, net income for the first quarter of 1999 has been restated to
reflect the accounting change as if it were reported then. This adjustment
decreased income before the cumulative effect of the accounting change for the
first quarter of 1999 by approximately $4,000 ($0.19 per limited partnership
unit). The cumulative effect adjustment of approximately $46,000 ($2.20 per
limited partnership unit) is the result of applying retroactively the
aforementioned accounting principle change and is included in income for the
three months ended March 31, 1999. The accounting change will not have an affect
on cash flow, funds available for distribution or fees payable to the General
Partner and affiliates.
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 March 31, 2000, the Registrant had cash and cash equivalents of approximately
$430,000 as compared to approximately $378,000 at March 31, 1999. The decrease
in cash and cash equivalents of approximately $218,000 since December 31, 1999,
is due to approximately $404,000 of cash used in financing activities and, to a
lesser extent, approximately $9,000 of cash used in investing activities, which
was partially offset by approximately $195,000 of cash provided by operating
activities. Cash used in financing activities consisted of distributions to
partners and, to a lesser extent, payments of principal made on the mortgages
encumbering the Registrant's properties and the payment of loan costs. Cash used
in investing activities consisted of property improvements and replacements
which was partially offset by net receipts from escrow accounts maintained by
the mortgage lender. 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 $24,000 on capital improvements for the
three months ended March 31, 2000. These improvements consisted primarily of
lighting upgrades, cabinet and countertop replacements, carpet replacement and
office equipment. These improvements were funded from operating cash flow. The
Partnership evaluated the capital improvement needs of the property for the
year. The amount budgeted is approximately $42,000, consisting primarily of
appliances, carpet replacements, and lighting upgrades. Additional improvements
may be considered and will depend on the physical condition of the property as
well as replacement reserves and anticipated cash flow generated by the
property.
Stone Ridge Apartments
Stone Ridge Apartments spent approximately $7,000 on capital improvements for
the three months ended March 31, 2000. These improvements consisted primarily of
carpet replacements. These improvements were funded from Partnership reserves.
The Partnership evaluated the capital improvement needs of the property for the
year. The amount budgeted is approximately $61,000, consisting primarily of air
conditioning unit replacement, carpet replacements, and plumbing upgrades.
Additional improvements may be considered and will depend on the physical
condition of the property as well as replacement reserves and anticipated cash
flow generated by the property.
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 $2,989,000 matures on January 1,
2020. The mortgage indebtedness for Stone Ridge of approximately $3,223,000
matures 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.
During the three months ended March 31, 2000, the Partnership paid cash
distributions of approximately $400,000 (approximately $396,000 to the limited
partners or $19.17 per limited partnership unit) of which approximately $111,000
(approximately $110,000 to the limited partners or $5.33 per limited partnership
unit) represented cash from operations and approximately $289,000 (approximately
$286,000 to the limited partners or $13.84 per limited partnership unit)
represented proceeds from the refinancing of Riverwalk Apartments. No cash
distributions were made to the partners during the three months ended March 31,
1999. 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 additional distributions to its partners during
the remainder of 2000 or subsequent periods.
<PAGE>
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 March 31, 2000.
<PAGE>
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 2000 First Quarter 10-QSB and is qualified in its
entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000862114
<NAME> UNITED INVESTORS GROWTH PROPERTIES II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 430
<SECURITIES> 0
<RECEIVABLES> 66
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 8,699
<DEPRECIATION> (2,356)
<TOTAL-ASSETS> 6,995
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 6,212
0
0
<COMMON> 0
<OTHER-SE> 628
<TOTAL-LIABILITY-AND-EQUITY> 6,995
<SALES> 0
<TOTAL-REVENUES> 452
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 401
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51
<EPS-BASIC> 2.42 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
