FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from_________to________
Commission file number 0-17645
UNITED INVESTORS GROWTH PROPERTIES
(Exact name of small business issuer as specified in its charter)
Missouri 43-1483928
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, 1998
(in thousands, except unit data)
Assets
Cash and cash equivalents $ 765
Receivables and deposits, net of
allowance of $66 220
Restricted escrows 145
Other assets 290
Investment properties:
Land $ 1,979
Buildings and related personal property 15,328
17,307
Less accumulated depreciation (5,087) 12,220
$13,640
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 49
Tenant security deposit liabilities 95
Accrued property taxes 168
Other liabilities 195
Mortgage notes payable, $3,605 in default (Note C) 13,560
Partners' Deficit
General partner's $ (10)
Limited partners' (39,287 units issued
and outstanding) (417) (427)
$13,640
See Accompanying Notes to Consolidated Financial Statements
b)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues:
Rental income $ 790 $ 740 $1,521 $1,463
Other income 34 38 75 75
Total revenues 824 778 1,596 1,538
Expenses:
Operating 337 329 666 617
General and administrative 28 21 53 41
Depreciation 145 138 289 276
Interest 266 287 529 574
Property taxes 80 80 160 161
Total expenses 856 855 1,697 1,669
Net loss $ (32) $ (77) $ (101) $ (131)
Net loss allocated to
general partner (1%) $ -- $ (1) $ (1) $ (1)
Net loss allocated to
limited partners (99%) (32) (76) (100) (130)
$ (32) $ (77) $ (101) $ (131)
Net loss per limited
partnership unit $ (.81) $(1.93) $(2.55) $(3.31)
Distributions per limited
partner unit $ -- $ -- $10.08 $ --
See Accompanying Notes to Consolidated Financial Statements
c)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original capital contributions 39,297 $ -- $ 9,824 $ 9,824
Partners' (deficit) capital at
December 31, 1997 39,287 $ (5) $ 79 $ 74
Distribution to partners -- (4) (396) (400)
Net loss for the six months
ended June 30, 1998 -- (1) (100) (101)
Partners' deficit at
June 30, 1998 39,287 $ (10) $ (417) $ (427)
See Accompanying Notes to Consolidated Financial Statements
d)
UNITED INVESTORS GROWTH PROPERTIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Net loss $ (101) $ (131)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 289 276
Amortization of loan costs, lease commissions
and loan premiums (15) (15)
Change in accounts:
Receivables and deposits 3 (3)
Other assets 3 (38)
Accounts payable 6 27
Tenant security deposit liabilities 9 5
Accrued property taxes 44 49
Other liabilities 44 2
Net cash provided by operating activities 282 172
Cash flows from investing activities:
Property improvements and replacements (112) (43)
Net deposits to restricted escrows (36) --
Net cash used in investing activities (148) (43)
Cash flows from financing activities:
Payments of mortgage notes payable (72) (91)
Loan costs paid (17) (9)
Distributions to partners (400) --
Net cash used in financing activities (489) (100)
Net (decrease) increase in cash and cash equivalents (355) 29
Cash and cash equivalents at beginning of period 1,120 399
Cash and cash equivalents at end of period $ 765 $ 428
Supplemental disclosure of cash flow information:
Cash paid for interest $ 494 $ 593
See Accompanying Notes to Consolidated Financial Statements
e)
UNITED INVESTORS GROWTH PROPERTIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of United Investors
Growth Properties (the "Partnership"), have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of United Investors Real Estate, Inc., a Delaware corporation
(the "General Partner"), all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ended June 30, 1998 are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 1998. 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, 1997.
Reclassifications
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
Principles of Consolidation
During 1994, Cheyenne Woods Apartments was restructured into a lower tier
partnership, known as Cheyenne Woods United Investors, L.P. During the third
quarter of 1997 Cheyenne Woods United Investors, L.P. was restructured into a
limited liability company known as Cheyenne Woods United Investors, L.L.C.
("Cheyenne"). United Investors Growth Properties owns 100% of the new entity.
Although legal ownership of the asset was transferred to a new entity, United
Investors Growth Properties retained all economic benefits from the property.
The Partnership consolidates its interest in Cheyenne (whereby all accounts of
Cheyenne are included in the consolidated financial statements of the
Partnership with intercompany accounts being eliminated).
During the fourth quarter of 1997 Deerfield Apartments was organized into a
limited liability company known as Deerfield Apartments, L.L.C. ("Deerfield").
United Investors Growth Properties owns 100% of the new entity. Although legal
ownership of the asset was transferred to a new entity, United Investors Growth
Properties retained the ability to control the major operating and financial
policies of the property and all economic benefits from the property. As a
result, the Partnership consolidates its interest in Deerfield (whereby all
accounts of Deerfield are included in the consolidated financial statements of
the Partnership with intercompany accounts being eliminated).
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
Prior to February 25, 1998, the General Partner was wholly-owned by MAE GP
Corporation ("MAE GP"), an affiliate of Insignia Financial Group, Inc.
("Insignia"). Effective February 25, 1998, MAE GP was merged into Insignia
Properties Trust ("IPT") which is an affiliate of Insignia. Thus, the General
Partner is now a wholly-owned subsidiary of IPT. The partnership agreement
provides for payments to affiliates for property management services and for
reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.
The following payments were made to affiliates of the General Partner for the
six month periods ended June 30, 1998 and 1997 (in thousands):
1998 1997
Property management fees (included in operating expenses) $80 $79
Reimbursement for services of affiliates (included in
general and administrative expenses) 24 16
In addition, the Partnership paid approximately $1,000 and $5,000 during the six
month periods ended June 30, 1998 and 1997, respectively, to an affiliate of the
General Partner for construction oversight reimbursements related to capital
improvements and major repair projects. These costs are included in investment
properties and operating expense.
For the period of January 1, 1997 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
General Partner with an insurer unaffiliated with the General Partner. An
affiliate of the General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the master policy. The agent assumed the financial
obligations to the affiliate of the General Partner which received payments on
these obligations from the agent. The amount of the Partnership's insurance
premiums that accrued to the benefit of the affiliate of the General Partner by
virtue of the agent's obligations was not significant.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT,
with Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust. The closing, which is anticipated to happen in
September or October of 1998, is subject to customary conditions, including
government approvals and the approval of Insignia's shareholders. If the
closing occurs, AIMCO will then control the General Partner of the Partnership.
NOTE C - MORTGAGE NOTE PAYABLE, IN DEFAULT
The Partnership's mortgage note payable for Greystone South Plaza Center of
$3,605,000 is currently in default. Due to the property's limited cash flow,
the real property taxes on Greystone due in December 1997 and the May and June
interest-only mortgage payments have not been paid. The Partnership has
received notice that the lender filed a motion for the appointment of
receivership on Greystone on July 30, 1998. The hearing on this matter will be
held August 11, 1998. Once the lender forecloses on the property, the General
Partner anticipates that the Partnership's liquidity will not be significantly
impacted.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of three apartment complexes and
a retail center. The following table sets forth the average occupancy of the
properties for each of the six month periods ended June 30, 1998 and 1997:
Average
Occupancy
Property 1998 1997
Terrace Royale Apartments
Bothell, Washington 98% 94%
Cheyenne Woods Apartments
North Las Vegas, Nevada 89% 95%
Greystone South Plaza Center
Lenexa, Kansas 89% 78%
Deerfield Apartments
Memphis, Tennessee 95% 86%
The General Partner attributes the decrease in occupancy at Cheyenne Woods to an
overbuilt local market resulting from 20,000 new units being built in the area
during the last year and increased first time home purchases. Deerfield's
occupancy increased due to the completion of road construction in front of the
property and to an improved local market as a result of new employers moving to
the Memphis area. Occupancy increased at Greystone as a result of reduced rental
rates and increased use of concessions. Terrace Royal's occupancy increased due
to an improved local market.
The Partnership realized a net loss of approximately $101,000 for the six month
period ended June 30, 1998, compared to a net loss of approximately $131,000 for
the six month period ended June 30, 1997. The Partnership realized a net loss
of approximately $32,000 for the three month period ended June 30, 1998,
compared to a net loss of approximately $77,000 for the three month period ended
June 30, 1997. The decreases in net loss are primarily attributable to increased
rental revenue and decreased interest expense. Rental revenue increased as a
result of increased rental rates and improved occupancy at Terrace Royale and
Deerfield. This was partially offset by decreased occupancy at Cheyenne Woods,
as discussed above. Rental income at Greystone remained stable, as an occupancy
increase was offset by rental rate decreases. Interest expense decreased due to
the refinancing of Cheyenne Woods at a lower interest rate in 1997. Partially
offsetting the increased rental revenue and decreased interest expense was an
increase in operating expense. Included in operating expense for the six months
ended June 30, 1998 was approximately $64,000 of major repairs and maintenance
comprised primarily of an exterior painting project at Deerfield. Included in
operating expense for the six months ended June 30, 1997 was approximately
$13,000 of major repairs and maintenance comprised primarily of landscaping and
exterior building repairs.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of its investment properties to assess
the feasibility of increasing rents, maintaining or increasing occupancy levels
and protecting the Partnership from increases in expenses. As part of this
plan, the General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. However, due to changing market conditions, which
can result in the use of rental concessions and rental reductions to offset
softening market conditions, there is no guarantee that the General Partner will
be able to sustain such a plan.
At June 30, 1998, the Partnership had cash and cash equivalents of approximately
$765,000 compared to approximately $428,000 at June 30, 1997. The net decrease
in cash and cash equivalents for the six month period ended June 30, 1998 was
approximately $355,000 compared to a net increase of approximately $29,000 for
the six month period ended June 30, 1997. Net cash provided by operating
activities increased primarily due to the decrease in cash used for other assets
and other liabilities relating to the timing of payments. Net cash used in
investing activities increased due to increased property improvements and
replacements and increased deposits to restricted escrows, as a result of
escrows established with the refinancing of Cheyenne Woods and Deerfield
Apartments in 1997. Net cash used in financing activities increased due to the
distribution made during the first quarter of 1998.
On August 8, 1997, the Partnership refinanced the mortgage encumbering Cheyenne
Woods Apartments. The refinancing replaced indebtedness of approximately
$3,800,000 with a new mortgage in the amount of $3,850,000 at an interest rate
of 7.67%. Interest on the old mortgage was 10.5%. Payments are due on the first
day of each month until the loan matures on September 1, 2007. Total
capitalized loan costs were approximately $87,000. The Partnership recognized
an extraordinary loss in the amount of approximately $22,000 due to the write
off of unamortized loan costs.
On November 20, 1997, the Partnership refinanced the mortgage encumbering
Deerfield Apartments. The refinancing replaced indebtedness of approximately
$2,634,000 with a new mortgage in the amount of $3,600,000 at an interest rate
of 7.34%. Interest on the old mortgage was 9.15%. Payments are due on the
first day of each month until the loan matures on December 1, 2004. Total
capitalized loan costs were approximately $114,000. The Partnership recognized
an extraordinary loss in the amount of approximately $14,000 due to the write
off of unamortized loan costs.
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 various properties to adequately maintain the
physical assets as well as future maturing mortgage obligations and related
refinancing expenses. The mortgage indebtedness of $13,560,000 matures at
various times with balloon payments due at maturity at which time the properties
will either be refinanced, sold or foreclosed on. The mortgage encumbering
Terrace Royale matures in November 1998. The General Partner expects to
refinance the debt before the maturity date. Currently the mortgage note payable
for Greystone South Plaza Center of $3,605,000 is in default. Due to the
property's limited cash flow, the real property taxes on Greystone due in
December 1997 and the May and June interest-only mortgage payments have not been
paid. The Partnership has received notice that the lender filed a motion for
the appointment of receivership on Greystone on July 30, 1998. The hearing on
this matter will be held August 11, 1998. Once the lender forecloses on
Greystone, the General Partner anticipates that the Partnership's liquidity will
not be significantly impacted, as the property has operated at approximately
break even on a cash flow basis during 1997 and the first six months of 1998. A
cash distribution of $400,000 was made during the first six months of 1998.
This distribution represented a portion of net proceeds from the mortgage
refinancing at Deerfield. No distributions were made during the first six
months of 1997. Future cash distributions will depend on the levels of net cash
generated from operations, property sales, refinancings, and the availability of
cash reserves. The General Partner does not anticipate making any further
distributions in 1998.
Year 2000
The Partnership is dependent upon the General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The General Partner believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the
Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date of
this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 1998.
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/ Carroll D. Vinson
Carroll D. Vinson
President and Director
By: /s/ Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President
and Chief Accounting Officer
Date: August 12, 1998