TYPE 10-Q
SEQUENCE: 1
DESCRIPTION: FIRST QUARTER REPORT FOR 1999
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 001-13915
---------
UNITED INVESTORS REALTY TRUST
(Exact name of Registrant as Specified in its Charter)
TEXAS 76-0265701
------------------------ ----------------------
(State of Incorporation) (IRS Employer
Identification Number)
5847 San Felipe, Suite 850
Houston, TX 77057
-----------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
(713) 781-2860
---------------------------------------------------
(Registrant's Telephone Number Including Area Code)
Number of shares outstanding of the issuer's Common Share, no par value, as of
May 6, 1999: 9,511,392 shares.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
<TABLE>
<CAPTION>
United Investors Realty Trust
Consolidated Balance Sheets
ASSETS
March 31,
1999 December 31,
(Unaudited) 1998
------------- -------------
<S> <C> <C>
Investment real estate:
Land ......................................................... $ 44,888,069 $ 44,290,975
Buildings and improvements ................................... 116,117,943 114,716,718
Property under development ................................... 2,480,896 1,321,823
------------- -------------
163,486,908 160,329,516
Less accumulated depreciation .................................... (8,354,805) (7,434,343)
------------- -------------
Investment real estate, net ...................................... 155,132,103 152,895,173
Cash and cash equivalents ........................................ 2,764,743 5,486,095
Accounts receivable, net of allowance ............................ 2,529,450 2,733,070
Prepaid expenses and other assets ................................ 4,471,691 3,509,771
------------- -------------
Total Assets ................................................. $164,897,987 $ 164,624,109
============= =============
LIABILITIES, MINORITY INTEREST, AND COMMON SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ........................................... $ 54,993,996 $ 55,248,437
Capital lease obligations ........................................ 9,889,074 9,914,054
Construction note payable ........................................ 2,295,107 1,221,393
Short-term notes and lines of credit ............................. 7,500,000 7,500,000
Accounts payable,accrued expenses
and other liabilities ........................................... 5,275,690 4,999,920
Accrued distributions............................................. 2,045,648 2,045,702
------------- -------------
Total liabilities ................................................ 81,999,515 80,929,506
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Minority interest in consolidated partnerships. .................. 2,755,698 2,825,284
------------- -------------
Commitments and contingencies
Common shareholders' equity:
Common shares of beneficial interest, no par value,
500,000,000 shares authorized; 9,514,889 shares issued;
and 9,511,392 and 9,434,889 shares outstanding in
1999 and 1998, respectively .................................. 87,321,454 86,571,108
Shareholder notes receivable...................................... (815,031) --
Accumulated deficit .............................................. (6,363,649) (5,701,789)
------------- -------------
Total common shareholders' equity ................................ 80,142,774 80,869,319
------------- -------------
Total liabilities, minority interest, and
common shareholders' equity .................................. $164,897,987 $ 164,624,109
============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
United Investors Realty Trust
Consolidated Statements of Operations
(unaudited)
Three Months Ended
--------------------------
31-Mar-99 31-Mar-98
<S> <C> <C>
Revenues:
Rental $4,896,277 $ 2,043,889
Recoveries from tenants 1,415,521 564,927
Interest and other income 41,240 61,116
----------- -----------
Total revenues 6,353,038 2,669,932
Property operating 731,821 258,108
Property taxes 871,152 384,666
Property management fees 95,533 49,033
General and administrative 367,583 168,213
Advisory fees 304,934 127,240
Depreciation and amortization 1,039,232 454,515
Interest (including write-off of $2,240,652
in unamortized bridge financing costs in
March, 1998) 1,516,741 3,252,241
----------- -----------
Total expenses 4,926,996 4,694,016
----------- -----------
Income (loss) before minority interest,
extraordinary item,and preferred share
distribution requirement 1,426,042 (2,024,084)
Minority interest in income of consolidated
partnerships (42,254) (26,613)
----------- -----------
Income (loss) before extraordinary item and
preferred share distribution requirement 1,383,788 (2,050,697)
Extraordinary item-prepayment penalties incurred on
early extinguishment of debt -- (232,532)
----------- -----------
Net income (loss) 1,383,788 (2,283,229)
Preferred share distribution requirement -- (20,670)
----------- -----------
Net income (loss) available
for common shareholders $1,383,788 $(2,303,899)
=========== ===========
Basic and diluted per share amounts:
Income(loss) before extraordinary item
and preferred share distribution requirement $ 0.15 $ (0.91)
Extraordinary item - prepayment penalties
incurred on early extinguishment of debt -- (0.10)
Preferred share distribution requirement -- (0.01)
----------- -----------
Net income (loss) available for common
shareholders $ 0.15 $ (1.02)
=========== ===========
Basic and diluted weighted average shares
outstanding 9,514,850 2,266,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
United Investors Realty Trust
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended
-----------------------
31-Mar-99 31-Mar-98
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,383,788 $ (2,283,229)
Adjustments to reconcile net income to net cash
provided by operating
activities:
Depreciation 991,103 440,987
Amortization 62,448 13,528
Extraordinary item -- 232,532
Amortization of bridge financing costs -- 2,240,652
Minority interest in income of consolidated partnerships 42,254 26,613
Changes in operating assets and liabilities (561,253) (88,390)
------------ -----------
Net cash provided by operating activities 1,918,340 582,693
------------ -----------
Cash flows from investing activities:
Purchase of and capital improvements to investment
real estate (3,236,758) (41,844,329)
Application of escrow deposits 25,000 2,006,000
------------ -----------
Net cash used in investing activities (3,211,758) (39,838,329)
------------ -----------
Cash flows from financing activities:
Proceeds from bridge financing -- 53,689,913
Payments on bridge financing -- (53,686,913)
Proceeds from short-term notes payable -- 50,000
Principal payments on mortgage notes payable (254,441) (16,180,434)
Payments on capital lease obligations (24,980) --
Proceeds from construction note payable 1,073,714
Principal payments on short-term notes payable -- (3,275,000)
Preferred share retirement -- (1,068,226)
Convertible note retirement -- (212,400)
Proceeds from public offering -- 76,000,000
Offering costs (29,060) (6,676,105)
Payment of prepayment penalty -- (232,532)
Payment of bridge financing costs -- (2,240,652)
Preferred share distributions -- (20,670)
Payment of distributions (2,045,702) --
Distribution to holders of minority interests (111,840) (413,493)
Purchase of treasury shares (35,625) --
------------ -----------
Net cash provided by (used in) financing
activities (1,427,934) 45,733,488
------------ -----------
Increase (decrease) in cash and cash equivalents (2,721,352) 6,477,852
Cash and cash equivalents at beginning of period 5,486,095 346,149
------------ -----------
Cash and cash equivalents at end of period $ 2,764,743 $ 6,824,001
============ ===========
Supplemental disclosures:
Cash paid for for interest (including $2,240,652
in cash paid in 1998 for bridge financing costs) $ 1,502,422 $ 3,250,241
Assumption of mortgage debt in connection with
acquisition of properties -- 20,570,709
Assumption of property tax and security deposit
liabilities in connection with acquisition of
properties 4,913 380,608
Purchase of treasury shares by optionees with
purchase money notes 815,031 --
</TABLE>
<PAGE>
United Investors Realty Trust
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation
Organization
United Investors Realty Trust (the "Company") was organized on December 1,1988
as a Massachusetts business trust and subsequently converted to a Texas real
estate investment trust ("REIT"). The Company operates neighborhood and
community shopping centers in the sun belt states of Texas, Arizona, Florida and
Tennessee. On March 13, 1998, the Company completed an initial public offering
(the "IPO") of 7,600,000 common shares of beneficial interest (the "Common
Shares").
Basis of Presentation
These unaudited consolidated financial statements include the accounts of the
Company, its subsidiaries and partnerships in which it owns controlling
interests. The accompanying consolidated financial statements have been prepared
by the Company's management in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles for complete financial
statements. These statements should be read in conjunction with the Company's
audited financial statements and notes thereto included in the Company's Annual
Report on Form 10-K dated March 16, 1999. In the opinion of management, the
financial statements contain all adjustments (which consist of normal and
recurring adjustments) necessary for a fair presentation of financial results
for the interim periods.
2. Investment in Properties
At March 31, 1999, the Company owned controlling interests in 26 shopping center
properties, including one under development, containing approximately 3,100,000
total square feet of gross leaseable area ("GLA"), of which the Company owned
2,243,000 square feet of GLA.
In January 1999, the Company entered into a master lease agreement with the
developer/seller of the Albertson's Bissonnet Shopping Center. The center is
comprised of 15,000 square feet of GLA and 63,000 square feet of space owned and
occupied by Albertson's. Pursuant to this agreement the Company assumed all of
the economic risks and rewards of operating the 15,000 square foot shopping
center until no later than August 31, 1999, at which time the Company, for no
additional consideration, will obtain fee title to the shopping center. The cost
of the center is included in investment real estate.
As of March 31, 1999, 21% of the Company's owned GLA was in the Houston, Texas
area, 15% was in the Dallas, Texas area, 21% was throughout the balance of
Texas, 21% was in Florida, 15% was in Arizona, and 7% was in Tennessee.
Pending Acquisitions
As of March 31, 1999, the Company was under contract to purchase one additional
shopping center, the Spring Shadows Shopping Center located in Houston, Texas.
Subject to satisfaction of certain provisions of the purchase contract, the
Company will acquire, for approximately $5,200,000 in cash, 39,000 square feet
of GLA. The center's anchor tenant, Albertson's, owns its own, 63,000 square
feet space.
3. Notes and Mortgages Payable
The Company's mortgage notes payable consist of fixed-rate debt of $54,993,996
at March 31, 1999. The interest rates range from 7.50% to 10.75% with a weighted
average interest rate of 8.71%. The notes mature at various times through 2018
with a weighted average term to maturity of 7.81 years.
Property under capital leases, consisting of two shopping centers, aggregated
$13.7 million at March 31, 1999 and is included in investment real estate.
Depreciation of the property under capital leases is combined with depreciation
of owned properties in the accompanying financial statements. Future minimum
lease payments under these capital leases total $16.0 million, with annual
payments due of approximately $.8 million in each of 1999 through 2003, and
$12.1 million thereafter. The amount of these total payments representing
interest is $6.1 million.
In August 1998, the Company executed an agreement with a bank for a $30,000,000
revolving line-of-credit at 150 basis points over LIBOR. The term is for two
years, with a one year extension. The line is secured by first liens on the
Market at First Colony, Mason Park, Autobahn, and Bandera shopping centers. At
March 31, 1999 the Company had utilized $10,425,000 under the line, including
$2,925,000 represented by irrevocable letters of credit expiring from September
30, 1999 through August 16, 2000.
4. Per Share Data
Basic earnings per share is computed based upon the weighted average number of
common shares outstanding during the period presented. Diluted earnings per
share is computed based upon the weighted average number of common shares and
dilutive common share equivalents outstanding during the periods presented. The
number of diluted shares related to outstanding share options is computed by
application of the Treasury share method. In January 1999 the Company issued all
treasury shares in connection with the exercise of options as discussed in Note
6. An additional 5,000 treasury shares were purchased by the Company in March
1999. The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------------
Weighted Average Shares 1999 1998
- ----------------------- ---- ----
<S> <C> <C>
Basic EPS 9,514,850 2,266,000
Effect of dilutive securities:
Employee share options -- --
---------- ---------
Diluted EPS 9,514,850 2,266,000
========= =========
Distributions per share declared $ 0.215 $ 0.00
========= =========
</TABLE>
5. Advisory Agreement
The Company is managed and advised by an entity (the "Investment Manager")
affiliated with the Company's chairman. The Investment Manager is paid a fee
based on an amount equivalent to 6.8% of earnings before interest, taxes,
depreciation, amortization, and advisory fees. In addition, the Company
reimburses the Investment Manager for the salaries, benefits, and occupancy
costs of employees who perform property management, leasing, property level
accounting, and other operational duties for the Company.
During the three months ended March 31, 1999 and 1998, the Company paid the
Investment Manager fees of approximately $288,000 and $127,000, respectively,
and reimbursed the Investment Manager $162,000 and $27,000 respectively for
salaries, benefits, and occupancy costs.
6. Incentive Share Option Plan
During 1998, the Company granted options to purchase 337,000 common shares to
certain officers, employees, Trust Managers, and the Investment Manager. The
recipients became eligible to exercise 25% of their options each January 1,
beginning in 1999. The exercise price is $10.00 per share, 100% of which may be
borrowed from the Company. The total amount borrowed in 1999 by the recipients
is included in shareholder notes receivable at March 31, 1999. Loans are
repayable over four years and require annual payments of 25% of the initial
principal and interest calculated at the Applicable Federal Rate published by
the IRS. The Applicable Federal Rate as of January 1, 1999 was 4.64%.
With respect to options that became exercisable on January 1, 1999, the Board of
Trust Managers elected to forgive 80% of the borrowed amount. The loan will be
forgiven in equal installments over a four-year period, at the rate of 20% per
year, conditioned upon continued employment by the Company or the Investment
Manager. Included in general and administrative expenses in the first quarter of
1999 is $24,251, which represents the accrual of such loan forgiveness with
respect to loans made to the Company's officers and employees. Included in
advisory fees in the first quarter of 1999 is $16,500, which represents the
accrual of such loan forgiveness with respect to loans made to the Investment
Manager
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the accompanying
condensed consolidated financial statements and notes thereto. Historical
results and trends which might appear should not be taken as indicative of
future operations.
The Company has been operating since 1989 as a Texas REIT engaged in the
acquisition, ownership, management, leasing and redevelopment of community
shopping centers in the Sunbelt region of the United States. The Company focuses
on purchasing properties anchored primarily by supermarkets, drug stores and
major retail tenants located in this region.
The Company owned 26 neighborhood and community shopping centers at March 31,
1999, including one under development. Of the Company's properties, 18 are
located in Texas (including eight in Houston). The remaining properties are
located in Arizona (three), Florida (three), and Tennessee (two). Leases for the
Company's properties range from less than a year for smaller spaces to over 25
years for larger tenants. Leases generally provide for minimum lease payments
plus payments for the tenants' portion of taxes, insurance, and common area
maintenance expenses; some leases also provide for contingent payments based on
a tenant's sales volume. Most of the Company's properties are anchored by
grocery stores, drug stores, or other national or regional credit-worthy
tenants.
<PAGE>
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1999
Net income for the first quarter of 1999 was $1,384,000 ($0.15 per basic and
diluted share) versus a 1998 first quarter net loss of $2,283,000 ($1.01 per
basic and diluted share). Net loss for 1998 included charges of approximately
$2,500,000 for non-recurring write-offs and extraordinary items. In addition,
because the Company completed its IPO late in the first quarter of 1998, the
weighted average number of shares was 2,266,000 versus 1999's weighted average
shares of 9,515,000, making per-share amounts not comparable to 1998's first
quarter.
Of the Company's 26 properties owned as of March 31, 1999, eight, comprising
approximately 30% of the Company's GLA, were owned during the entire first
quarter of both 1998 and 1999. Rental revenue related to these properties was
essentially the same in both periods. However, two tenants filed for Chapter 11
bankruptcy protection in 1999's first quarter, resulting in an increase in bad
debt expense of approximately $150,000. Had the bad debt not otherwise affected
operating results of these properties, earnings before interest, taxes,
depreciation, and amortization ("EBITDA") in the first quarter of 1999 would
have been approximately two percent higher than EBITDA for 1998's first quarter.
With respect to these eight properties, management believes that, under present
business and economic conditions, annual increases in EBITDA of two to three
percent are reasonable expectations. However, events could affect the Company's
ability to achieve such increases, and management is presently considering
several redevelopment and re-tenanting strategies that, if implemented, may have
the short-term effect of reducing rental revenues from these properties.
Substantially all of the increase in total EBITDA in the first quarter of 1999
versus 1998 is a result of operations of the 17 operating properties acquired
since February 1998. Based on the Company's limited operating history with these
properties, and on management's evaluation of present business and economic
conditions, management anticipates annual NOI increases of approximately 2% for
these 17 properties.
General and administrative expenses increased from $168,000 in 1998 to $368,000
in 1999. Of the 1999 total, $150,000 was comprised of salaries and benefits
compared to $27,000 for 1998's first quarter salaries and benefits. The Company
reimburses the Investment Manager for the salaries and benefits of those
employees of the Investment Manager who are responsible for property management,
leasing, and property-level accounting.
Prior to the IPO, all property level accounting, management, and leasing
functions were performed by independent contractors under the supervision of
Company officers. By the end of 1998, the Company had assumed direct
responsibility for all property-level accounting and financial operations, and
had assumed direct responsibility for the leasing and management of its Texas
properties other than those located in the Dallas area. All leasing and
management functions for the Texas properties (about 70% of the Company's
portfolio) will be in-house by the end of 1999's second quarter. As a result of
assuming these responsibilities, additional accounting and property management
employees were hired by the Investment Manager and their costs were charged to
the Company. Management believes the growth in such expenses for the foreseeable
future will be less than that experienced during 1998 and through March 31,
1999, and should decrease as a percentage of revenue from newly acquired
properties.
In March 1999, the Investment Manager began allocating to and charging the
Company occupancy costs related to the additional property operating employees
discussed above. The amount included in the first quarter of 1999 was
approximately $12,000 versus $0 in 1998. Beginning in 1999's second quarter,
such expenses will approximate $40,000 per quarter, and will be adjusted based
primarily upon the number of such employees relative to the total number of
employees of the Investment Manager.
Payments to the Investment Manager in 1999's first quarter were $288,000 versus
$127,000 paid in 1998's first quarter. Advisory fees are calculated based on
6.8% of the Company's earnings before interest, taxes, depreciation,
amortization and advisory fees. In 1999, advisory fees also include
approximately $16,500 related to the forgiveness of debt pursuant to the
Company's 1997 Share Incentive Plan (see note 6 to the accompanying financial
statements).
Interest expense decreased from $3,252,000 in 1998's first quarter to $1,517,000
in 1999. This decrease was the result of the non-recurring write-off in 1998 of
$2,241,000 in bridge financing costs and the increase in the average debt
outstanding between periods, from $27,000,000 for 1998 to $64,000,000 for 1999.
The increase in debt outstanding is primarily a result of expenditures for
acquisitions since December 31, 1997. See note 3 to the accompanying financial
statements and Liquidity and Capital Resources below for a description of the
Company's debt.
Liquidity and Capital Resources
The Company generates sufficient cash from operations to satisfy its operating
costs and expenses, debt service payments, and dividend distribution
requirements. In addition, the Company has a $30,000,000 revolving line of
credit with a bank (approximately $20,000,000 available at March 31, 1999) which
is available for short and medium term cash needs, including for property
acquisitions. The Company also owns several properties that are currently
unencumbered and which are available to serve as first mortgage collateral for
additional short or long term borrowings.
In addition to scheduled monthly debt service payments which will be satisfied
out of operating cash flow, approximately $3,500,000 of balloon payments on
mortgage notes payable comes due in 1999 (all in the second quarter ending June
30). The Company intends to satisfy these maturities with proceeds from a new
mortgage note payable secured by the same property. Although there can be no
certainty as yet of the interest rate on the new mortgage note, the Company's
bankers have indicated they expect that it will not exceed approximately 7.5%
(the maturing notes' interest rates are 10.75%).
At March 31, 1999, the Company's weighted average interest rate on its permanent
mortgage debt was 8.71%. If the Company completes the refinancing of the
above-mentioned maturing debt at an interest rate of 7.5%, the Company's
weighted average interest rate on permanent loans will approximate 8.50%. If the
Company completes the financing transaction described in the next paragraph, its
weighted average interest rate on permanent loans will approximate 8.39%.
The Company is also considering additional mortgage note borrowings of as much
as $10,000,000 in conjunction with the afore-mentioned refinancing. Terms of the
possible borrowings include a fixed rate of interest, presently anticipated not
to exceed 7.5%. The loans will be repayable based on a 25 year amortization
schedule with a balloon payment in 10 years and will be secured by mortgages on
two properties in Texas, one in Arizona, and one in Tennessee. There is no
assurance that the Company will ultimately complete the borrowing.
Cash flows provided by operations for the three months ended March 31, 1999 were
$1,918,000 versus $583,000 for the year earlier period. Substantially all of the
year to year difference is the result of operating income from properties
acquired since December 31, 1997 and the effect of changes in the amounts of and
interest rates on mortgage debt in connection with the acquisitions.
In connection with its intention to continue to qualify as a REIT for Federal
income tax purposes, the Company expects to continue paying regular
distributions to its shareholders. These distributions will be paid from
operating cash flows that are expected to increase due to property acquisitions
and growth in rental revenues in the existing portfolio and from other sources.
Since cash used to pay distributions reduces amounts available for capital
investment, the Company generally intends to maintain a conservative
distribution payout ratio, reserving such amounts as it considers necessary for
the expansion and renovation of shopping centers in its portfolio, debt
reduction, and the acquisition of interests in new properties as suitable
opportunities arise.
It is management's intention that the Company continually have access to the
capital resources necessary to expand and develop its business. Accordingly, the
Company may seek to obtain funds through additional equity offerings or debt
financing in a manner consistent with its intention to operate with a
conservative debt capitalization policy. The Company anticipates that adequate
cash will be available from operations to fund its operating and administrative
expenses, regular debt service obligations and the payment of distributions in
accordance with REIT requirements in both the short-term and long-term.
The Year 2000 Issue
Many computer systems were designed and programmed in such a manner as to be
unable to recognize dates beyond December 31, 1999. In such cases, computer
applications could fail or create erroneous results by or at the year 2000.
Management has completed an evaluation of the risks of a material effect on
UIRT's results of operations and financial condition with respect to its
management information systems and the Year 2000 issue. UIRT uses application
software, including its accounting and property management software, which has
been certified by vendors as being Year 2000-compliant. Accordingly, management
does not believe that UIRT's results of operations or financial condition have
been or will be materially affected by any future costs to make its management
information systems Year 2000-compliant. Additionally, management does not
expect to incur any material costs to correct Year 2000 deficiencies in its
management information systems.
In addition to management information systems, the Year 2000 risks include those
related to "embedded technology," such as micro-controllers, and to the Year
2000 issues of other parties with which UIRT has material relationships. UIRT
has recently completed the process of assessing these risks.
With respect to embedded technology, the assessment process included surveying
each of the properties to determine which systems may be subject to disruptions.
These systems may include climate control, lighting, security, and
telecommunications. Management believes that substantially all such systems, if
not Year 2000-compliant, can be controlled by manual operation and monitoring
for the remainder of their economic lives. Accordingly, management believes UIRT
will not be forced to replace or upgrade non-compliant components (if any) of
such systems and has no present plans for replacement or upgrade. Should such
systems require manual operation and monitoring, UIRT may experience an
immaterial increase in labor costs for its property management operations until
such time as the non-compliant components are replaced in the ordinary course of
business. If incurred, management believes that most of such costs will be
recaptured from tenants through CAM billings.
<PAGE>
Management is not presently aware of any Year 2000 issues related to other
parties that may adversely affect UIRT. Based on the relatively small number of
properties and a low level of reliance on technology for property operations,
revenue collections, and cash disbursements, management believes that
documentation of transactions that might otherwise be disrupted will be
available to recreate transaction records if necessary.
Funds From Operations
Following is a reconciliation of net income to funds from operations and
funds available for distribution.
<TABLE>
<CAPTION>
United Investors Realty Trust
Calculation of Funds From Operations
and Funds Available for Distribution
Three Months Ended
31-Mar-99 31-Mar-98
---------------------------
Funds from operations:
<S> <C> <C>
Net income (loss) $1,383,788 $(2,303,899)
Plus real estate related
depreciation and amortization 1,008,698 410,715
Plus loss on early extinguishment of debt -- 232,532
Plus write-off of unamortized bridge
financing costs -- 2,240,652
Plus minority interest 40,991 --
--------- ----------
Funds from operations $2,433,477 $ 580,000
========= ==========
Funds from operations per share and downReit
unit $ 0.25 $ 0.26
========= ==========
Funds available for distribution:
Funds from operations $2,433,477 $ 580,000
Plus amortization of financing costs 43,731 18,752
Less tenant improvements and leasing
commissions (96,665) (25,497)
Less non-recoverable recurring capital
improvements (41,720) (7,772)
Less straight line rents, net of
$80,000 bad debt write-off in
March 1999 (15,615) (32,131)
Plus forgiveness of option loans 40,751 --
Other 28,676 20,200
--------- ----------
Funds available for distribution $2,392,635 $ 553,552
========= ==========
Funds available for distribution per share
and downReit unit $ 0.24 $ 0.24
========= ==========
Basic and diluted weighted average number of
shares and downReit partnership units 9,796,444 2,266,000
</TABLE>
Note 1-Definitions
The Company considers funds from operations to be an alternate measure of the
performance of an equity REIT since such measure does not recognize depreciation
and amortization of real estate assets as operating expenses. Management
believes that reductions for these charges are not meaningful in evaluating
income-producing real estate, which historically has not depreciated. The
National Association of Real Estate Investment Trusts defines funds from
operations as net income plus depreciation and amortization of real estate
assets, less gains and losses on sales of properties. Funds from operations does
not represent cash flows from operations as defined by generally accepted
accounting principles and should not be considered as an alternative to net
income as an indicator of the Company's operating performance or to cash flows
as a measure of liquidity. Funds from operations increased to $2,433,000 for the
first quarter of 1999, as compared to $580,000 for the same period of 1998. This
increase relates almost totally to the impact of the Company's acquisitions
since December 31, 1997.
Funds available for distribution is FFO adjusted for the cash effects of certain
transactions. In accordance with generally accepted accounting principles, the
Company capitalizes and depreciates or amortizes over various useful lives
expenditures for tenant improvements, leasing commissions, and recurring
improvements to fixed assets. To the extent these amounts do not improve the
value of the real estate or are not recoverable as additional rent, the Company
believes that FFO as a measure of performance is more meaningful if it is
adjusted for these amounts. In addition, adjustments are made for non-cash
charges related to the forgiveness by the Company of loans made to facilitate
the exercise of options, and for cash receipts from the seller of one of the
Company's shopping centers.
PART II - Other Information
Item 1 - Legal Proceedings - None
Item 2 - Changes in Securities - None
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
Item 4. Submisson of Matters to a Vote of Security Holders-None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Company's Current Report on Form 8-K dated January 15, 1999 for the purpose
of reporting the acquisition of the Dallas Portfolio.
The Company's Current Report on Form 8-K/A dated March 16, 1999 for the purpose
of providing financial statements and pro forma financial information with
respect to the acquisition of the Dallas Portfolio.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED INVESTORS REALTY TRUST
Dated: May 6, 1999 /s/ R. Steven Hamner
----------------------------
R. Steven Hamner,
Vice President,Chief Financial Officer
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