United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT of 1934
For the quarterly period ended September 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 2004
Assets
Cash and cash equivalents $ 90
Receivables and deposits 23
Restricted escrows 55
Other assets 50
Investment property:
Land $ 240
Buildings and related personal property 5,247
5,487
Less accumulated depreciation (2,615) 2,872
$ 3,090
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 113
Tenant security deposit liabilities 18
Accrued property taxes 43
Due to affiliates (Note C) 1,179
Other liabilities 48
Mortgage note payable 3,312
Partners' Deficit
General partner $ (26)
Limited partners (39,287 units
issued and outstanding) (1,597) (1,623)
$ 3,090
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,
2004 2003 2004 2003
(Restated) (Restated)
Revenues:
Rental income $ 189 $ 193 $ 458 $ 537
Other income 22 18 103 32
Casualty gain (Note D) -- -- 16 15
Total revenues 211 211 577 584
Expenses:
Operating 148 102 380 273
General and administrative 15 8 58 58
Depreciation 64 66 190 199
Interest 83 72 235 218
Property taxes 29 (24) 89 67
Bad debt 13 23 122 96
Total expenses 352 247 1,074 911
Loss from continuing operations (141) (36) (497) (327)
Loss from discontinued operations -- (22) -- (50)
Net loss $ (141) $ (58) $ (497) $ (377)
Net loss allocated to general
partner (1%) $ (1) $ (1) $ (5) $ (4)
Net loss allocated to limited
partners (99%) (140) (57) (492) (373)
$ (141) $ (58) $ (497) $ (377)
Per limited partnership unit:
Loss from continuing operations $(3.56) $(0.89) $(12.52) $ (8.23)
Loss from discontinued operations -- (0.56) -- (1.26)
Net loss per limited partnership
unit $(3.56) $(1.45) $(12.52) $ (9.49)
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 39,287 $ -- $ 9,824 $ 9,824
Partners' deficit at
December 31, 2003 39,287 $ (21) $(1,560) $(1,581)
Non cash contribution associated
with a distribution for the
nine months ended September
30, 2004 (Note B) -- 455 455
Net loss for the nine months
ended September 30, 2004 -- (5) (492) (497)
Partners' deficit at
September 30, 2004 39,287 $ (26) $(1,597) $(1,623)
See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2004 2003
Cash flows from operating activities:
Net loss $ (497) $ (377)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Casualty gain (16) (15)
Depreciation 190 337
Amortization of loan costs 13 17
Bad debt expense 122 96
Change in accounts:
Receivables and deposits (88) (119)
Other assets (31) (31)
Accounts payable (23) 51
Tenant security deposit liabilities (1) 5
Accrued property taxes (14) (15)
Due to affiliates 69 42
Other liabilities (20) 21
Net cash (used in) provided by operating
activities (296) 12
Cash flows from investing activities:
Insurance proceeds received 36 46
Property improvements and replacements (213) (119)
Net (deposits to) withdrawals from restricted escrows (29) 16
Net cash used in investing activities (206) (57)
Cash flows from financing activities:
Advances from affiliates 586 57
Payments on mortgage note payable (40) (120)
Net cash provided by (used in) financing
activities 546 (63)
Net increase (decrease) in cash and cash equivalents 44 (108)
Cash and cash equivalents at beginning of period 46 189
Cash and cash equivalents at end of period $ 90 $ 81
Supplemental disclosure of cash flow information:
Cash paid for interest $ 183 $ 337
Supplemental disclosure of non-cash flow information:
Property improvements and replacements in accounts
payable $ 36 $ --
See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, had been experiencing decreased
occupancy. During the nine months ended September 30, 2004, the General Partner
completed capital improvements needed at the property to improve its condition
and increase occupancy. 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 months
ended September 30, 2004, are not necessarily indicative of the results that may
be expected for the fiscal year ending December 31, 2004. 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, 2003.
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 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.
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. The distribution of the net liabilities of Terrace Royale was
accounted for as a non-cash contribution to the limited partners equity in the
accompanying Consolidated Statement of Changes in Partners' Deficit.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
the accompanying consolidated statement of operations for the three and nine
months ended September 30, 2003 have been restated to reflect the operations of
Terrace Royale as loss from discontinued operations due to the distribution of
the property out of the Partnership effective January 1, 2004.
Note C - Transactions with Affiliated Parties
The Partnership has no employees and depends on the General Partner and its
affiliates for the management and administration of all Partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
Affiliates of the General Partner were entitled to receive 5% of gross receipts
from the Partnership's properties as compensation for providing property
management services. The Partnership paid to such affiliates approximately
$22,000 and $50,000 for the nine months ended September 30, 2004 and 2003,
respectively, which is included in operating expenses and loss from discontinued
operations.
An affiliate of the General Partner charged reimbursement of accountable
administrative expenses amounting to approximately $48,000 and $22,000 for the
nine months ended September 30, 2004 and 2003, respectively, which is included
in general and administrative expenses, and investment property. Included in
these amounts are fees related to construction management services provided by
an affiliate of the General Partner of approximately $17,000 for the nine months
ended September 30, 2004. There were no such fees for the nine months ended
September 30, 2003. The construction management service fees are calculated
based on a percentage of additions to the investment property. As of September
30, 2004, the Partnership owed approximately $106,000 to an affiliate of the
General Partner for reimbursement of accountable administrative expenses.
During the nine months ended September 30, 2004 and 2003, an affiliate of the
General Partner advanced the Partnership approximately $586,000 and $57,000,
respectively, to cover operating obligations of the Partnership and Deerfield
Apartments. At September 30, 2004, the Partnership owed an affiliate of the
General Partner approximately $1,073,000 for advances and accrued interest.
Interest is accrued at prime plus 2% or 6.75% at September 30, 2004. Interest
expense was approximately $38,000 and $18,000 during the nine months ended
September 30, 2004 and 2003, respectively. Subsequent to September 30, 2004, an
affiliate of the General Partner advanced approximately $186,000 to pay for
capital improvements at the investment property.
The Partnership insures its property up to certain limits through coverage
provided by AIMCO which is generally self-insured for a portion of losses and
liabilities related to workers' compensation, property casualty and vehicle
liability. The Partnership insures its property above the AIMCO limits through
insurance policies obtained by AIMCO from insurers unaffiliated with the General
Partner. During the nine months ended September 30, 2004 and 2003, the
Partnership was charged by AIMCO and its affiliates approximately $15,000 and
$24,000, respectively, for insurance coverage and fees associated with policy
claims administration.
Note D - Casualty Gain
In October 2002, the Partnership's investment property, Deerfield Apartments,
incurred mold damage. As a result of the damage, approximately $44,000 of fixed
assets and approximately $13,000 of accumulated depreciation were written off
resulting in a net write off of approximately $31,000. 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.
During the nine months ended September 30, 2004, a net casualty gain of
approximately $16,000 was recorded at Deerfield Apartments. The casualty gain
related to wind damage to the apartment complex that occurred in July 2003. The
gain was a result of the receipt of insurance proceeds of approximately $36,000
offset by approximately $20,000 of undepreciated fixed assets being written off.
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 - Contingencies
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. On March 5, 2004 the plaintiffs filed
an amended complaint also naming NHP Management Company, which is also an
affiliate of the General Partner. 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 defendants have
filed an answer to the amended complaint denying the substantive allegations.
Some discovery has taken place and settlement negotiations continue. Although
the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not
believe that the ultimate outcome will have a material adverse effect on its
financial condition or results of operations. Similarly, the General Partner
does not believe that the ultimate outcome will have a material adverse effect
on the Partnership's consolidated financial condition or results of operations.
The Partnership is unaware of any other pending or outstanding litigation
matters involving it or its investment property that are not of a routine nature
arising in the ordinary course of business.
As previously disclosed, the Central Regional Office of the United States
Securities and Exchange Commission (the "SEC") is conducting a formal
investigation relating to certain matters. Although the staff of the SEC is not
limited in the areas that it may investigate, AIMCO believes the areas of
investigation include AIMCO's miscalculated monthly net rental income figures in
third quarter 2003, forecasted guidance, accounts payable, rent concessions,
vendor rebates, capitalization of payroll and certain other costs, and tax
credit transactions. AIMCO is cooperating fully. AIMCO is not able to predict
when the matter will be resolved. AIMCO does not believe that the ultimate
outcome will have a material adverse effect on its consolidated financial
condition or results of operations. Similarly, the Managing General Partner does
not believe that the ultimate outcome will have a material adverse effect on the
Partnership's consolidated financial condition or results of operations.
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 following table sets forth the average occupancy of the property for each of
the nine month periods ended September 30, 2004 and 2003:
Average Occupancy
Property 2004 2003
Deerfield Apartments 72% 83%
Memphis, Tennessee
The General Partner attributes the decrease in occupancy at Deerfield Apartments
to increased competition in the local market and increased resident application
standards.
The Partnership's financial results depend upon a number of factors including
the ability to attract and maintain tenants at the investment property, interest
rates on mortgage loans, costs incurred to operate the investment property,
general economic conditions and weather. As part of the ongoing business plan of
the Partnership, the General Partner monitors the rental market environment of
its investment property to assess the feasibility of increasing rents,
maintaining or increasing occupancy levels and protecting the Partnership from
increases in expenses. As part of this plan, the General Partner attempts to
protect the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, the General Partner may use rental concessions and rental rate
reductions to offset softening market conditions, accordingly, there is no
guarantee that the General Partner will be able to sustain such a plan. Further,
a number of factors that are outside the control of the Partnership such as the
local economic climate and weather can adversely or positively affect the
Partnership's financial results.
Results of Operations
The Partnership's net loss for the three and nine months ended September 30,
2004 was approximately $141,000 and $497,000 compared to net loss of
approximately $58,000 and $377,000 for the three and nine months ended September
30, 2003, respectively.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
the accompanying consolidated statements of operations for the three and nine
months ended September 30, 2003 have been restated 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. Included in loss from
discontinued operations are revenues of approximately $209,000 and $589,000 for
the three and nine months ended September 30, 2003, respectively. The
Partnership's loss from continuing operations for the three and nine months
ended September 30, 2004 was approximately $141,000 and $497,000 compared to
loss from continuing operations of approximately $36,000 and $327,000 for the
three and nine months ended September 30, 2003, respectively.
The increase in loss from continuing operations for the three months ended
September 30, 2004 is due to an increase in total expenses. The increase in loss
from continuing operations for the nine months ended September 30, 2004 is due
to an increase in total expenses and a decrease in total revenues.
The increase in total expenses for both the three and nine month periods is due
to increases in operating, interest and property tax expenses. In addition, bad
debt expense increased for the nine-month period. The increase in operating
expense is due to increases in property and maintenance expenses. Property
expenses increased due to increases in utilities and contract courtesy patrols
at the property. Maintenance expense increased due to increases in contract
labor and maintenance supplies. Interest expense increased due to higher
balances due to affiliates. Property tax expense for the three month period
increased due to a change in estimate for the amount of 2003 property taxes (see
"Item 1. Financial Statements, Note E - Third Quarter Adjustment"). Property tax
expense for the nine month period increased due to a refund received during
2003. Bad debt expense increased as the result of increased standards for
tenants as property management attempts to develop a more stable tenant base.
For the nine months ended September 30, 2004 total revenues decreased due to a
decrease in rental income partially offset by an increase in other income.
Rental income decreased due to a decrease in occupancy at Deerfield Apartments.
Other income increased due to an increase in lease cancellation fees.
In October 2002, the Partnership's investment property, Deerfield Apartments,
incurred mold damage. As a result of the damage, approximately $44,000 of fixed
assets and approximately $13,000 of accumulated depreciation were written off
resulting in a net write off of approximately $31,000. 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.
During the nine months ended September 30, 2004, a net casualty gain of
approximately $16,000 was recorded at Deerfield Apartments. The casualty gain
related to wind damage to the apartment complex that occurred in July 2003. The
gain was a result of the receipt of insurance proceeds of approximately $36,000
offset by approximately $20,000 of undepreciated fixed assets being written off.
Included in general and administrative expenses for both periods are management
reimbursements to the General Partner as allowed under the Partnership
Agreement. Also included are costs associated with the quarterly and annual
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement.
Liquidity and Capital Resources
At September 30, 2004, the Partnership had cash and cash equivalents of
approximately $90,000 compared to approximately $81,000 at September 30, 2003.
The increase in cash and cash equivalents of approximately $44,000 from December
31, 2003, is due to approximately $546,000 of cash provided by financing
activities, partially offset by approximately $296,000 of cash used in operating
activities and approximately $206,000 of cash used in investing activities. Cash
provided by financing activities consisted of advances received from an
affiliate of the General Partner partially offset by payments of principal made
on the mortgage encumbering the Partnership's property. Cash used in investing
activities consisted of net deposits to escrow accounts maintained by the
mortgage lender and property improvements and replacements partially offset by
insurance proceeds received. 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. For example, 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. Capital improvements planned for
the Partnership's property are detailed below.
Deerfield Apartments
During the nine months ended September 30, 2004, the Partnership completed
approximately $249,000 of capital improvements at Deerfield Apartments,
consisting primarily of casualty repairs, paving improvements and appliance and
floor covering replacements. These improvements were funded from affiliate loans
and insurance proceeds. The Partnership evaluates the capital improvement needs
of the property during the year and currently expects to complete an additional
$60,000 in capital improvements during the remainder of 2004. The General
Partner is currently evaluating additional capital improvements needed at the
property to improve its condition and increase occupancy.
The additional capital expenditures will be incurred only if cash is available
from affiliate loans, 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 the Partnership's investment property of approximately
$3,312,000 has a maturity date of December 2004 and requires a balloon payment
of approximately $3,303,000 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, 2004 and 2003. 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 maturity, refinancing, and/or property sale. In light of the
amount due to an affiliate of the General Partner at September 30, 2004, it is
not anticipated that the Partnership will make any distributions in the
foreseeable future.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 14,328 limited partnership units
(the "Units") in the Partnership representing 36.47% of the outstanding Units at
September 30, 2004. 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 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 December 31, 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 AIMCO as its sole stockholder. As a result, the duties of
the General Partner, as general partner, to the Partnership and its limited
partners may come into conflict with the duties of the General Partner to AIMCO
as its sole stockholder.
Critical Accounting Policies and Estimates
The 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
asset.
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. On March 5, 2004 Plaintiffs filed an
amended complaint also naming NHP Management Company, which is also an affiliate
of the General Partner. 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 defendants have filed
an answer to the amended complaint denying the substantive allegations. Some
discovery has taken place and settlement negotiations continue. Although the
outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe
that the ultimate outcome will have a material adverse effect on its financial
condition or results of operations. Similarly, the General Partner does not
believe that the ultimate outcome will have a material adverse effect on the
Partnership's consolidated financial condition or results of operations.
ITEM 6. EXHIBITS
See Exhibit Index Attached.
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/Stephen B. Waters
Stephen B. Waters
Vice President
Date: November 15, 2004
UNITED INVESTORS GROWTH PROPERTIES
INDEX TO EXHIBITS
Exhibit
1.0 Form of Dealer Manager Agreement between the General Partner
and the Dealer Manager, including Form of Soliciting Broker
Agreement; incorporated by reference to Exhibit 1 to
Partnership's Amendment to Registration Statement (File No.
33-21114) previously filed on June 9, 1988.
1.1 Amendment to Dealer Manager Agreement; incorporated by
reference to Exhibit 1.1 to Post-Effective Amendment No. 2 to
Partnership's Registration Statement previously filed on March
21, 1989.
4.1 Form of Subscription Agreement; incorporated by reference as
part of the Prospectus of Partnership contained in
Partnership's Amendment to Registration Statement previously
filed on June 9, 1988.
4.2 Form of Agreement of Limited Partnership of Partnership;
incorporated by reference as part of the Prospectus of
Partnership contained in Partnership's Amendment to
Registration Statement previously filed on June 9, 1988.
4.3 Seventh Amendment to Agreement of Limited Partnership of
Partnership; incorporated by reference to Exhibit 4.3 to
Partnership's Quarterly Report on Form 10-Q previously filed
on May 15, 1989.
10.1 Escrow Agreement among the Partnership, the General Partner,
the Dealer Manager, and Boston Safe Deposit & Trust Company;
incorporated by reference to Exhibit 10.1 to Partnership's
Amendment to Registration Statement previously filed on June
9, 1988.
10.1.1 Amendment to Escrow Agreement; incorporated by reference to
Exhibit 10.1.1 to Partnership's Quarterly Report on Form 10-Q
previously filed on November 3, 1989.
10.2 Agreement of Purchase and Sale, dated June 9, 1988, with
amendments dated June 27, 1988 and July 5, 1988, respectively,
between United Investors Real Estate, Inc., as nominee for
United Investors Growth Properties, as purchaser, and
Domion-Bothell Associates, as seller, relating to Terrace
Royale Apartments; incorporated by reference to Exhibit 10.1
to Partnership's Quarterly Report on Form 10-Q previously
filed on August 11, 1988.
10.10 Agreement of Purchase and Sale, between United Investors
Growth Properties (a Missouri limited partnership), as
purchaser, and Deerfield Apartments Limited (A Tennessee
Limited Partnership), as seller, dated July 18, 1990, relating
to Deerfield Apartments; incorporated by reference to Exhibit
10.10 to Partnership's Quarterly Report on Form 10-Q
previously filed on August 15, 1990.
10.19 Promissory Note dated November 20, 1997, by and between
Deerfield Apartments, L.L.C., a South Carolina limited
liability company and Lehman Brothers Holdings, Inc., a
Delaware corporation, incorporated by reference to Exhibit
10.10 to Partnership's Annual Report on Form 10-KSB previously
filed on March 26, 1998.
10.22 Purchase and Sale Agreement dated February 12, 2004 by and
between AIMCO, Everest Properties, Inc., a California
corporation, and Everest Properties, LLC, a California limited
liability company; incorporated by reference to Exhibit 10.22
to Partnership's Annual Report on Form 10-KSB previously filed
on April 5, 2004.
10.23 Demand Promissory Note dated February 19, 2004 by and between
the Registrant and AIMCO Properties, L.P., incorporated by
reference to Exhibit 10.23 to Partnership's Annual Report on
Form 10-KSB previously filed on April 5, 2004.
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.
99.1 Portions of Prospectus of Partnership dated June 13, 1988;
incorporated by reference to Exhibit 99.1 to Partnership's
Report on Form 10-K previously filed on March 6, 1991.
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 small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer'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 small business issuer 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
small business issuer, 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 small business issuer'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 small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer'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 small business issuer'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 small business
issuer's internal control over financial reporting.
Date: November 15, 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, Stephen B. Waters, 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 small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer'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 small business issuer 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
small business issuer, 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 small business issuer'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 small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer'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 small business issuer'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 small business
issuer's internal control over financial reporting.
Date: November 15, 2004
/s/Stephen B. Waters
Stephen B. Waters
Vice President of United Investors
Real Estate, 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,
2004 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 Stephen B. Waters, 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: November 15, 2004
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: November 15, 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.