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 0-17645
UNITED INVESTORS GROWTH PROPERTIES
(Exact name of small business issuer as specified in its charter)
Missouri 43-1483928
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2000
Assets
Cash and cash equivalents $ 852
Receivables and deposits 100
Restricted escrows 104
Other assets 298
Investment properties:
Land $ 1,480
Buildings and related personal property 14,462
15,942
Less accumulated depreciation (5,471) 10,471
$11,825
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 142
Tenant security deposit liabilities 79
Accrued property taxes 22
Other liabilities 118
Mortgage notes payable 10,682
Partners' Capital
General partner $ 3
Limited partners (39,287 units
issued and outstanding) 779 782
$11,825
See Accompanying Notes to Consolidated Financial Statements
b)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
2000 1999
Revenues: (Restated)
Rental income $ 647 $ 615
Other income 46 31
Total revenues 693 646
Expenses:
Operating 287 282
General and administrative 35 33
Depreciation 167 141
Interest 197 212
Property taxes 52 60
Total expenses 738 728
Loss before cumulative effect of a change in accounting
principle (45) (82)
Cumulative effect on prior years of a change in
accounting for the cost of exterior painting and
major landscaping -- 96
Net (loss) income $ (45) $ 14
Net (loss) income allocated to general partner (1%) $ -- $ --
Net (loss) income allocated to limited partners (99%) (45) 14
$ (45) $ 14
Per limited partnership unit:
Loss before cumulative effect of a change in
accounting principle $(1.15) $(2.06)
Cumulative effect on prior years of a change in
accounting principle for the cost of exterior
painting and major landscaping -- 2.42
Net (loss) income $(1.15) $ 0.36
See Accompanying Notes to Consolidated Financial Statements
c)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 39,297 $ -- $ 9,824 $9,824
Partners' capital at
December 31, 1999 39,287 $ 3 $ 824 $ 827
Net loss for the three months
ended March 31, 2000 -- -- (45) (45)
Partners' capital at
March 31, 2000 39,287 $ 3 $ 779 $ 782
See Accompanying Notes to Consolidated Financial Statements
d)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2000 1999
(Restated)
Cash flows from operating activities:
Net (loss) income $ (45) $ 14
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation 167 141
Amortization of loan costs 6 6
Cumulative effect on prior years of a change in
accounting principle -- (96)
Change in accounts:
Receivables and deposits 157 20
Other assets (31) 26
Accounts payable (19) (1)
Tenant security deposit liabilities 3 4
Accrued property taxes (25) (4)
Other liabilities (52) (35)
Net cash provided by operating activities 161 75
Cash flows from investing activities:
Property improvements and replacements (68) (34)
Net withdrawals from (deposits to) restricted escrows 28 (52)
Net cash used in investing activities (40) (86)
Cash flows from financing activities:
Payments on mortgage note payable (43) (32)
Payoff of mortgage note payable -- (2,397)
Proceeds from debt refinancing -- 3,500
Loan costs paid -- (169)
Net cash (used in) provided by financing
activities (43) 902
Net increase in cash and cash equivalents 78 891
Cash and cash equivalents at beginning of period 774 693
Cash and cash equivalents at end of period $ 852 $ 1,584
Supplemental disclosure of cash flow information:
Cash paid for interest $ 192 $ 223
See Accompanying Notes to Consolidated Financial Statements
e)
UNITED INVESTORS GROWTH PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of United Investors
Growth 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-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., a
Delaware corporation (the "General Partner"), 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 three 100% owned limited liability companies, Terrace
Royale, L.L.C., Cheyenne Woods United Investors, L.L.C. and Deerfield
Apartments, L.L.C. Although legal ownership of the respective assets remains
with these entities, the Partnership retains all economic benefits from the
properties. As a result, the Partnership consolidates its interest in these
three entities, whereby all accounts are included in the consolidated financial
statements of the Partnership with all inter-entity accounts being eliminated.
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 $7,000 ($0.18 per limited partnership
unit). The cumulative effect adjustment of approximately $96,000 ($2.42 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 principle 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.
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 (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership. The following payments were made to the General
Partner and affiliates during the three month periods ended March 31, 2000 and
1999:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $ 36 $ 33
Reimbursement for services of affiliates (included in
general and administrative expenses) 13 13
During the three months ended March 31, 2000 and 1999, affiliates of the General
Partner were entitled to receive 5% of gross receipts from all of the
Registrant's residential properties as compensation for providing property
management services. The Registrant paid to such affiliates approximately
$36,000 and $33,000 for the three months ended March 31, 2000 and 1999,
respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $13,000 for both of the three
month periods ended March 31, 2000 and 1999.
AIMCO and its affiliates currently own 10,095 limited partnership units in the
Partnership representing 25.696% 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 - Refinancing
On January 29, 1999, the Partnership refinanced the mortgage encumbering Terrace
Royale Apartments. The refinancing replaced indebtedness of approximately
$2,397,000 with a new mortgage in the amount of $3,500,000 at an interest rate
of 6.51%. The interest rate on the old mortgage was 13.5%, under the forbearance
agreement in effect at the time of the refinancing. Payments are due on the
first day of each month until the loan matures on February 1, 2019. At March 31,
1999, total capitalized loan costs were approximately $169,000.
Note E - Segment Reporting
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of three apartment complexes
one in each of Bothell, Washington; North Las Vegas, Nevada and Memphis,
Tennessee. 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 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 the
reportable segment.
2000 Residential Other Totals
Rental income $ 647 $ -- $ 647
Other income 40 6 46
Interest expense 197 -- 197
Depreciation 167 -- 167
General and administrative expense -- 35 35
Segment loss (16) (29) (45)
Total assets 11,212 613 11,825
Capital expenditures for investment
properties 68 -- 68
1999 Residential Other Totals
(Restated)
Rental income $ 615 $ -- $ 615
Other income 24 7 31
Interest expense 212 -- 212
Depreciation 141 -- 141
General and administrative expense -- 33 33
Cumulative effect on prior years of change in
accounting principle 96 -- 96
Segment profit (loss) 40 (26) 14
Total assets 11,415 1,498 12,913
Capital expenditures for investment
properties 34 -- 34
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 three 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
Terrace Royale Apartments 93% 97%
Bothell, Washington
Cheyenne Woods Apartments 93% 90%
North Las Vegas, Nevada
Deerfield Apartments 96% 95%
Memphis, Tennessee
The General Partner attributes the decrease in occupancy at Terrace Royale to
construction of new apartment complexes in the Bothell, Washington area which
are offering concessions and significant move in incentives. The increase in
occupancy at Cheyenne Woods is due to increased marketing and advertising and
the implementation of a resident referral program.
Results of Operations
The Registrant's net loss for the three months ended March 31, 2000 was
approximately $45,000 compared to net income, as restated, of approximately
$14,000 for the three months ended March 31, 1999. The increase in net loss for
the three month period ended March 31, 2000, is due primarily to a cumulative
effect on prior years of a change in accounting principle in the amount of
approximately $96,000 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 a loss of approximately $45,000 for the three
months ended March 31, 2000, compared to a loss of approximately $82,000 for the
three months ended March 31, 1999. The decrease in net loss was primarily due to
an increase in total revenues, which was partially offset by an increase in
total expenses.
Total revenues increased for the three months ended March 31, 2000 due to an
increase in rental income and other income. Rental income increased due to
increased average rental rates at all of the Partnership's properties, increased
occupancy at Cheyenne Woods and Deerfield, and decreased bad debt expenses at
Cheyenne Woods partially offset by decreased occupancy at Terrace Royale. Other
income increased due to increased utility income at Terrace Royale and increased
lease cancellation fees at Terrace Royale and Cheyenne Woods.
Total expenses increased for the three months ended March 31, 2000 due to an
increase in depreciation expense which was partially offset by a decrease in
interest expense. Depreciation expense increased due to capital improvements
that are now being depreciated. The decrease in interest expense is due to the
fact that no additional interest was incurred during 2000 as was during 1999 at
Terrace Royale during the forbearance period associated with the previous
mortgage as discussed below. During the forbearance period, the interest rate
was increased by the lender to 13.50%.
General and administrative expense remained stable over the comparable periods.
Included in general and administrative expenses at both March 31, 2000 and 1999,
are management reimbursements to the General Partner allowed under the
Partnership Agreement. 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 $7,000 ($0.18 per limited partnership
unit). The cumulative effect adjustment of approximately $96,000 ($2.42 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 principle 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 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, 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
$852,000 as compared to approximately $1,584,000 at March 31, 1999. The increase
in cash and cash equivalents of approximately $78,000 from the Registrant's year
ended December 31, 1999, is due to approximately $161,000 of cash provided by
operating activities, which is partially offset by approximately $43,000 of cash
used in financing activities and by approximately $40,000 of cash used in
investing activities. Cash used in investing activities consisted of property
improvements and replacements which was partially offset by net withdrawals from
escrow accounts maintained by the mortgage lender. Cash used in financing
activities consisted of payments of principal made on the mortgages encumbering
the Registrant's properties. The Partnership invests its working capital
reserves in money market accounts.
On January 29, 1999, the Partnership refinanced the mortgage encumbering Terrace
Royale Apartments. The refinancing replaced indebtedness of approximately
$2,397,000 with a new mortgage in the amount of $3,500,000 at an interest rate
of 6.51%. The interest rate on the old mortgage was 13.5%, under the forbearance
agreement in effect at the time of the refinancing. Payments are due on the
first day of each month until the loan matures on February 1, 2019. At March 31,
1999, total capitalized loan costs were approximately $169,000.
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.
Terrace Royale Apartments
During the three months ended March 31, 2000, the Partnership completed
approximately $9,000 of capital improvements at Terrace Royale Apartments
consisting primarily of carpet and vinyl replacements, recreation facility
upgrades, and appliances. These improvements were funded from cash flow from
operations. The Partnership has evaluated the capital improvement needs of the
property for the year. The amount budgeted is approximately $43,000, consisting
primarily of carpet and vinyl replacements and plumbing improvements. 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.
Cheyenne Woods Apartments
During the three months ended March 31, 2000, the Partnership completed
approximately $17,000 of capital improvements at Cheyenne Woods Apartments,
consisting primarily of carpet and vinyl replacements and appliances. These
improvements were funded from cash flow from operations. The Partnership has
evaluated the capital improvement needs of the property for the year. The amount
budgeted is approximately $97,000, consisting primarily of submetering
improvements, carpet and vinyl replacements and appliances. 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.
Deerfield Apartments
During the three months ended March 31, 2000, the Partnership completed
approximately $42,000 of capital improvements at Deerfield Apartments consisting
primarily of plumbing upgrades, carpet and vinyl replacements, building
improvements, and appliances. These improvements were funded from the property's
replacement reserves. The Partnership has evaluated the capital improvement
needs of the property for the year. The amount budgeted is approximately
$77,000, consisting primarily of air conditioning unit replacement, appliances,
and carpet and vinyl replacements. 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 Partnership's current assets are thought to be sufficient for any near term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $10,682,000 has maturity dates ranging from 2004
to 2019 with balloon payments due at maturity for the mortgages encumbering
Cheyenne Woods and Deerfield. The General Partner will attempt to refinance such
indebtedness and/or sell the properties prior to such maturity dates. If the
properties cannot be refinanced and/or sold for a sufficient amount, the
Partnership may risk losing such properties through foreclosure.
No distributions were made during the three month periods ended March 31, 2000
and 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 Registrant will generate sufficient funds from operations
after required capital expenditures to permit any distributions to its partners
in 2000 or subsequent periods.
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.
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
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: