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 June 30, 2005
[ ] 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)
June 30, 2005
Assets
Cash and cash equivalents $ 98
Receivables and deposits 23
Restricted escrows 76
Other assets 92
Investment property:
Land $ 240
Buildings and related personal property 5,434
5,674
Less accumulated depreciation (2,828) 2,846
$ 3,135
Liabilities and Partners' Deficit
Liabilities
Tenant security deposit liabilities $ 19
Accrued property taxes 40
Other liabilities 27
Due to affiliates (Note C) 3,109
Mortgage note payable 1,847
Partners' Deficit
General partner $ (29)
Limited partners (39,287 units
issued and outstanding) (1,878) (1,907)
$ 3,135
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 Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Revenues:
Rental income $ 204 $ 137 $ 408 $ 269
Other income 9 23 21 81
Casualty gain (Note D) -- 16 -- 16
Total revenues 213 176 429 366
Expenses:
Operating 96 127 198 232
General and administrative 26 29 44 43
Depreciation 70 61 142 126
Interest 87 78 166 152
Property taxes 24 26 47 60
Bad debt 3 21 11 109
Total expenses 306 342 608 722
Net loss $ (93) $ (166) $ (179) $ (356)
Net loss allocated to
general partner (1%) $ (1) $ (2) $ (2) $ (4)
Net loss allocated to
limited partners (99%) (92) (164) (177) (352)
$ (93) $ (166) $ (179) $ (356)
Net loss per limited partnership unit $(2.34) $(4.17) $(4.51) $(8.96)
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, 2004 39,287 $ (27) $(1,701) $(1,728)
Net loss for the six months
ended June 30, 2005 -- (2) (177) (179)
Partners' deficit at
June 30, 2005 39,287 $ (29) $(1,878) $(1,907)
See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2005 2004
Cash flows from operating activities:
Net loss $ (179) $ (356)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Casualty gain -- (16)
Depreciation 142 126
Bad debt expense 11 109
Amortization of loan costs 19 8
Change in accounts:
Receivables and deposits (12) (72)
Other assets 10 (19)
Accounts payable (52) (82)
Tenant security deposit liabilities 2 (4)
Accrued property taxes (4) 7
Due to affiliates 133 42
Other liabilities (21) (5)
Net cash provided by (used in) operating
activities 49 (262)
Cash flows from investing activities:
Insurance proceeds received -- 36
Property improvements and replacements (43) (64)
Net deposits to restricted escrows (5) (19)
Net cash used in investing activities (48) (47)
Cash flows from financing activities:
Advances from affiliates -- 586
Payments on advances from affiliates (10) --
Payments on mortgage note payable (20) (27)
Net cash (used in) provided by financing
activities (30) 559
Net (decrease) increase in cash and cash equivalents (29) 250
Cash and cash equivalents at beginning of period 127 46
Cash and cash equivalents at end of period $ 98 $ 296
Supplemental disclosure of cash flow information:
Cash paid for interest $ 28 $ 122
At December 31, 2004, approximately $15,000 of property improvements and
replacements were included in accounts payable and are included in property
improvements and replacements at June 30, 2005.
See Accompanying Notes to Consolidated Financial Statements
UNITED INVESTORS GROWTH PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Going Concern
The accompanying unaudited consolidated financial statements have been prepared
assuming United Investors Growth Properties (the "Partnership" or "Registrant")
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. During the year ended December 31, 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 unaudited consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of these
uncertainties.
Note B - Basis of Presentation
The accompanying unaudited consolidated financial statements of the Partnership
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 six months ended
June 30, 2005, are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2005. 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, 2004.
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.
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. Pursuant to the Services Agreement in effect for a
portion of 2003 and 2004, these services were to be provided by Everest 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 the General Partner receive 5% of gross receipts from the
Partnership's property as compensation for providing property management
services. The Partnership paid to such affiliates approximately $21,000 and
$14,000 for the six months ended June 30, 2005 and 2004, respectively, which is
included in operating expenses.
An affiliate of the General Partner charged the Partnership reimbursement of
accountable administrative expenses amounting to approximately $24,000 and
$23,000 for the six months ended June 30, 2005 and 2004, respectively, which is
included in general and administrative expense and investment property. The
portion of these reimbursements included in investment property for the six
months ended June 30, 2005 and 2004 are fees related to construction management
services provided by an affiliate of the General Partner of approximately $1,000
and $2,000, respectively. The fees are calculated based on a percentage of
additions to the investment property. As of June 30, 2005, the Partnership owed
an affiliate of the General Partner approximately $143,000 of accrued
accountable administrative expenses, which is included in due to affiliates.
During the six months ended June 30, 2004, an affiliate of the General Partner
advanced the Partnership approximately $586,000 to cover operating obligations
at Deerfield Apartments. There were no such advances during the six months ended
June 30, 2005, however, the Partnership made payments on previous advances of
approximately $10,000 during this period. Interest is charged at prime plus 2%
or 8.25% at June 30, 2005. Interest expense was approximately $111,000 and
$21,000 during the six months ended June 30, 2005 and 2004, respectively. At
June 30, 2005, the Partnership owed an affiliate of the General Partner
approximately $2,966,000 for advances and accrued interest.
The Partnership insures its property up to certain limits through coverage
provided by AIMCO which is generally self-insured for a portion of losses and
liabilities related to workers' compensation, property casualty, general
liability and vehicle liability. The Partnership insures its property above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the General Partner. During both the six months ended June 30,
2005 and 2004, the Partnership was charged by AIMCO and its affiliates
approximately $14,000 for insurance coverage and fees associated with policy
claims administration.
Note D - Casualty Gain
During the six months ended June 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 - Contingencies
As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both
affiliates of the General Partner, are defendants in a lawsuit alleging that
they 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 attempts to bring 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. and NHP
Management Company failed to compensate maintenance workers for time that they
were required to be "on-call". Additionally, the complaint alleges AIMCO
Properties L.P. and NHP Management Company failed to comply with the FLSA in
compensating maintenance workers for time that they worked in excess of 40 hours
in a week. On June 23, 2005 the Court conditionally certified the collective
action on both the on-call and overtime issues. The Court ruling allows
plaintiffs to provide notice of the collective action to all non-exempt
maintenance workers from August 7, 2000 through the present. Those employees
will have the opportunity to opt-in to the collective action. Defendants have
asked the Court to reconsider its ruling or in the alternative certify the
ruling for appeal on that issue. After the notice goes out, defendants will have
the opportunity to move to decertify the collective action. The Court further
denied plaintiffs' Motion for Certification of the state subclass. 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
consolidated 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.
Environmental
Various Federal, state and local laws subject property owners or operators to
liability for management, and the costs of removal or remediation, of certain
hazardous substances present on a property. Such laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the release or presence of the hazardous substances. The presence of, or the
failure to manage or remedy properly, hazardous substances may adversely affect
occupancy at affected apartment communities and the ability to sell or finance
affected properties. In addition to the costs associated with investigation and
remediation actions brought by government agencies, and potential fines or
penalties imposed by such agencies in connection therewith, the presence of
hazardous substances on a property could result in claims by private plaintiffs
for personal injury, disease, disability or other infirmities. Various laws also
impose liability for the cost of removal, remediation or disposal of hazardous
substances through a licensed disposal or treatment facility. Anyone who
arranges for the disposal or treatment of hazardous substances is potentially
liable under such laws. These laws often impose liability whether or not the
person arranging for the disposal ever owned or operated the disposal facility.
In connection with the ownership, operation and management of its property, the
Partnership could potentially be liable for environmental liabilities or costs
associated with its property.
Mold
The Partnership is aware of lawsuits against owners and managers of multifamily
property asserting claims of personal injury and property damage caused by the
presence of mold, some of which have resulted in substantial monetary judgments
or settlements. The Partnership has only limited insurance coverage for property
damage loss claims arising from the presence of mold and for personal injury
claims related to mold exposure. Affiliates of the General Partner have
implemented a national policy and procedures to prevent or eliminate mold from
its properties and the General Partner believes that these measures will
minimize the effects that mold could have on residents. To date, the Partnership
has not incurred any material costs or liabilities relating to claims of mold
exposure or to abate mold conditions. Because the law regarding mold is
unsettled and subject to change the General Partner can make no assurance that
liabilities resulting from the presence of or exposure to mold will not have a
material adverse effect on the Partnership's consolidated financial condition or
results of operations.
SEC Investigation
The Central Regional Office of the United States Securities and Exchange
Commission (the "SEC") continues its 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 have included 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, tax credit transactions, and
tender offers for limited partnership interests. AIMCO is cooperating fully.
AIMCO is not able to predict when the investigation 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
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 six month periods ended June 30, 2005 and 2004:
Average Occupancy
Property 2005 2004
Deerfield Apartments 93% 63%
Memphis, Tennessee
The General Partner attributes the increase in occupancy at Deerfield Apartments
to the completion of property improvements which have made the property more
attractive to tenants and to aggressive marketing in the local area.
The Partnership's financial results depend upon a number of factors including
the ability to attract and maintain tenants at the investment property, 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 six months ended June 30, 2005 was
approximately $93,000 and $179,000, respectively, compared to net loss of
approximately $166,000 and $356,000 for the corresponding periods in 2004. The
decrease in net loss for both periods is due to an increase in total revenues
and a decrease in total expenses. Total revenues for both periods increased due
to an increase in rental income partially offset by a decrease in other income
and a casualty gain recognized in 2004. Rental income increased due to increases
in occupancy and the average rental rate at Deerfield Apartments. Other income
decreased due to a decrease in lease cancellation fees.
During the six months ended June 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.
Total expenses for the three month period decreased due to decreases in
operating and bad debt expenses partially offset by increases in depreciation
and interest expenses. Total expenses for the six month period decreased due to
decreases in operating, property tax and bad debt expenses partially offset by
increases in depreciation and interest expenses. Operating expense for both
periods decreased due to decreases in administrative and maintenance expenses.
Administrative expenses decreased due to a decrease in ad valorem tax fees and
legal expenses. Maintenance expense decreased due to decreases in contract labor
and parts, supplies and repairs at the investment property. Property tax expense
for the six month period decreased due to a decrease in the assessed value at
Deerfield Apartments due to a successful appeal. Bad debt expense for both
periods decreased due to increased standards for tenants, which has resulted in
a more stable tenant base. Depreciation expense for both periods increased due
to assets placed into service at the investment property. Interest expense for
both periods increased due to an increase in the balance of advances due to an
affiliate of the General Partner partially offset by a decrease in interest
expense on the mortgage at Deerfield Apartments due to the refinancing of the
mortgage at a lower rate and balance during 2004.
Included in general and administrative expenses for the six months ended June
30, 2005 and 2004 are management reimbursements to the General Partner as
allowed under the Partnership Agreement. Also included in general and
administrative expense 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 June 30, 2005, the Partnership had cash and cash equivalents of approximately
$98,000 compared to approximately $296,000 at June 30, 2004. The decrease in
cash and cash equivalents of approximately $29,000 from December 31, 2004, is
due to approximately $48,000 of cash used in investing activities and
approximately $30,000 of cash used in financing activities, partially offset by
approximately $49,000 of cash provided by operating activities. Cash used in
investing activities consisted of property improvements and replacements and
deposits to restricted escrows. Cash used in financing activities consisted of
payments on advances received from an affiliate of the General Partner and
payments of principal made on the mortgage encumbering the Partnership's
property. 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. 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 six months ended June 30, 2005, the Partnership completed
approximately $28,000 of capital improvements at Deerfield Apartments,
consisting primarily of appliance and floor covering replacements. These
improvements were funded from operating cash flow. The Partnership evaluates the
capital improvement needs of the property during the year. While the Partnership
has no material commitments for property improvements and replacements, certain
routine capital expenditures are anticipated during 2005. Such capital
expenditures will depend on the physical condition of the property as well as
anticipated cash flow generated by the property.
Capital expenditures will be incurred only if cash is available from operations
or from Partnership reserves. To the extent that capital improvements are
completed, the Partnership's distributable cash flow, if any, may be adversely
affected at least in the short term.
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
$1,847,000 has a maturity date of September 2007 and requires a balloon payment
of approximately $1,743,000 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.
There were no cash distributions made by the Partnership during the six months
ended June 30, 2005 and 2004. Future cash 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. The
Partnership's cash available for distribution is reviewed on a monthly basis. In
light of the amount due to an affiliate of the General Partner at June 30, 2005,
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 14,354 limited partnership units
(the "Units") in the Partnership representing 36.54% of the outstanding Units at
June 30, 2005. 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 the 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.
The Partnership will offer rental concessions during particularly slow months or
in response to heavy competition from other similar complexes in the area.
Rental income attributable to leases, net of any concessions, is recognized on a
straight-line basis over the term of the lease. The Partnership evaluates all
accounts receivable from residents and establishes an allowance, after the
application of security deposits, for accounts greater than 30 days past due on
current tenants and all receivables due from former tenants.
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
As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both
affiliates of the General Partner, are defendants in a lawsuit alleging that
they 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 attempts to bring 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. and NHP
Management Company failed to compensate maintenance workers for time that they
were required to be "on-call". Additionally, the complaint alleges AIMCO
Properties L.P. and NHP Management Company failed to comply with the FLSA in
compensating maintenance workers for time that they worked in excess of 40 hours
in a week. On June 23, 2005 the Court conditionally certified the collective
action on both the on-call and overtime issues. The Court ruling allows
plaintiffs to provide notice of the collective action to all non-exempt
maintenance workers from August 7, 2000 through the present. Those employees
will have the opportunity to opt-in to the collective action. Defendants have
asked the Court to reconsider its ruling or in the alternative certify the
ruling for appeal on that issue. After the notice goes out, defendants will have
the opportunity to move to decertify the collective action. The Court further
denied plaintiffs' Motion for Certification of the state subclass. 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
consolidated 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 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
See Exhibit Index.
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: August 12, 2005
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.
10.10 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.
10.22 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.
10.24 Multifamily Deed of Trust, Assignment of Rents and Security
Agreement dated November 30, 2004 between Deerfield Apartments,
L.L.C., a limited liability company organized in South Carolina, and
GMAC Commercial Mortgage Corporation (incorporated by reference to
Current Report on Form 8-K dated December 1, 2004).
10.25 Multifamily Note dated November 30, 2004 between the Registrant and
GMAC Commercial Mortgage Corporation (incorporated by reference to
Current Report on Form 8-K dated December 1, 2004).
10.26 Guaranty dated November 30, 2004 by AIMCO Properties, L.P., for the
benefit of GMAC Commercial Mortgage Corporation (incorporated by
reference to Current Report on Form 8-K dated December 1, 2004).
10.27 Assignment of Security Instrument dated November 30, 2004 between
GMAC Commercial Mortgage Corporation and Fannie Mae (incorporated by
reference to Current Report on Form 8-K dated December 1, 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 of the equivalent of the Chief Executive Officer and
Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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: August 12, 2005
/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: August 12, 2005
/s/Stephen B. Waters
Stephen B. Waters
Vice President 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 June 30, 2005 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: August 12, 2005
/s/Stephen B. Waters
Name: Stephen B. Waters
Date: August 12, 2005
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.