United States
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, 2003
[ ] 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 Registrant 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)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2003
Assets
Cash and cash equivalents $ 81
Receivables and deposits 58
Restricted escrows 16
Other assets 48
Investment property:
Land $ 240
Buildings and related personal property 5,114
5,354
Less accumulated depreciation (2,466) 2,888
Assets held for distribution 2,688
$ 5,779
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 95
Tenant security deposit liabilities 22
Accrued property taxes 30
Due to affiliates 517
Other liabilities 93
Mortgage note payable 3,364
Liabilities related to assets held for distribution 3,078
Partners' Deficit
General partner $ (20)
Limited partners (39,287 units
issued and outstanding) (1,400) (1,420)
$ 5,779
See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
(Restated) (Restated)
Revenues:
Rental income $ 170 $ 198 $ 441 $ 545
Other income 18 16 32 53
Casualty gain (Note C) -- 9 15 9
Total revenues 188 223 488 607
Expenses:
Operating 102 103 273 260
General and administrative 8 31 58 95
Depreciation 66 66 199 192
Interest 72 73 218 211
Property taxes (24) 38 67 110
Total expenses 224 311 815 868
Loss from continuing operations (36) (88) (327) (261)
Loss from discontinued operations (22) (29) (50) (19)
Net loss $ (58) $ (117) $ (377) $ (280)
Net loss allocated to general
partner (1%) $ (1) $ (1) $ (4) $ (3)
Net loss allocated to limited
partners (99%) (57) (116) (373) (277)
$ (58) $ (117) $ (377) $ (280)
Per limited partnership unit:
Loss from continuing operations $(0.89) $(2.22) $ (8.23) $(6.57)
Loss from discontinued operations (0.56) (0.73) (1.26) (0.48)
Net loss $(1.45) $(2.95) $ (9.49) $(7.05)
See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 39,297 $ -- $ 9,824 $ 9,824
Partners' deficit at
December 31, 2002 39,287 $ (16) $(1,027) $(1,043)
Net loss for the nine months
ended September 30, 2003 -- (4) (373) (377)
Partners' deficit at
September 30, 2003 39,287 $ (20) $(1,400) $(1,420)
See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2003 2002
Cash flows from operating activities:
Net loss $ (377) $ (280)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Casualty gain (15) (9)
Depreciation 337 328
Amortization of loan costs 17 17
Change in accounts:
Receivables and deposits (23) 17
Other assets (31) (12)
Accounts payable 51 (18)
Tenant security deposit liabilities 5 (7)
Accrued property taxes (15) (15)
Due to affiliates 42 43
Other liabilities 21 (21)
Net cash provided by operating activities 12 43
Cash flows from investing activities:
Net insurance proceeds received 46 37
Property improvements and replacements (119) (314)
Net withdrawals from restricted escrows 16 7
Net cash used in investing activities (57) (270)
Cash flows from financing activities:
Proceeds from General Partner advances 57 414
Payments on advances from General Partner -- (78)
Payments on mortgage notes payable (120) (113)
Net cash (used in) provided by financing
activities (63) 223
Net decrease in cash and cash equivalents (108) (4)
Cash and cash equivalents at beginning of period 189 186
Cash and cash equivalents at end of period $ 81 $ 182
Supplemental disclosure of cash flow information:
Cash paid for interest $ 337 $ 369
See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2003
Note A - Going Concern
The accompanying consolidated financial statements have been prepared assuming
the Partnership will continue as a going concern. The Partnership continues to
generate recurring operating losses, suffers from a lack of cash, and has
advances due to the General Partner. In addition, the remaining active property
in the Partnership, Deerfield Apartments, has experienced decreasing occupancy
levels. The General Partner is currently evaluating the capital improvements
needed at the property to improve its condition and increase occupancy. Upon
completion of any needed capital improvements, the General Partner intends to
market the property for sale.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or amounts and classification of
liabilities that may result from these uncertainties.
Note B - 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. (the
"General Partner" or "UIRE"), a Delaware corporation, 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, 2003, are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 2003. 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, 2002.
Until May 1, 2003, the General Partner was an affiliate of Apartment Investment
and Management Company ("AIMCO"), a publicly traded real estate investment
trust. On May 1, 2003, Everest Properties, Inc. ("Everest"), a California
corporation, acquired all of the capital stock of the General Partner and held
the capital stock of the General Partner until February 27, 2004 when Everest
transferred it back to an affiliate of AIMCO. The capital stock was acquired in
connection with the purchase by Everest or its affiliates of limited partnership
units (the "Units") in partnerships in which UIRE serves as the general partner.
From May 1, 2003 to February 27, 2004, as the sole stockholder of UIRE, Everest
was in a position to remove and elect the directors of UIRE and consequently to
control the Partnership. Everest did not directly own any limited partnership
interests of the Partnership, however, Everest's affiliate, Everest Properties,
LLC, owned 14,328 Units.
In connection with the transaction described above, the General Partner and the
Partnership entered into a Services Agreement effective May 1, 2003 ("the
Services Agreement") with Everest, pursuant to which Everest agreed to provide
or arrange for the provision of portfolio management services and property
management services for the Partnership. Subject to certain limitations, the
portfolio management services included the services the General Partner of the
Partnership generally performs or procures in connection with management of the
Partnership. As compensation for providing the portfolio management services and
the property management services, the General Partner agreed to pay and assign
over to Everest all of the income, distributions, fees, commissions,
reimbursements and other payments payable by the Partnership to the General
Partner or any of its affiliates. Between May 1, 2003 and February 27, 2004, at
Everest's direction, affiliates of AIMCO have continued to provide certain
portfolio and property management services for the Partnership.
On February 27, 2004, AIMCO and its affiliates reacquired all of the capital
stock of UIRE and 14,328 Units in the Partnership from Everest. Upon the
effective date of the transaction, the Services Agreement was terminated and
AIMCO, as the sole stockholder of UIRE, was again in a position to control the
Partnership. Subsequent to December 31, 2003, an affiliate of AIMCO loaned
approximately $193,000 to the Partnership to be used to fund the operations of
Deerfield Apartments.
Prior to February 27, 2004, the Partnership owned 100% of the membership
interest in AIMCO Terrace Royale, L.L.C., a Delaware limited liability company.
Effective January 1, 2004, the Partnership adopted a new operating agreement for
that company, appointed Everest as its manager, changed the company's name to
Everest Terrace Royale, LLC ("Terrace Royale"), and distributed to its partners
all of the membership interests that the Partnership held in Terrace Royale, as
a distribution in kind. The record date for the distribution, and the effective
date for allocation, tax and all other purposes, was January 1, 2004. Limited
partners of the Partnership received one unit of membership interest in Terrace
Royale for each unit of limited partnership interest held in the Partnership on
the record date.
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Live Assets", which established standards for the way that
public business enterprises report information about long-lived assets that are
either being held for sale or have already been disposed of by sale or other
means. The standard requires that results of operations for a long-lived asset
that is being held for sale or has already been disposed of be reported as a
discontinued operation on the statement of operations. As a result, the
accompanying consolidated statements of operations have been restated as of
January 1, 2002 to reflect the operations of Terrace Royale as loss from
discontinued operations due to the distribution of the property out of the
Partnership in January 2004.
Note C - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the General Partner or
AIMCO 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. Pursuant to the Services
Agreement, these services were to be provided by Everest, an affiliate of the
General Partner, for the period commencing May 1, 2003 and ending February 27,
2004, however, at Everest's direction, certain of the services were provided by
affiliates of AIMCO during this time period.
Affiliates of AIMCO were entitled to receive 5% of the gross receipts from both
of the Partnership's properties as compensation for providing property
management services. For both of the nine month periods ended September 30, 2003
and 2002, affiliates of AIMCO received approximately $50,000 and $59,000,
respectively, which is included in operating expenses and loss from discontinued
operations on the accompanying consolidated statements of operations.
AIMCO was entitled to reimbursement of accountable administrative expenses under
the Partnership Agreement for the four month period ended April 30, 2003 and for
the nine month period ended September 30, 2002. For the four months ended April
30, 2003, the total amount of reimbursement due to AIMCO for these services was
approximately $22,000, which is included in general and administrative expenses
on the accompanying consolidated statements of operations. No reimbursements
were paid to Everest, as the general partner, during the following five months.
An affiliate of AIMCO received reimbursement of accountable administrative
expenses amounting to approximately $68,000 for the nine months ended September
30, 2002, which is included in general and administrative expenses and
investment properties. Included in this amount are fees related to construction
management services provided by an affiliate of AIMCO of approximately $25,000.
The construction management fees are calculated based on a percentage of current
year additions to investment properties. No such fees were charged during the
nine months ended September 30, 2003. As of September 30, 2003, the Partnership
owed approximately $75,000 to an affiliate of AIMCO for reimbursement of
accountable administrative expenses, and this amount is reflected in Due to
affiliates on the accompanying consolidated balance sheet.
During the nine months ended September 30, 2003 and 2002, an affiliate of AIMCO
advanced the Partnership approximately $57,000 and $414,000, respectively, to
cover operating obligations at Deerfield Apartments. The Partnership was able to
repay approximately $78,000 of such advances during the nine months ended
September 30, 2002. There were no such repayments during the nine months ended
September 30, 2003. At September 30, 2003, the Partnership owed an affiliate of
AIMCO approximately $442,000 which includes advances and accrued interest from
2002. Interest is being charged at the prime rate plus 2%, or 6.00% at September
30, 2003, in accordance with the Partnership Agreement. During the nine months
ended September 30, 2002, the Partnership made interest payments of
approximately $2,000 and recognized interest expense of approximately $9,000. No
payments were made during the nine months ended September 30, 2003. During the
nine months ended September 30, 2003, the Partnership recognized interest
expense of approximately $18,000 relative to obligations due to affiliates.
The Partnership insures its properties 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 and vehicle
liability. The Partnership insures its properties above the AIMCO limits through
insurance policies obtained by AIMCO from insurers unaffiliated with the General
Partner. During the nine months ended September 30, 2003 and 2002, the
Partnership was charged by AIMCO and its affiliates approximately $24,000 and
$29,000, respectively, for insurance coverage and fees associated with policy
claims administration.
Note D - Casualty Gains
In October 2002, one of the Partnership's investment properties, Deerfield
Apartments, incurred mold damage. As a result of the damage, the Partnership
wrote off approximately $31,000 of undepreciated assets. During the nine months
ended September 30, 2003, the property received approximately $46,000 in
proceeds from the insurance company to repair the mold damage and recognized a
casualty gain of approximately $15,000 as a result of the difference between the
proceeds received and the net book value of the buildings which were damaged.
In July 2003, Deerfield Apartments sustained damage from a tornado. At September
30, 2003, the Partnership estimated the cost of the damaged units to be
approximately $20,000. The Partnership does not anticipate that it will incur a
loss related to the casualty.
During the three and nine months ended September 30, 2002 a net casualty gain of
approximately $9,000 was recorded at Deerfield Apartments. The casualty gain
related to fire damage to the apartment complex that occurred on October 26,
2001. The gain was a result of the receipt of insurance proceeds of
approximately $37,000 offset by the write off of approximately $28,000 of
undepreciated assets.
Note E - Third-Quarter Adjustment
The Partnership's policy is to record property tax expense on a quarterly basis
based on an estimate of the tax bills to be paid for that year. For the first
two quarters of 2003, this expense was based on estimated amounts. During the
third quarter of 2003, the Partnership recorded an adjustment to decrease
property tax expense by approximately $56,000 due to a difference in the
estimated costs and the actual tax bills received for Deerfield Apartments.
Approximately $37,000 of the adjustment related to the first six months of 2003.
The actual property tax expense for Deerfield Apartments for the nine months
ended September 30, 2003 was approximately $67,000 compared to the estimated
property tax expense of $123,000 for the nine months ended September 30, 2003.
Note F - Legal Proceedings
On August 8, 2003 AIMCO Properties L.P., an affiliate of the General Partner,
was served with a Complaint in the United States District Court, District of
Columbia alleging that AIMCO Properties L.P. willfully violated the Fair Labor
Standards Act (FLSA) by failing to pay maintenance workers overtime for all
hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Discovery is currently
underway.
The General Partner does not anticipate that any costs to the Partnership,
whether legal or settlement costs, associated with this case will be material to
the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment properties that are not of a routine
nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government regulations. Actual results may differ materially
from those described in the forward-looking statements and will be affected by a
variety of risks and factors including, without limitation: national and local
economic conditions; the terms of governmental regulations that affect the
Registrant and interpretations of those regulations; the competitive environment
in which the Registrant operates; financing risks, including the risk that cash
flows from operations may be insufficient to meet required payments of principal
and interest; real estate risks, including variations of real estate values and
the general economic climate in local markets and competition for tenants in
such markets; litigation, including costs associated with prosecuting and
defending claims and any adverse outcomes, and possible environmental
liabilities. Readers should carefully review the Registrant's financial
statements and the notes thereto, as well as the risk factors described in the
documents the Registrant files from time to time with the Securities and
Exchange Commission.
The Partnership's investment properties consist of one apartment complex. The
following table sets forth the average occupancy of the property for each of the
nine month periods ended September 30, 2003 and 2002:
Average Occupancy
Property 2003 2002
Deerfield Apartments 83% 90%
Memphis, Tennessee
The General Partner attributes the decrease in occupancy at Deerfield Apartments
to increased competition in the local market and the evictions of undesirable
tenants.
Results of Operations
The Partnership's net loss for the three and nine months ended September 30,
2003 was approximately $58,000 and $377,000 compared to a net loss of
approximately $117,000 and $280,000 for the three and nine months ended
September 30, 2002, respectively. The increase in net loss for the nine months
ended September 30, 2003 is due to an increase in loss from discontinued
operations and a decrease in total revenues partially offset by a decrease in
total expenses. The decrease in net loss for the three months ended September
30, 2003 is due to a decrease in total expenses partially offset by a decrease
in total revenues.
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which established standards for the way that
public business enterprises report information about long-lived assets that are
either being held for sale or have already been disposed of by sale or other
means. The standard requires that results of operations for a long-lived asset
that is being held for sale or has already been disposed of be reported as
discontinued operations on the statement of operations. As a result, the
accompanying consolidated statements of operations have been restated as of
January 1, 2002 to reflect the operations of Terrace Royale Apartments as loss
from discontinued operations due to the distribution of the property out of the
Partnership in January 2004. As a result, the property's operations, a loss of
approximately $50,000 and $19,000 for the nine months ended September 30, 2003
and 2002, respectively, are shown as loss from discontinued operations in the
accompanying consolidated statements of operations. This included revenues of
approximately $589,000 and $616,000 for the nine months ended September 30, 2003
and 2002, respectively.
The Partnership's loss from continuing operations for the three and nine months
ended September 30, 2003 was approximately $36,000 and $327,000 compared to a
loss from continuing operations of approximately $88,000 and $261,000 for the
three and nine months ended September 30, 2002, respectively. The increase in
loss from continuing operations for the nine months ended September 30, 2003 is
due to a decrease in total revenues partially offset by a decrease in total
expenses. The decrease in loss from continuing operations for the three months
ended September 30, 2003 is due to a decrease in total expenses partially offset
by a decrease in total revenues. Total revenues for the nine months ended
September 30, 2003 decreased due to decreases in rental and other income
partially offset by an increase in casualty gain. Total revenues for the three
months ended September 30, 2003 decreased due to decreases in rental income and
casualty gain. Rental income for both periods decreased due to a decrease in
occupancy and an increase in resident relations and special promotions partially
offset by an increase in average rental rates at Deerfield Apartments. Other
income for the nine months ended September 30, 2003 decreased due to a decrease
in lease cancellation fees at Deerfield Apartments.
During the nine months ended September 30, 2003, a net casualty gain of
approximately $15,000 was recorded at Deerfield Apartments. The casualty gain
related to mold damage to the apartment complex. The property received
approximately $46,000 in proceeds from the insurance company to repair the mold
damage and recognized a casualty gain of approximately $15,000 as a result of
the difference between the proceeds received and the net book value of the
buildings which were damaged.
During the three and nine months ended September 30, 2002 a net casualty gain of
approximately $9,000 was recorded at Deerfield Apartments. The casualty gain
related to fire damage to the apartment complex that occurred on October 26,
2001. The gain was a result of the receipt of insurance proceeds of
approximately $37,000 offset by the write off of approximately $28,000 of
undepreciated assets.
The decrease in total expenses for the three and nine months ended September 30,
2003 is due to a decrease in general and administrative and property tax
expenses. Property tax expense decreased due to a change in estimate for the
amount of 2003 property taxes (see "Item 1. Financial Statements, Note E - Third
Quarter Adjustment").
General and administrative expense for the three and nine months ended September
30, 2003 decreased due to decreases in management reimbursements to the General
Partner as allowed under the Partnership Agreement. The Partnership was charged
by an affiliate of AIMCO for four months of management reimbursements during the
nine months ended September 30, 2003. No reimbursements were charged by Everest,
as the General Partner. Included in general and administrative expenses for the
nine months ended September 30, 2003 and 2002 are costs associated with the
quarterly communications with investors and regulatory agencies and the annual
audit required by the Partnership Agreement.
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 reductions to offset softening market conditions,
accordingly, there is no guarantee that the General Partner will be able to
sustain such a plan.
Liquidity and Capital Resources
The accompanying consolidated financial statements have been prepared assuming
the Partnership will continue as a going concern. The Partnership continues to
generate recurring operating losses, suffers from a lack of cash, and has
advances due to the General Partner. In addition, the remaining active property
in the Partnership, Deerfield Apartments, has experienced decreasing occupancy
levels. The General Partner is currently evaluating the capital improvements
needed at the property to improve its condition and increase occupancy. Upon
completion of any needed capital improvements, the General Partner intends to
market the property for sale.
As a result of the above, there is substantial doubt about the Partnership's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or amounts and classification of
liabilities that may result from these uncertainties.
At September 30, 2003, the Partnership had cash and cash equivalents of
approximately $81,000 compared to approximately $182,000 at September 30, 2002.
The decrease in cash and cash equivalents of approximately $108,000 from
December 31, 2002, is due to approximately $63,000 of cash used in financing
activities and $57,000 of cash used in investing activities partially offset by
approximately $12,000 of cash provided by operating activities. Cash used in
financing activities consisted of payments of principal made on the mortgages
encumbering the Partnership's investment properties partially offset by advances
from the General Partner. Cash used in investing activities consisted of
property improvements and replacements partially offset by insurance proceeds
received from the casualty at Deerfield Apartments and net withdrawals from
escrow accounts maintained by the mortgage lender. The Partnership invests its
working capital reserves in interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the 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 and is studying new
federal laws, including the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act
of 2002 mandates or suggests additional compliance measures with regard to
governance, disclosure, audit and other areas. In light of these changes, the
Partnership expects that it will incur higher expenses related to compliance,
including increased legal and audit fees. Capital improvements planned for the
Partnership's property are detailed below.
Terrace Royale Apartments
During the nine months ended September 30, 2003, the Partnership completed
approximately $28,000 of capital improvements at Terrace Royale Apartments,
consisting primarily of appliance and floor covering replacements, fire safety
upgrades, roof replacements, and sprinkler system upgrades. These improvements
were funded from operations and replacement reserves. The property was
distributed out of the Partnership in January 2004.
Deerfield Apartments
During the nine months ended September 30, 2003, the Partnership completed
approximately $91,000 of capital improvements at Deerfield Apartments,
consisting primarily of building improvements, appliance replacements and
additional air conditioning units. These improvements were funded from
operations and replacement reserves. The Partnership evaluates the capital
improvement needs of the property during the year and currently expects to
complete an additional $10,000 in capital improvements during the remainder of
2003. The additional capital improvements will consist primarily of floor
covering and appliance replacements. Additional capital improvements may be
considered and will depend on the physical condition of the property as well as
the anticipated cash flow generated by the property and replacement reserves.
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 Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's assets are thought to be sufficient for any near term needs
(exclusive of capital improvements) of the Partnership. The mortgage
indebtedness encumbering Deerfield Apartments of approximately $3,364,000
matures in December 2004 with a balloon payment of approximately $3,303,000 due
at maturity. The General Partner will attempt to refinance such indebtedness
and/or sell the property prior to such maturity date. If the property cannot be
refinanced and/or sold for a sufficient amount, the Partnership may risk losing
the property through foreclosure.
The Partnership did not distribute any funds during the nine months ended
September 30, 2003 and 2002. The Partnership's cash available for distribution
is reviewed on a monthly basis. Future 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. There can be
no assurance, however, that the Partnership will generate sufficient funds from
operations after required capital expenditures and payments on outstanding
amounts owed to AIMCO to permit distributions to its partners during the
remainder of 2003 or subsequent periods.
Other
Until May 1, 2003, AIMCO was the indirect sole stockholder of UIRE, the sole
general partner of the Partnership, and therefore held all of the general
partner interest in the Partnership. On May 1, 2003, Everest acquired all of the
capital stock of the General Partner and held the capital stock of the General
Partner until February 27, 2004 when Everest transferred it back to an affiliate
of AIMCO. The capital stock was acquired in connection with the purchase by
Everest or its affiliates of limited partnership interests in partnerships for
which UIRE serves as the general partner. In connection with the acquisition of
UIRE, Everest also acquired the 14,328 limited partnership units (the "Units")
in the Partnership owned by AIMCO as of May 1, 2003. A number of these Units
were acquired pursuant to tender offers made by AIMCO or its affiliates. From
May 1, 2003 to February 27, 2004, as the sole stockholder of UIRE, Everest was
in a position to remove the current directors and elect the directors of UIRE
and consequently to control the Partnership. An Everest affiliate, Everest
Properties, LLC, owned 14,328 Units representing 36.47% of the outstanding Units
as of September 30, 2003. On February 27, 2004, AIMCO and its affiliates
acquired all of the capital stock of UIRE and 14,328 Units in the Partnership
from Everest. Upon the completion of this transaction, AIMCO, as the sole
stockholder of UIRE, was in a position to control the Partnership. 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. Although the General Partner owes fiduciary
duties to the limited partners of the Partnership, the General Partner also owes
fiduciary duties to Everest or 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 Everest or AIMCO, as its sole stockholder.
Critical Accounting Policies and Estimates
The consolidated 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 Assets
The investment property is recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are 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, changes in the national, regional and local economic climate; local
conditions, such as an oversupply of multifamily properties; competition from
other available multifamily property owners and changes in market rental rates.
Any adverse changes in these factors could cause impairment of the Partnership's
assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. 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.
The Partnership will offer rental concessions during particularly slow months or
in response to heavy competition from other similar complexes in the area. Any
concessions given at the inception of the lease are amortized over the life of
the lease.
ITEM 3. 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
such term is 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) Internal Control Over Financial Reporting. There have not been any changes
in the Partnership's internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Partnership's internal control
over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 8, 2003 AIMCO Properties L.P., an affiliate of the General Partner,
was served with a Complaint in the United States District Court, District of
Columbia alleging that AIMCO Properties L.P. willfully violated the Fair Labor
Standards Act (FLSA) by failing to pay maintenance workers overtime for all
hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs
contend that AIMCO Properties L.P. failed to compensate maintenance workers for
time that they were required to be "on-call". Additionally, the Complaint
alleges AIMCO Properties L.P. failed to comply with the FLSA in compensating
maintenance workers for time that they worked in responding to a call while
"on-call". The Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Discovery is currently
underway.
The General Partner does not anticipate that any costs to the Partnership,
whether legal or settlement costs, associated with this case will be material to
the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
3.1 Form of Agreement of Limited Partnership (part of the
Prospectus of Partnership contained in the Partnership's
Amendment to Registration Statement filed on June 9,
1988, is incorporated herein by reference).
3.2 Seventh Amendment to Agreement of Limited Partnership
(Exhibit 4.3 to the Partnership's Quarterly Report on
Form 10-Q filed on May 15, 1989, is incorporated herein
by reference).
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 Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 2003.
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/Martha L. Long
Martha L. Long
Senior Vice President
By: /s/Thomas M. Herzog
Senior Vice President and
and Chief Accounting Officer
Date: April 5, 2004
Exhibit 31.1
CERTIFICATION
I, Martha L. Long, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of United Investors
Growth Properties;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: April 5, 2004
/s/Martha L. Long
Martha L. Long
Senior Vice President of United Investors Real
Estate, Inc., equivalent of the chief executive
officer of the Partnership
Exhibit 31.2
CERTIFICATION
I, Thomas M. Herzog, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of United Investors
Growth Properties;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: April 5, 2004
/s/Thomas M. Herzog
Thomas M. Herzog
Senior Vice President and Chief Accounting
Officer of United Investors Real Estates, Inc.,
equivalent of the chief financial officer of the
Partnership
Exhibit 32.1
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-QSB of United Income Growth
Partnership (the "Partnership"), for the quarterly period ended September 30,
2003 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), Martha L. Long, as the equivalent of the chief executive officer
of the Partnership, and Thomas M. Herzog, as the equivalent of the chief
financial officer of the Partnership, each hereby certifies, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/Martha L. Long
Name: Martha L. Long
Date: April 5, 2004
/s/Thomas M. Herzog
Name: Thomas M. Herzog
Date: April 5, 2004
This certification is furnished with this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.