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 September 30, 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)
September 30, 2000
Assets
Cash and cash equivalents $ 455
Receivables and deposits 124
Restricted escrows 82
Other assets 267
Investment properties:
Land $ 1,480
Buildings and related personal property 14,643
16,123
Less accumulated depreciation (5,811) 10,312
$11,240
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 140
Tenant security deposit liabilities 80
Accrued property taxes 36
Other liabilities 136
Mortgage notes payable 10,596
Partners' (Deficit) Capital
General partner $ (3)
Limited partners (39,287 units
issued and outstanding) 255 252
$11,240
b)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Revenues: (restated) (restated)
Rental income $ 673 $ 635 $1,984 $1,893
Other income 57 50 156 124
Total revenues 730 685 2,140 2,017
Expenses:
Operating 327 274 895 844
General and administrative 35 45 118 115
Depreciation 169 143 507 430
Interest 204 219 601 628
Property taxes 73 64 194 170
Total expenses 808 745 2,315 2,187
Loss before cumulative effect of a
change in accounting principle (78) (60) (175) (170)
Cumulative effect on prior years of
a change in accounting for the cost
of exterior painting and major
landscaping -- -- -- 96
Net loss $ (78) $ (60) $ (175) $ (74)
Net loss allocated to general
partner (1%) $ (1) $ (1) $ (2) $ (1)
Net loss allocated to limited
partners (99%) (77) (59) (173) (73)
$ (78) $ (60) $ (175) $ (74)
Per limited partnership unit:
Loss before cumulative effect of
a change in accounting principle $ (1.96) $(1.51) $(4.40) $(4.28)
Cumulative effect on prior years
of a change in accounting
principle for the cost of exterior
painting and major landscaping -- -- -- 2.42
$(1.96) $(1.51) $(4.40) $(1.86)
Distributions per limited
partnership unit $ -- $18.91 $10.08 $18.91
c)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) 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
Distribution to partners -- (4) (396) (400)
Net loss for the nine months
ended September 30, 2000 -- (2) (173) (175)
Partners' (deficit) capital at
September 30, 2000 39,287 $ (3) $ 255 $ 252
d)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2000 1999
(Restated)
Cash flows from operating activities:
Net loss $ (175) $ (74)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 507 430
Amortization of loan costs 23 15
Cumulative effect on prior years of a change in
accounting principle -- (96)
Change in accounts:
Receivables and deposits 133 (8)
Other assets (17) 21
Accounts payable (21) (1)
Tenant security deposit liabilities 4 4
Accrued property taxes (11) 20
Other liabilities (34) 4
Net cash provided by operating activities 409 315
Cash flows from investing activities:
Property improvements and replacements (249) (300)
Net withdrawals from (deposits to) restricted escrows 50 (65)
Net cash used in investing activities (199) (365)
Cash flows from financing activities:
Payments on mortgage note payable (129) (113)
Payoff of mortgage note payable -- (2,397)
Proceeds from debt refinancing -- 3,500
Loan costs paid -- (99)
Distributions to partners (400) (750)
Net cash (used in) provided by financing
activities (529) 141
Net (decrease) increase in cash and cash equivalents (319) 91
Cash and cash equivalents at beginning of period 774 693
Cash and cash equivalents at end of period $ 455 $ 784
Supplemental disclosure of cash flow information:
Cash paid for interest $ 575 $ 612
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 and nine month periods ended
September 30, 2000, are not necessarily indicative of the results that may be
expected for the 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 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 nine months 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 nine months of 1999 by approximately $20,000 ($0.51 per limited
partnership unit). For the third quarter of 1999 this adjustment decreased
income by approximately $7,000 ($.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 nine months ended
September 30, 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 nine months ended September 30, 2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in operating expenses) $108 $102
Reimbursement for services of affiliates (included in
general and administrative expenses) 43 38
During the nine months ended September 30, 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
$108,000 and $102,000 for the nine months ended September 30, 2000 and 1999,
respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $43,000 and $38,000 for the
nine month periods ended September 30, 2000 and 1999, respectively.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 11,899 limited partnership
units in the Partnership representing 30.29% 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, which
would include without limitation, voting on certain amendments to the
Partnership Agreement and voting to remove the General Partner. 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. Total
capitalized loan costs were approximately $99,000.
Note E - Distributions
During the nine months ended September 30, 2000 the Partnership paid a
distribution of approximately $400,000 (approximately $396,000 to the limited
partners or $10.08 per limited partnership unit) from refinancing proceeds at
Terrace Royale Apartments. During the nine months ended September 30, 1999, the
Partnership paid a distribution of approximately $750,000 (approximately
$743,000 to the limited partners or $18.91 per limited partnership unit). This
distribution represented the remaining net proceeds from the mortgage
refinancing at Deerfield and a portion of the net proceeds from the mortgage
refinancing at Terrace Royale Apartments.
Note F - Segment Reporting
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of three apartment complexes
located in 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 and nine months ended September 30, 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.
Three Months Ended September 30, 2000 Residential Other Totals
Rental income $ 673 $ -- $ 673
Other income 56 1 57
Interest expense 204 -- 204
Depreciation 169 -- 169
General and administrative expense -- 35 35
Segment loss (44) (34) (78)
Nine Months Ended September 30, 2000 Residential Other Totals
Rental income $ 1,984 $ -- $ 1,984
Other income 142 14 156
Interest expense 603 (2) 601
Depreciation 507 -- 507
General and administrative expense -- 118 118
Segment loss (73) (102) (175)
Total assets 11,140 100 11,240
Capital expenditures for investment
properties 249 -- 249
Three Months Ended September 30, 1999 Residential Other Totals
(Restated)
Rental income $ 635 $ -- $ 635
Other income 43 7 50
Interest expense 223 (4) 219
Depreciation 143 -- 143
General and administrative expense -- 45 45
Segment loss (26) (34) (60)
Nine Months Ended September 30, 1999 Residential Other Totals
(Restated)
Rental income $ 1,893 $ -- $ 1,893
Other income 95 29 124
Interest expense 631 (3) 628
Depreciation 430 -- 430
General and administrative expense -- 115 115
Cumulative effect on prior years of change
in accounting principle 96 -- 96
Segment profit (loss) 9 (83) (74)
Total assets 11,362 695 12,057
Capital expenditures for investment
properties 300 -- 300
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 nine months ended September 30, 2000 and 1999:
Average Occupancy
Property 2000 1999
Terrace Royale Apartments 95% 94%
Bothell, Washington
Cheyenne Woods Apartments 93% 90%
North Las Vegas, Nevada
Deerfield Apartments 96% 95%
Memphis, Tennessee
The General Partner attributes the increase in occupancy at Cheyenne Woods
Apartments to the market improving slightly in the North Las Vegas area along
with an improvement in the curb appeal of the property.
Results of Operations
The Registrant's net loss for the nine months ended September 30, 2000 was
approximately $175,000 compared to net loss, as restated, of approximately
$74,000 for the nine months ended September 30, 1999. The increase in net loss
for the nine months ended September 30, 2000, is due primarily to the cumulative
effect on prior years of a change in accounting principle in the amount of
approximately $96,000 during the nine months ended September 30, 1999, as
discussed below.
Excluding the cumulative effect on prior years of a change in accounting
principle, the Partnership had a loss of approximately $175,000 and $170,000 for
the nine months ended September 30, 2000 and 1999, respectively. The
Registrant's net loss for the three months ended September 30, 2000 and 1999 was
approximately $78,000 and $60,000, respectively.
The increase in net loss for the three and nine months ended September 30, 2000
is primarily attributable to an increase in total expenses which was partially
offset by an increase in total revenues. Total revenues increased for the nine
months ended September 30, 2000 due to an increase in rental income and other
income. Rental income increased due to an increase in average rental rates and
occupancy at all three of the Partnership's properties, and a decrease in bad
debt expense at Cheyenne Woods. The increase in rental income was partially
offset by an increase in concessions at all of the Partnership's properties.
Other income increased due to an increase in late charges at all three
investment properties and an increase in cleaning and damage fees and lease
cancellation fees at Terrace Royale and Cheyenne Woods.
Total expenses increased as a result of an increase in operating, depreciation,
and property tax expenses. Depreciation expense increased due to property
improvements and replacements placed into service during the current year.
Property tax expense increased due to the timing of the receipt of tax bills
during 2000 and 1999 which affected the timing of the 1999 accruals. Operating
expenses increased due to an increase in salaries and related benefits at all
the Partnership's properties.
General and administrative expense remained relatively stable for the three and
nine months ended September 30, 2000. Included in general and administrative
expenses for the three and nine months ended September 30, 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 nine months 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 nine months of 1999 by approximately $20,000 ($0.51 per limited
partnership unit). For the third quarter of 1999 this adjustment decreased
income 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 nine months ended
September 30, 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 September 30, 2000, the Registrant had cash and cash equivalents of
approximately $455,000 as compared to approximately $784,000 at September 30,
1999. The decrease in cash and cash equivalents of approximately $319,000 from
the Registrant's year ended December 31, 1999, is due to approximately $529,000
of cash used in financing activities and approximately $199,000 of cash used in
investing activities which is partially offset by approximately $409,000 of cash
provided by operating 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 distributions to partners and to a lesser
extent 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. Total
capitalized loan costs were approximately $99,000.
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 nine months ended September 30, 2000, the Partnership completed
approximately $59,000 of capital improvements at Terrace Royale Apartments
consisting primarily of floor covering replacements, structural improvements,
recreation facility upgrades, and appliances. These improvements were funded
from operations and Partnership reserves. The Partnership has evaluated the
capital improvement needs of the property for the year. The amount budgeted is
approximately $108,000, consisting primarily of floor covering replacements and
plumbing improvements.
Cheyenne Woods Apartments
During the nine months ended September 30, 2000, the Partnership completed
approximately $104,000 of budgeted and unbudgeted capital improvements at
Cheyenne Woods Apartments, consisting primarily of floor covering replacements,
appliances, and other interior building improvements. These improvements were
funded from Partnership reserves and 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, and floor covering and appliances replacements.
Deerfield Apartments
During the nine months ended September 30, 2000, the Partnership completed
approximately $86,000 of budgeted and unbudgeted capital improvements at
Deerfield Apartments consisting primarily of plumbing upgrades, floor covering
and appliance replacements, and other interior building improvements. These
improvements were funded from Partnership reserves. The Partnership has
evaluated the capital improvement needs of the property for the year. The amount
budgeted is approximately $81,000, consisting primarily of air conditioning unit
replacement, appliances and floor covering replacement.
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 $10,596,000 has maturity dates ranging from 2004
to 2019 with balloon payments due at maturity for the mortgages encumbering
Cheyenne Woods Apartments and Deerfield Apartments. 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.
During the nine months ended September 30, 2000 the Partnership paid a
distribution of approximately $400,000 (approximately $396,000 to the limited
partners or $10.08 per limited partnership unit) from refinancing proceeds at
Terrace Royale Apartments. During the nine months ended September 30, 1999, the
Partnership paid a distribution of approximately $750,000 (approximately
$743,000 to the limited partners or $18.91 per limited partnership unit). This
distribution represented the remaining net proceeds from the mortgage
refinancing at Deerfield and a portion of the net proceeds from the mortgage
refinancing at Terrace Royale Apartments. 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 further
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 September 30, 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: November 13, 2000