UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2010
or
[ ] 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 0-17646
UNITED INVESTORS INCOME PROPERTIES
(Exact name of registrant as specified in its charter)
Missouri | 43-1483942 |
(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
(Registrant's telephone number, including area code)
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.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED INVESTORS INCOME PROPERTIES
BALANCE SHEETS
(in thousands, except unit data)
| June 30, | December 31, | |
| 2010 | 2009 | |
| (Unaudited) | (Note) | |
Assets | | |
Cash and cash equivalents | $ 109 | $ 59 |
Receivables and deposits | 7 | 8 |
Other assets | 11 | 6 |
Investment property: | | |
Land | 520 | 520 |
Buildings and related personal property | 3,621 | 3,606 |
| 4,141 | 4,126 |
Less accumulated depreciation | (2,399) | (2,316) |
| 1,742 | 1,810 |
| $ 1,869 | $ 1,883 |
Liabilities and Partners' Capital | | |
Liabilities | | |
Accounts payable | $ 19 | $ 6 |
Tenant security deposit liabilities | 11 | 11 |
Accrued property taxes | 41 | 8 |
Other liabilities | 25 | 45 |
Due to affiliates (Note B) | -- | 20 |
| 96 | 90 |
| | |
Partners' Capital | | |
General partner | 10 | 10 |
Limited partners (61,063 units issued and | | |
outstanding) | 1,763 | 1,783 |
| 1,773 | 1,793 |
| $ 1,869 | $ 1,883 |
Note: The balance sheet at December 31, 2009 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.
See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
| Three Months Ended | Six Months Ended |
| June 30, | June 30, |
| 2010 | 2009 | 2010 | 2009 |
Revenues: | | | | |
Rental income | $ 124 | $ 130 | $ 252 | $ 267 |
Other income | 13 | 14 | 33 | 25 |
Total revenues | 137 | 144 | 285 | 292 |
| | | | |
Expenses: | | | | |
Operating | 82 | 124 | 153 | 210 |
General and administrative | 19 | 19 | 35 | 41 |
Depreciation | 42 | 41 | 83 | 81 |
Property taxes | 17 | 16 | 34 | 32 |
Total expenses | 160 | 200 | 305 | 364 |
| | | | |
Loss from continuing operations | (23) | (56) | (20) | (72) |
| | | | |
Loss from sale of discontinued | | | | |
operations (Note C) | -- | -- | -- | (34) |
Net loss | $ (23) | $ (56) | $ (20) | $ (106) |
| | | | |
Net loss allocated to general partner (1%) | $ -- | $ (1) | $ -- | $ (1) |
Net loss allocated to limited partners (99%) | (23) | (55) | (20) | (105) |
| $ (23) | $ (56) | $ (20) | $ (106) |
| | | | |
Per limited partnership unit: | | | | |
Loss from continuing operations | $(0.38) | $(0.90) | $(0.33) | $(1.16) |
Loss from sale of discontinued operations | -- | -- | -- | (0.56) |
Net loss | $(0.38) | $(0.90) | $(0.33) | $(1.72) |
| | | | |
Distributions per limited partnership unit | $ -- | $ -- | $ -- | $60.89 |
See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
(in thousands, except unit data)
| Limited | | |
| Partnership | General | Limited | |
| Units | Partner | Partners | Total |
| | | | |
Original capital contributions | 61,063 | $ -- | $15,266 | $15,266 |
| | | | |
Partners' capital | | | | |
at December 31, 2009 | 61,063 | $ 10 | $ 1,783 | $ 1,793 |
| | | | |
Net loss for the six months | | | | |
ended June 30, 2010 | -- | -- | (20) | (20) |
| | | | |
Partners' capital | | | | |
at June 30, 2010 | 61,063 | $ 10 | $ 1,763 | $ 1,773 |
See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| Six Months Ended |
| June 30, |
| 2010 | 2009 |
Cash flows from operating activities: | | |
Net loss | $ (20) | $ (106) |
Adjustments to reconcile net loss to net cash provided | | |
by operating activities: | | |
Depreciation | 83 | 81 |
Loss from sale of discontinued operations | -- | 34 |
Change in accounts: | | |
Receivables and deposits | 1 | 117 |
Other assets | (5) | (3) |
Accounts payable | 13 | (14) |
Tenant security deposit liabilities | -- | 1 |
Accrued property taxes | 33 | 34 |
Other liabilities | (20) | (60) |
Net cash provided by operating activities | 85 | 84 |
| | |
Cash flows used in investing activities: | | |
Property improvements and replacements | (15) | (58) |
| | |
Cash flows from financing activities: | | |
Distributions to partners | -- | (3,756) |
Advances from affiliate | -- | 28 |
Repayment of advances from affiliate | (20) | (28) |
Net cash used in financing activities | (20) | (3,756) |
| | |
Net increase (decrease) in cash and cash equivalents | 50 | (3,730) |
| | |
Cash and cash equivalents at beginning of period | 59 | 3,804 |
| | |
Cash and cash equivalents at end of period | $ 109 | $ 74 |
See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A – Basis of Presentation
The accompanying unaudited financial statements of United Investors Income Properties (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-Q and Article 8-03 of Regulation S-X. 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 the Partnership’s general partner, United Investors Real Estate, Inc. (the “General Partner” or “UIRE”), a Delaware corporation and a subsidiary of Apartment Investment and Management Company (“AIMCO”), a publicly traded real estate investment trust, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2010. For further information, refer to the financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
The Partnership’s management evaluated subsequent events through the time this Quarterly Report on Form 10-Q was filed.
Investment Property
On June 15, 2010, the Partnership entered into a sale contract with a third party relating to the sale of Defoors Crossing Apartments, which is projected to close during the third quarter of 2010 for approximately $3,000,000. The Partnership has determined that certain held for sale criteria have not been met at June 30, 2010 and therefore continues to report the assets and liabilities of the investment property as held for investment and its respective operations as continuing operations.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and depends 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 services and for reimbursement of certain expenses incurred by affiliates on behalf of the Partnership.
Affiliates of the General Partner receive 5% of gross receipts from the Partnership's property as compensation for providing property management services. The Partnership paid to such affiliates approximately $14,000 and $15,000 for the six months ended June 30, 2010 and 2009, respectively, which are included in operating expenses.
An affiliate of the General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $5,000 for each of the six months ended June 30, 2010 and 2009, which is included in general and administrative expenses.
In accordance with the Partnership Agreement, during the second and fourth quarters of 2009, AIMCO Properties, L.P., an affiliate of the General Partner, advanced approximately $28,000 and $20,000, respectively, to the Partnership to fund operating expenses and capital improvements. No such amounts were advanced during the six months ended June 30, 2010. The interest rates charged on the outstanding advances made to the Partnership were based on the prime rate plus a market rate adjustment for similar type loans. Affiliates of the General Partner review themarket rate adjustment quarterly. Interest on advances was less than $1,000 for each of the six months ended June 30, 2010 and 2009. At December 31, 2009, the amount of the outstanding advances and accrued interest was approximately $20,000 and is included in due to affiliates. During the six months ended June 30, 2010 and 2009, the Partnership made payments on the outstanding advances and accrued interest of approximately $20,000 and $28,000, respectively, with cash from operations. At June 30, 2010, there were no advances or associated accrued interest due to AIMCO Properties, L.P. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances. For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.
The Partnership insures its property up to certain limits through coverage provided by AIMCO, which is generally self-insured for a portion of losses and liabilities related to workers’ compensation, property casualty, general liability and vehicle liability. The Partnership insures its property above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the six months ended June 30, 2010, the Partnership was charged by AIMCO and its affiliates approximately $7,000 for insurance coverage and fees associated with policy claims administration. Additional charges will be incurred by the Partnership during 2010 as other insurance policies renew later in the year. The Partnership was charged by AIMCO and its affiliates approximately $8,000 for insurance coverage and fees associated with policy claims administration during the year ended December 31, 2009.
Note C – Disposition of Investment Property
On December 30, 2008, the Partnership sold Bronson Place Apartments to a third party for a gross sale price of approximately $7,400,000. The net proceeds realized by the Partnership were approximately $7,136,000 after payment of closing costs. The Partnership used approximately $3,451,000 of the net proceeds to repay the mortgage encumbering the property. As a result of the sale, the Partnership realized a gain of approximately $5,038,000 during 2008. In addition, the Partnership recorded a loss on early extinguishment of debt of approximately $39,000 during 2008, due to the write-off of unamortized loan costs. During the six months ended June 30, 2009, the Partnership recognized a loss from sale of discontinued operations of approximately $34,000. This loss is a result of additional costs incurred related to the sale of Bronson Place Apartments during the six months ended June 30, 2009.
Note D – Fair Value of Financial Instruments
FASB ASC Topic 825, “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 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. At June 30, 2010, the Partnership believes that the carrying amount of its financial instruments approximated their fair value due to the short-term maturity of these instruments.
Note E - Contingencies
As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”). The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company (“the Defendants”) failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”). In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions. In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs andestablished a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel. As a result, the lawsuits asserted in the 22 Federal courts have been dismissed. During the fourth quarter of 2008, the settlement amounts for alleged unpaid overtime to employees were paid by those partnerships where the respective employees had worked. The Partnership was not required to pay any settlement amounts. At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. Pursuant to the global settlement agreement, the parties selected six test “on-call” cases to be arbitrated. The parties arbitrated four “on-call” claims and obtained defense verdicts on all four. Two additional “on-call” claims were dismissed with prejudice. The process now calls for the parties to attempt to mediate the remaining “on-call” claims and plaintiffs’ attorneys’ fees. Such mediation has not yet been scheduled. The General Partner is uncertain as to the amount of any loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any loss will occur or a potential range of loss.
The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment property that are not of a routine nature arising in the ordinary course of business.
Environmental
Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property, including lead-based paint. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of its property, the Partnership could potentially be liable for environmental liabilities or costs associated with its property.
Mold
The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the General Partner have implemented policies, procedures, third-party audits and training and the General Partner believes that these measures will prevent or eliminate mold exposure and will minimize the effects that mold may have on residents. To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership’s financial condition or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Quarterly Report contains or may contain information that is forward-looking within the meaning of the federal securities laws, including, without limitation, statements regarding the effect of redevelopments, the Partnership’s future financial performance, including the Partnership’s ability to maintain current or meet projected occupancy and rent levels, and the effect of government regulations. Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors some of which are beyond the Partnership’s control including, without limitation: financing risks, including the availability and cost of financing and the risk that the Partnership’s cash flows from operations may be insufficient to meet required payments of principal and interest; natural disasters and severe weather such as hurricanes; national and local economic conditions; the general level of interest rates; energy costs; the terms of governmental regulations that affect the Partnership’s property and interpretations of those regulations; the competitive environment in which the Partnership operates; real estate risks, including fluctuations inreal estate values and the general economic climate in local markets and competition for residents in such markets; insurance risk, including the cost of insurance; development risks; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by the Partnership. Readers should carefully review the Partnership’s financial statements, the notes thereto, as well as the other documents the Partnership files from time to time with the Securities and Exchange Commission.
The Partnership's investment property consists of one apartment complex. The following table sets forth the average occupancy of the property for each of the six months ended June 30, 2010 and 2009:
| Average Occupancy |
Property | 2010 | 2009 |
| | |
Defoors Crossing Apartments | 97% | 93% |
Atlanta, Georgia | | |
The General Partner attributes the increase in occupancy at Defoors Crossing Apartments to a decrease in rental rates and fewer job transfers in the local area.
The Partnership’s financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment property, costs incurred to operate the investment property, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment property to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. 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, the General Partner may use rental concessions and rental rate reductions to offset softening market conditions; accordingly, there is no guarantee that the General Partner will be able to sustain such a plan. Further, a number of factors which are outside the control of the Partnership such as the local economic climate and weather can adversely or positively affect the Partnership’s financial results.
Results of Operations
The Partnership’s net loss for the three and six months ended June 30, 2010 was approximately $23,000 and $20,000, respectively, compared to a net loss ofapproximately $56,000 and $106,000 for the three and six months ended June 30, 2009, respectively.
On December 30, 2008, the Partnership sold Bronson Place Apartments to a third party for a gross sale price of approximately $7,400,000. The net proceeds realized by the Partnership were approximately $7,136,000 after payment of closing costs. The Partnership used approximately $3,451,000 of the net proceeds to repay the mortgage encumbering the property. As a result of the sale, the Partnership realized a gain of approximately $5,038,000 during 2008. In addition, the Partnership recorded a loss on early extinguishment of debt of approximately $39,000 during 2008 due to the write-off of unamortized loan costs. During the six months ended June 30, 2009, the Partnership recognized a loss from sale of discontinued operations of approximately $34,000. This loss is a result of additional costs incurred related to the sale of Bronson Place Apartments during the six months ended June 30, 2009.
On June 15, 2010, the Partnership entered into a sale contract with a third party relating to the sale of Defoors Crossing Apartments, which is projected to close during the third quarter of 2010 for approximately $3,000,000. The Partnership has determined that certain held for sale criteria have not been met at June 30, 2010 and therefore continues to report the assets and liabilities of the investment property as held for investment and its respective operations as continuing operations.
The Partnership’s loss from continuing operations for the three and six months ended June 30, 2010 was approximately $23,000 and $20,000, respectively, compared to loss from continuing operations of approximately $56,000 and $72,000 for the three and six months ended June 30, 2009, respectively. The decrease in loss from continuing operations for both periods is due to a decrease in total expenses, partially offset by a decrease in total revenues.
Total expenses decreased for the three and six months ended June 30, 2010 primarily due to a decrease in operating expense. Total expenses also decreased for the six months ended June 30, 2010 due to a decrease in general and administrative expenses. General and administrative expenses remained relatively constant for the three months ended June 30, 2010. Depreciation and property tax expenses remained relatively constant for the three and six months ended June 30, 2010. Operating expense decreased for both the three and six months ended June 30, 2010 due to a decrease in utility costs, costs recognized in 2009 associated with testing for contaminants which had leaked onto the property and expenses incurred in 2009 related to a mortgage loan application, which was later withdrawn. A partial refund of the loan application expenses was received during the first quarter of 2010 and is included in other income (as discussed below). During 2008, the General Partner learned that the property at Defoors Crossing Apartments had been impacted by the use of dry cleaning solvents at an adjacent dry cleaning business. During 2009, the General Partner conducted indoor air quality testing and groundwater testing at the property, and submitted the results to the state of Georgia. On March 23, 2010 the state provided a written response to theGeneral Partner's notification regarding groundwater testing, stating that it has no reason to believe that a release exceeding a reportable quantity has occurred at this property, and concluding that based on the notification, the property would not be placed on the state's Hazardous Site Inventory.
The decrease in general and administrative expense for the six months ended June 30, 2010 is due to a decrease in the costs associated with the annual audit and tax return required by the Partnership Agreement. Also included in general and administrative expenses for the three and six months ended June 30, 2010 and 2009 are reimbursements to the General Partner as allowed under the Partnership Agreement and costs associated with the quarterly and annual communications with investors and regulatory agencies.
Total revenues decreased for the three and six months ended June 30, 2010 primarily due to a decrease in rental income. The decrease in total revenues for the six months ended June 30, 2010 was partially offset by an increase in other income. Other income remained relatively constant for the three months ended June 30, 2010.Rental income decreased for both the three and six months ended June 30, 2010 due to a decrease in the average rental rate, partially offset by an increase in occupancy at the Partnership’s investment property. Other income increased for the six months ended June 30, 2010 as a result of receiving a partial refund during the first quarter of 2010 related to costs incurred during 2009 associated with a potential loan application which was later withdrawn.
Liquidity and Capital Resources
At June 30, 2010, the Partnership had cash and cash equivalents of approximately $109,000 compared to approximately $59,000 at December 31, 2009. Cash and cash equivalents increased approximately $50,000 due to approximately $85,000 of cash provided by operating activities, partially offset by approximately $15,000 and $20,000 of cash used in investing and financing activities, respectively. Cash used in investing activities consisted of property improvements and replacements. Cash used in financing activities consisted of repayment of advances from an affiliate.
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 property to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements. The General Partner monitors developments in the area of legal and regulatory compliance. Capital improvements planned for the Partnership's property are detailed below.
During the six months ended June 30, 2010, the Partnership completed approximately $15,000 of capital improvements at Defoors Crossing Apartments, consisting primarily of appliance and floor covering replacements. These improvements were funded from operations. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine expenditures are anticipated during the remainder of 2010. Such capital expenditures will depend on the physical condition of the property as well as the anticipated cash flow generated by the property.
Capital expenditures will be incurred only if cash is available from operations, Partnership reserves or advances from AIMCO Properties, L.P., although AIMCO Properties, L.P. is not obligated to fund such advances. To the extent that capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term.
In accordance with the Partnership Agreement, during the second and fourth quarters of 2009, AIMCO Properties, L.P., an affiliate of the General Partner, advanced approximately $28,000 and $20,000, respectively, to the Partnership to fund operating expenses and capital improvements. No such amounts were advanced during the six months ended June 30, 2010. The interest rates charged on the outstanding advances made to the Partnership were based on the prime rate plus a market rate adjustment for similar type loans. Affiliates of the General Partner review the market rate adjustment quarterly. Interest on advances was less than $1,000 for each of the six months ended June 30, 2010 and 2009. At December 31, 2009, the amount of the outstanding advances and accrued interest was approximately $20,000 and is included in due to affiliates. During the six months ended June 30, 2010 and 2009, the Partnership made payments on the outstanding advances and accrued interest of approximately $20,000 and $28,000, respectively, with cash from operations. At June 30, 2010, there were no advances or associated accrued interest due to AIMCO Properties, L.P. The Partnership may receive additional advances of funds from AIMCO Properties, L.P. although AIMCO Properties, L.P. is not obligated to provide such advances. For more information on AIMCO Properties, L.P., including copies of its audited balance sheet, please see its reports filed with the Securities and Exchange Commission.
The Partnership’s assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Partnership.
The Partnership distributed the following amounts during the six months ended June 30, 2010 and 2009 (in thousands, except per unit data):
| Six Months | Per Limited | Six Months | Per Limited |
| Ended | Partnership | Ended | Partnership |
| June 30, 2010 | Unit | June 30, 2009 | Unit |
| | | | |
Sale (1) | $ -- | $ -- | $ 3,685 | $ 59.74 |
Financing (2) | -- | -- | 71 | 1.15 |
| $ -- | $ -- | $ 3,756 | $ 60.89 |
(1) Proceeds from the December 2008 sale of Bronson Place Apartments.
(2) Proceeds from the September 2007 refinancing of the mortgage encumbering Bronson Place Apartments.
Future cash distributions will depend on the levels of cash generated from operations, property sale and/or financings. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after capital improvements to permit any distributions to its partners during 2010 or subsequent periods.
Other
In addition to its indirect ownership of the sole general partner of the Partnership, AIMCO and its affiliates owned 24,498 limited partnership units (the "Units") in the Partnership representing 40.12% of the outstanding Units at June 30, 2010. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. AIMCO or its affiliates may acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 40.12% of the outstanding Units at June 30, 2010, AIMCO and its affiliates are in a position to influence all such voting decisions with respect to the Partnership. Although the General Partner owes fiduciary duties to the limited partners of the Partnership, the General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the General Partner, as general partner, to the Partnership and its limited partners may come into conflict with the duties of the General Partner to AIMCO as its sole stockholder.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles generally accepted in the United States which require the Partnership to make estimates and assumptions. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity.
Impairment of Long-Lived Asset
Investment property is recorded at cost, less accumulated depreciation, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of the property may not be recoverable, the Partnership will make an assessment of its recoverability by comparing the carrying amount to the Partnership’s estimate of the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the estimated aggregate undiscounted future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.
Real property investment is subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership’s investment property. These factors include, but are not limited to, general economic climate; competition from other apartment communities and other housing options; local conditions, such as loss of jobs or an increase in the supply of apartments that might adversely affect apartment occupancy or rental rates; changes in governmental regulations and the related cost of compliance; increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents; changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multi-family housing; and changes in interest rates and the availability of financing. Any adverse changes in these and other factors could cause an impairment of the Partnership’s asset.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants.
Assets Held for Sale
The Partnership classifies long-lived assets as held for sale in the period in which all of the following criteria are met: management, having the authority to approve the action, commits to a plan to sell the asset; the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets; an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated; the sale of the asset is probable, and transfer of the asset is expected to qualify for recognition as a completed sale, within one year; the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Depreciation is not recorded during the period in which the long-lived asset is classified as held for sale. When the asset is designated as held for sale, the related results of operations are presented as discontinued operations.
ITEM 4T. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures.
The Partnership’s management, with the participation of the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the General Partner, who are the equivalent of the Partnership’s principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership’s disclosure controls and procedures are effective.
(b) Changes in Internal Control Over Financial Reporting.
There has been no change in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that has materially affected,or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As previously disclosed, AIMCO Properties, L.P. and NHP Management Company, both affiliates of the General Partner, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”). The plaintiffs also contended that AIMCO Properties, L.P. and NHP Management Company (“the Defendants”) failed to compensate maintenance workers for time that they were required to be "on-call" (“on-call claims”). In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 jurisdictions. In the second quarter of 2008, AIMCO Properties, L.P. settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel. As a result, the lawsuits asserted in the 22 Federal courts have been dismissed. During the fourth quarter of 2008, the settlement amounts for alleged unpaid overtime to employees were paid by those partnerships where the respective employees had worked. The Partnership was not required to pay any settlement amounts. At this time, the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel are not resolved. Pursuant to the global settlement agreement, the parties selected six test “on-call” cases to be arbitrated. The parties arbitrated four “on-call” claims and obtained defense verdicts on all four. Two additional “on-call” claims were dismissed with prejudice. The process now calls for the parties to attempt to mediate the remaining “on-call” claims and plaintiffs’ attorneys’ fees. Such mediation has not yet been scheduled. The General Partner is uncertain as to the amount of any loss that may be allocable to the Partnership. Therefore, the Partnership cannot estimate whether any loss will occur or a potential range of loss.
ITEM 6. EXHIBITS
See Exhibit Index.
The agreements included as exhibits to this Form 10-Q contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
- should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
- have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
- may apply standards of materiality in a way that is different from what may be viewed as material to an investor; and
- were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. The Partnership acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Form 10-Q not misleading. Additionalinformation about the Partnership may be found elsewhere in this Form 10-Q and the Partnership’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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 INCOME PROPERTIES |
| |
| By: United Investors Real Estate, Inc. |
| General Partner |
| |
Date: August 11, 2010 | By: /s/Steven D. Cordes |
| Steven D. Cordes |
| Senior Vice President |
| |
Date: August 11, 2010 | By: /s/Stephen B. Waters |
| Stephen B. Waters |
| Senior Director of Partnership Accounting |
UNITED INVESTORS INCOME PROPERTIES |
|
INDEX TO EXHIBITS |
Exhibit Description
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 Partnership's Amendment to Registration Statement (File No. 33-20350) previously filed on May 2, 1988.
1.1 Amendment to Dealer Manager Agreement; incorporated by reference to Exhibit 1.1 to Post-Effective Amendment No. 2 to Partnership's Registration Statement previously filed on March 21, 1989.
4.1 Form of Subscription Agreement; incorporated by reference as part of the Prospectus of Partnership contained in Partnership's Amendment to Registration Statement previously filed on May 2, 1988.
4.2 Form of Agreement of Limited Partnership of Partnership; incorporated by reference as part of the Prospectus of Partnership contained in Partnership's Amendment to Registration Statement previously filed on May 2, 1988.
4.3 Tenth Amendment to Agreement of Limited Partnership of Partnership; incorporated by reference to Exhibit 4.3 to Partnership's Quarterly Report on Form 10-Q previously filed on May 15, 1989.
4.4 Certificate of Limited Partnership (Exhibit 3 to Partnership's Current Report on Form 8-K filed on April 29, 1991, is incorporated herein by reference).
4.5 Amendment to Agreement of Limited Partnership effective March 28, 2005; incorporated by reference to Exhibit 4.5 to Partnership’s Quarterly Report on Form 10-QSB filed on May 13, 2005.
10.3 Agreement of Purchase and Sale, dated October 20, 1988, between United Investors Real Estate, Inc., as purchaser, and Defoors Crossing Associates, Ltd., as seller, relating to Defoors Crossing Apartments, and amendments thereto; incorporated by reference to the Post-Effective Amendment No.1 to Partnership's Registration Statement previously filed on February 1, 1989.
10.8 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 the Partnership's Current Report on Form 8-K previously filed on December 31, 1992.
10.28 Purchase and Sale Contract between United Investors Income Properties, a Missouri limited partnership and Wyatt & Knox Investments, LLC, a Georgia limited liability company, dated June 15, 2010, incorporated by reference to the Partnership’s Current Report on Form 8-K dated June 15, 2010.
31.1 Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the equivalent of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
