10QSB 1 uigp.txt UIGP FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Quarterly or Transitional Report U.S. Securities and Exchange Commission Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 For the quarterly period ended September 30, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 For the transition period from _________to _________ Commission file number 0-17645 UNITED INVESTORS GROWTH PROPERTIES (Exact name of small business issuer as specified in its charter) Missouri 43-1483928 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) UNITED INVESTORS GROWTH PROPERTIES CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) September 30, 2001
Assets Cash and cash equivalents $ 128 Receivables and deposits 61 Restricted escrows 79 Other assets 166 Investment properties: Land $ 893 Buildings and related personal property 8,848 9,741 Less accumulated depreciation (3,894) 5,847 $ 6,281 Liabilities and Partners' Deficit Liabilities Accounts payable $ 25 Tenant security deposit liabilities 44 Accrued property taxes 37 Other liabilities 109 Mortgage notes payable 6,718 Partners' Deficit General partner $ (12) Limited partners (39,287 units issued and outstanding) (640) (652) $ 6,281 See Accompanying Notes to Consolidated Financial Statements
b) 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, 2001 2000 2001 2000 Revenues: Rental income $ 429 $ 673 $1,229 $1,984 Other income 26 57 82 156 Casualty gain -- -- 36 -- Total revenues 455 730 1,347 2,140 Expenses: Operating 162 327 548 895 General and administrative 32 35 128 118 Depreciation 101 169 310 507 Interest 123 204 376 601 Property taxes 43 73 139 194 Total expenses 461 808 1,501 2,315 Loss before extraordinary item (6) (78) (154) (175) Loss on early extinguishment of debt -- -- (57) -- Net loss $ (6) $ (78) $ (211) $ (175) Net loss allocated to general partner (1%) $ -- $ (1) $ (2) $ (2) Net loss allocated to limited partners (99%) (6) (77) (209) (173) $ (6) $ (78) $ (211) $ (175) Per limited partnership unit: Net loss before extraordinary item $ (.15) $(1.96) $(3.88) $(4.40) Loss on early extinguishment of debt -- -- (1.44) -- $ (.15) $(1.96) $(5.32) $(4.40) Distributions per limited partnership unit $ 1.89 $ -- $14.36 $10.08 See Accompanying Notes to Consolidated Financial Statements
c) UNITED INVESTORS GROWTH PROPERTIES CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (Unaudited) (in thousands, except unit data)
Limited Partnership General Limited Units Partner Partners Total Original capital contributions 39,297 $ -- $ 9,824 $ 9,824 Partners' (deficit) capital at December 31, 2000 39,287 $ (4) $ 133 $ 129 Distribution to partners -- (6) (564) (570) Net loss for the nine months ended September 30, 2001 -- (2) (209) (211) Partners' deficit at September 30, 2001 39,287 $ (12) $ (640) $ (652) See Accompanying Notes to Consolidated Financial Statements
d) UNITED INVESTORS GROWTH PROPERTIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Nine Months Ended September 30, 2001 2000 Cash flows from operating activities: Net loss $ (211) $ (175) Adjustments to reconcile net loss to net cash provided by operating activities: Extraordinary loss on early extinguishment of debt 57 -- Casualty gain (36) -- Depreciation 310 507 Amortization of loan costs 17 23 Change in accounts: Receivables and deposits 22 133 Other assets 6 (17) Accounts payable (14) (21) Tenant security deposit liabilities (33) 4 Accrued property taxes (5) (11) Other liabilities (41) (34) Net cash provided by operating activities 72 409 Cash flows from investing activities: Proceeds from sale of investment property 352 -- Net insurance proceeds received 69 -- Property improvements and replacements (173) (249) Net (deposits to) withdrawals from restricted escrows (5) 50 Net cash provided by (used in) investing activities 243 (199) Cash flows from financing activities: Payments on mortgage notes payable (105) (129) Distributions to partners (570) (400) Net cash used in financing activities (675) (529) Net decrease in cash and cash equivalents (360) (319) Cash and cash equivalents at beginning of period 488 774 Cash and cash equivalents at end of period $ 128 $ 455 Supplemental disclosure of cash flow information: Cash paid for interest $ 379 $ 575 Supplemental disclosure of non-cash activity: Mortgage assumed by Purchaser of Cheyenne Woods $ 3,728 $ -- 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" 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. The Partnership's general partner is United Investors Real Estate, Inc. (the "General Partner"), an affiliate of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. In the opinion of the General Partner all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2001, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2001. 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, 2000. Principles of Consolidation The consolidated financial statements include all the accounts of the Partnership and its three 100% owned limited liability companies, Terrace Royale, L.L.C., Cheyenne Woods United Investors, L.L.C. and Deerfield Apartments, L.L.C. Although legal ownership of the respective assets remains with these entities, the Partnership retains all economic benefits from the properties. As a result, the Partnership consolidates its interest in these three entities, whereby all accounts are included in the consolidated financial statements of the Partnership with all inter-entity accounts being eliminated. Segment Reporting Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of an Enterprise and Related Information" established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Partnership has only one reportable segment. The General Partner believes that segment-based disclosures will not result in a more meaningful presentation than the consolidated financial statements as currently presented. 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. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the General Partner and its affiliates during the nine month periods ended September 30, 2001 and 2000: 2001 2000 (in thousands) Property management fees (included in operating expenses) $ 71 $108 Reimbursement for services of affiliates (included in general and administrative expense, and investment properties) 48 43 During the nine months ended September 30, 2001 and 2000, affiliates of the General Partner were entitled to receive 5% of gross receipts from all of the Registrant's residential properties as compensation for providing property management services. The Registrant paid to such affiliates approximately $71,000 and $108,000 for the nine months ended September 30, 2001 and 2000, respectively. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $48,000 and $43,000 for the nine month periods ended September 30, 2001 and 2000. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 11,937 limited partnership units in the Partnership representing 30.38% of the outstanding units at September 30, 2001. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the General Partner because of its affiliation with the General Partner. Note C - Sale of Investment Property On January 3, 2001, Cheyenne Woods, located in Las Vegas, Nevada, was sold to an unaffiliated third party for $4,200,000. After closing expenses and other payments of approximately $120,000 and the assumption of approximately $3,728,000 in debt by the purchaser, the net proceeds received by the Partnership were approximately $352,000. For financial statement purposes, the sale resulted in a loss of approximately $56,000 which had been recorded as an impairment loss during the year ended December 31, 2000. As a result, the only financial statement impact recorded during the nine months ended September 30, 2001 was the recognition of a loss on the early extinguishment of debt of approximately $57,000 due to the write off of unamortized loan costs. Revenues from Cheyenne Woods Apartments included in the accompanying consolidated statements of operations were approximately $782,000 for the nine months ended September 30, 2000. Note D - Casualty Gain During the nine months ended September 30, 2001, a net casualty gain of approximately $36,000 was recorded at Deerfield Apartments. The casualty gain related to fire damage to the apartment complex. The gain was a result of the receipt of insurance proceeds of approximately $69,000 offset by approximately $33,000 of undepreciated fixed assets being written off. Note E - Distributions The Partnership paid distributions of approximately $272,000 (approximately $269,000 to the limited partners or $6.85 per limited partnership unit) from operations and approximately $298,000 (approximately $295,000 to the limited partners or $7.51 per limited partnership unit) from the sale proceeds of Cheyenne Woods Apartments during the nine months ended September 30, 2001. During the nine months ended September 30, 2000 the Partnership paid a distribution of approximately $400,000 (approximately $396,000 to the limited partners or $10.08 per limited partnership unit) from refinancing proceeds at Terrace Royale Apartments. Note F - Legal Proceedings The Partnership is unaware of any pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. The Partnership's investment properties consist of two apartment complexes. The following table sets forth the average occupancy of the properties for each of the nine months ended September 30, 2001 and 2000: Average Occupancy Property 2001 2000 Terrace Royale Apartments 94% 95% Bothell, Washington Deerfield Apartments 92% 96% Memphis, Tennessee The General Partner attributes the decrease in occupancy at Deerfield Apartments to tenants purchasing new homes in the area as a result of a decrease in interest rates and increased competition from competitors in the Memphis area. The average occupancy for Cheyenne Woods Apartments was 93% for the nine months ended September 30, 2000. This property was sold on January 3, 2001. Results of Operations The Registrant's net loss for the three and nine months ended September 30, 2001 was approximately $6,000 and $211,000 compared to net loss of approximately $78,000 and $175,000 for the three and nine months ended September 30, 2000. The increase in net loss for the nine months ended September 30, 2001, is due primarily to the loss on early extinguishment of debt of approximately $57,000, and a decrease in total revenues which were partially offset by a decrease in total expenses as a result of the sale of Cheyenne Woods Apartments. The increase in net loss was also partially offset by a casualty gain recognized during the nine months ended September 30, 2001 as a result of a fire at Deerfield Apartments as discussed below. On January 3, 2001, Cheyenne Woods, located in Las Vegas, Nevada, was sold to an unaffiliated third party for $4,200,000. After closing expenses and other payments of approximately $120,000 and the assumption of approximately $3,728,000 in debt by the purchaser, the net proceeds received by the Partnership were approximately $352,000. For the financial statement purposes, the sale resulted in a loss of approximately $56,000 which had been recorded as an impairment loss during the year ended December 31, 2000. As a result, the only financial statement impact recorded during the nine months ended September 30, 2001 was the recognition of a loss on the early extinguishment of debt of approximately $57,000 due to the write off of unamortized loan costs. Revenues from Cheyenne Woods Apartments included in the accompanying consolidated statements of operations were approximately $782,000 for the nine months ended September 30, 2000. During the nine months ended September 30, 2001, a net casualty gain of approximately $36,000 was recorded at Deerfield Apartments. The casualty gain related to fire damage to the apartment complex. The gain was a result of the receipt of insurance proceeds of approximately $69,000 offset by approximately $33,000 of undepreciated fixed assets being written off. Excluding the impact of the sale and operations of Cheyenne Woods Apartments and the casualty gain at Deerfield Apartments, the Partnership had a net loss of approximately $6,000 and $165,000 for the three and nine months ended September 30, 2001 as compared to a net loss of approximately $36,000 and $102,000 for the three and nine months ended September 30, 2000. The increase in net loss for the nine months ended September 30, 2001 is due to a decrease in total revenues and an increase in total expenses. The decrease in net loss for the three months ended September 30, 2001 is due to a decrease in total expenses. Total revenues decreased for the nine months ended September 30, 2001 due to a decrease in rental income and other income. Rental income decreased due to a decrease in occupancy and an increase in bad debt expense at Deerfield Apartments and an increase in concessions at Terrace Royale Apartments. Other income decreased due to a decrease in cleaning and damage fees and utility fees at Terrace Royale Apartments which was partially offset by an increase in late charges. Other income also decreased due to a decrease in interest income as a result of lower average cash balances being maintained in interest bearing accounts. Total expenses increased for the nine months ended September 30, 2001 due to an increase in operating and general and administrative expenses. Operating expenses increased due to an increase in insurance expense, property expenses, and maintenance expense. Insurance increased as a result of an increase in insurance premiums charged by insurance carriers. Property expense increased due to an increase in utilities as a result of vacant apartments and the addition of maintenance personnel at Deerfield Apartments. Maintenance expense increased due to an increase in contract labor at Terrace Royale Apartments. General and administrative expenses increased due to an increase in taxes and licenses fees which was partially offset by a decrease in professional services and management reimbursements allowed under the Partnership Agreement. Total expenses for the three months ended September 30, 2001 decreased due to a decrease in operating and property tax expenses. Operating expenses decreased due to a decrease in advertising and rental expenses at both properties and a decrease in property expenses at Terrace Royale Apartments. Property tax expense decreased due to the timing of the receipt of tax bills. Included in general and administrative expenses for the three and nine months ended September 30, 2001 and 2000, are costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement. As part of the ongoing business plan of the Partnership, the General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the General Partner will be able to sustain such a plan. Liquidity and Capital Resources At September 30, 2001, the Registrant had cash and cash equivalents of approximately $128,000 as compared to approximately $455,000 at September 30, 2000. The decrease in cash and cash equivalents of approximately $360,000 from the Registrant's year ended December 31, 2000, is due to approximately $675,000 of cash used in financing activities which was partially offset by approximately $243,000 of cash provided by investing activities and approximately $72,000 of cash provided by operating activities. Cash provided by investing activities consisted of proceeds from the sale of Cheyenne Woods Apartments and net insurance proceeds received as a result of the casualty at Deerfield Apartments which were partially offset by property improvements and replacements and net deposits to escrow accounts maintained by the mortgage lender. Cash used in financing activities consisted of distributions to partners and, to a lesser extent, payments of principal made on the mortgages encumbering the Registrant's properties. The Partnership invests its working capital reserves in 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 properties to adequately maintain the physical assets and other operating needs of the Registrant and to comply with Federal, state and local legal and regulatory requirements. Capital improvements planned for each of the Registrant's properties are detailed below. Terrace Royale Apartments During the nine months ended September 30, 2001, the Partnership completed approximately $50,000 of capital improvements at Terrace Royale Apartments consisting primarily of major landscaping, floor covering and appliance replacements, structural improvements and other building improvements. These improvements were funded from cash flow from operations. The Partnership has budgeted, but is not limited to, capital improvements of approximately $22,000, consisting primarily of floor covering and appliance replacements and other building improvements. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Cheyenne Woods Apartments Prior to the sale of Cheyenne Woods on January 3, 2001, the Partnership completed approximately $2,000 of capital improvements at Cheyenne Woods Apartments, consisting primarily of floor covering and appliance replacements. These improvements were funded from cash flow from operations. Deerfield Apartments During the nine months ended September 30, 2001, the Partnership completed approximately $121,000 of capital improvements at Deerfield Apartments consisting primarily of building improvements, floor covering and appliance replacements and structural improvements due to a casualty at the property as discussed above. These improvements were funded from the Partnership's operating cash flow, Partnership reserves, and insurance proceeds. The Partnership has budgeted, but is not limited to, capital improvements of approximately $313,000, consisting primarily of building improvements, roof replacements, water heater replacements, and appliances and floor covering replacements. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The additional capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. The Partnership's current assets are thought to be sufficient for any near term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness of approximately $6,718,000 has maturity dates ranging from December 2004 to February 2019 with a balloon payment due at maturity for the mortgage encumbering Deerfield Apartments. The General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity dates. If the properties cannot be refinanced and/or sold for a sufficient amount, the Partnership may risk losing such properties through foreclosure. The Partnership paid distributions of approximately $272,000 (approximately $269,000 to the limited partners or $6.85 per limited partnership unit) from operations and approximately $298,000 (approximately $295,000 to the limited partners or $7.51 per limited partnership unit) from the sale proceeds of Cheyenne Woods Apartments during the nine months ended September 30, 2001. During the nine months ended September 30, 2000 the Partnership paid a distribution of approximately $400,000 (approximately $396,000 to the limited partners or $10.08 per limited partnership unit) from refinancing proceeds at Terrace Royale Apartments. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, and the timing of debt maturities, refinancings, and/or property sales. The Registrant's distribution policy is reviewed on a monthly basis. There can be no assurance, however, that the Registrant will generate sufficient funds from operations after required capital expenditures to permit further distributions to its partners during the remainder of 2001 or subsequent periods. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 11,937 limited partnership units in the Partnership representing 30.38% of the outstanding units at September 30, 2001. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the General Partner because of its affiliation with the General Partner. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: None. b) Reports on Form 8-K: None filed during the quarter ended September 30, 2001. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. UNITED INVESTORS GROWTH PROPERTIES By: United Investors Real Estate, Inc. Its General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: