10QSB 1 uiip.txt UIIP 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 March 31, 2002 [ ] 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 0-17646 UNITED INVESTORS INCOME PROPERTIES (Exact name of small business issuer as specified in its charter) Missouri 43-1483942 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, PO 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 INCOME PROPERTIES BALANCE SHEET (Unaudited) (in thousands, except unit data) March 31, 2002
Assets Cash and cash equivalents $ 269 Receivables and deposits 27 Other assets 54 Investment properties: Land $ 1,522 Buildings and related personal property 9,759 11,281 Less accumulated depreciation (4,236) 7,045 $ 7,395 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 19 Tenant security deposit liabilities 51 Accrued property taxes 26 Other liabilities 59 Partners' (Deficit) Capital General partner $ (59) Limited partners (61,063 units issued and outstanding) 7,299 7,240 $ 7,395 See Accompanying Notes to Financial Statements
b) UNITED INVESTORS INCOME PROPERTIES STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per unit data)
Three Months Ended March 31, 2002 2001 Revenues: Rental income $ 433 $ 419 Other income 47 27 Total revenues 480 446 Expenses: Operating 185 183 General and administrative 47 34 Depreciation 103 98 Property taxes 39 42 Total expenses 374 357 Net income $ 106 $ 89 Net income allocated to general partner (1%) $ 1 $ 1 Net income allocated to limited partners (99%) 105 88 $ 106 $ 89 Net income per limited partnership unit $ 1.72 $ 1.44 Distributions per limited partnership unit $ 1.34 $ 4.63 See Accompanying Notes to Financial Statements
c) UNITED INVESTORS INCOME PROPERTIES STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (Unaudited) (in thousands, except unit data)
Limited Partnership General Limited Units Partner Partners Total Original capital contributions 61,063 $ -- $15,266 $15,266 Partners' (deficit) capital at December 31, 2001 61,063 $ (59) $ 7,276 $ 7,217 Distributions to partners -- (1) (82) (83) Net income for the three months ended March 31, 2002 -- 1 105 106 Partners' (deficit) capital at March 31, 2002 61,063 $ (59) $ 7,299 $ 7,240 See Accompanying Notes to Financial Statements
d) UNITED INVESTORS INCOME PROPERTIES STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Three Months Ended March 31, 2002 2001 Cash flows from operating activities: Net income $ 106 $ 89 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 103 98 Change in accounts: Receivables and deposits (2) 3 Other assets (15) (4) Accounts payable 5 7 Tenant security deposit liabilities (2) (2) Accrued property taxes 23 29 Other liabilities (56) (29) Net cash provided by operating activities 162 191 Cash flows used in investing activities: Property improvements and replacements (38) (40) Cash flows used in financing activities: Distributions to partners (83) (286) Net increase (decrease) in cash and cash equivalents 41 (135) Cash and cash equivalents at beginning of period 228 332 Cash and cash equivalents at end of period $ 269 $ 197 See Accompanying Notes to Financial Statements
e) UNITED INVESTORS INCOME PROPERTIES NOTES TO FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying unaudited financial statements of United Investors Income Properties (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of United Investors Real Estate, Inc. (the "General Partner"), a Delaware corporation, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2002, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2002. For further information, refer to the financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2001. The General Partner is an affiliate of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. 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 payments to affiliates for services and for reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. During the three months ended March 31, 2002 and 2001, affiliates of the General Partner were entitled to receive 5% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $25,000 and $23,000 for the three months ended March 31, 2002 and 2001, respectively, which is included in operating expenses. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $34,000 and $11,000 for the three months ended March 31, 2002 and 2001, respectively, which is included in general and administrative expenses. For acting as real estate broker in connection with the 1999 sale of Peachtree Corners Medical Building, the General Partner earned a real estate commission of approximately $21,000. However, this commission is not payable until the limited partners receive distributions equal to their adjusted capital investment and a cumulative 8% annual return from the last additional closing date or, if greater, a 6% cumulative annual return from their date of admission to the Partnership. At March 31, 2002, the limited partners had not received their priority return. Therefore, the commission is included in other liabilities at March 31, 2002. Beginning in 2001, the Partnership began insuring its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the General Partner. During the three months ended March 31, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates approximately $19,000 and $20,000, respectively, for insurance coverage and fees associated with policy claims administration. 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 Partnership from time to time. The discussion of the Partnership'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 Partnership's business and results of operations. 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 three apartment complexes. The following table sets forth the average occupancy of the properties for each of the three months ended March 31, 2002 and 2001: Average Occupancy Property 2002 2001 Bronson Place Apartments 92% 90% Mountlake Terrace, Washington Meadow Wood Apartments 92% 92% Medford, Oregon Defoors Crossing Apartments 95% 92% Atlanta, Georgia The General Partner attributes the increased occupancy at Defoors Crossing Apartments to a more aggressive pricing approach used during the first quarter of 2002. Results of Operations The Partnership realized net income of approximately $106,000 for the three months ended March 31, 2002, compared to net income of approximately $89,000 for the three months ended March 31, 2001. The increase in net income is due to an increase in total revenues partially offset by an increase in total expenses. Total revenues increased for the three months period ended March 31, 2002 due to an increase in rental and other income. Rental income increased primarily due to an increase in average rental rates at Bronson Place and Meadow Woods Apartments, an increase in occupancy at Bronson Place and Defoors Crossing Apartments, and increased month-to-month rental fees at all of the Partnership's investment properties. Other income increased due to increased utility reimbursements and tenant charges at all of the Partnership's investment properties partially offset by reduced interest income resulting from lower average cash balances in interest bearing accounts. Total expenses increased for the three month period ended March 31, 2002 due primarily to increased general and administrative expenses. General and administrative expenses increased primarily due to increases in the cost of services included in the management reimbursements paid to the General Partner as allowed under the Partnership Agreement partially offset by reduced professional expenses. Also included in general and administrative expenses at both March 31, 2002 and 2001 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 expense. 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. 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 March 31, 2002, the Partnership had cash and cash equivalents of approximately $269,000 compared to approximately $197,000 at March 31, 2001. Cash and cash equivalents increased by approximately $41,000 since December 31, 2001, due to approximately $162,000 of cash provided by operating activities, which was partially offset by approximately $83,000 of cash used in financing activities and approximately $38,000 of cash used in investing activities. Cash used in financing activities consisted of distributions paid to the partners. Cash used in investing activities consisted of property improvements and replacements. 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 various properties 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. Capital improvements planned for each of the Partnership's properties are detailed below. Bronson Place During the three months ended March 31, 2002, the Partnership spent approximately $14,000 on capital improvements at Bronson Place Apartments, consisting primarily of floor covering replacements. These improvements were funded from cash flow from operations. For 2002, the amount budgeted for capital improvements is approximately $26,000, consisting primarily of floor covering replacements and appliances. Additional improvements may be considered and will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Meadow Wood During the three months ended March 31, 2002, the Partnership spent approximately $10,000 on capital improvements at Meadow Wood Apartments, consisting primarily of appliance replacements. These improvements were funded from cash flow from operations. For 2002, the amount budgeted for capital improvements is approximately $31,000, consisting primarily of air conditioning unit replacements, appliance replacements, and floor covering replacements. Additional improvements may be considered and will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Defoors Crossing During the three months ended March 31, 2002, the Partnership spent approximately $14,000 on capital improvements at Defoors Crossing Apartments, consisting primarily of floor covering replacements and appliance replacements. These improvements were funded from cash flow from operations. For 2002, the amount budgeted for capital improvements is approximately $30,000, consisting primarily of carpet replacements and water submetering. Additional improvements may be considered and will depend on the physical condition of the property as well as 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 Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. The Partnership distributed the following amounts during the three months ended March 31, 2002 and 2001 (in thousands, except per unit data): Three Months Per Limited Three Months Per Limited Ended Partnership Ended Partnership March 31, 2002 Unit March 31, 2001 Unit Operations $ 83 $ 1.34 $ 286 $ 4.63 Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, and the timing of financings and/or property sales. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after required capital improvements to permit any additional distributions to its partners during the remainder of 2002 or subsequent periods. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates currently own 20,756 limited partnership units in the Partnership representing 33.99% of the outstanding units. 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 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 filed during the quarter ended March 31, 2002: None. 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 INCOME 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: