10QSB 1 uiip.txt UIIP UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2005 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT 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 (i) 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 ___ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes __ No X_ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UNITED INVESTORS INCOME PROPERTIES BALANCE SHEET (Unaudited) (in thousands, except unit data) September 30, 2005
Assets Cash and cash equivalents $ 210 Receivables and deposits 44 Other assets 105 Investment properties: Land $ 1,020 Buildings and related personal property 6,715 7,735 Less accumulated depreciation (3,711) 4,024 $ 4,383 Liabilities and Partners' (Deficiency) Capital Liabilities Accounts payable $ 94 Tenant security deposit liabilities 20 Accrued property taxes 13 Other liabilities 53 Partners' (Deficiency) Capital General partner $ (22) Limited partners (61,063 units issued and outstanding) 4,225 4,203 $ 4,383 See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per unit data)
Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 (Restated) (Restated) Revenues: Rental income $ 246 $ 260 $ 752 $ 732 Other income 30 23 82 69 Total revenues 276 283 834 801 Expenses: Operating 169 150 434 400 General and administrative 39 41 86 112 Depreciation 67 66 196 200 Property taxes 15 24 67 73 Total expenses 290 281 783 785 (Loss) income from continuing Operations (14) 2 51 16 Income from discontinued Operations (Note A) 12 49 130 141 Gain on sale of discontinued operations (Note C) 2,666 -- 2,666 -- Net income $ 2,664 $ 51 $ 2,847 $ 157 Net income allocated to general partner $ 93 $ 1 $ 95 $ 2 Net income allocated to limited partners 2,571 50 2,752 155 $ 2,664 $ 51 $ 2,847 $ 157 Per limited partnership unit: (Loss) income from continuing operations $ (.23) $ .03 $ .82 $ .25 Income from discontinued operations .20 .79 2.11 2.29 Gain on sale of discontinued operations 42.14 -- 42.14 -- $ 42.11 $ .82 $ 45.07 $ 2.54 Distributions per limited partnership unit $ 78.51 $ 1.52 $84.67 $ 9.38 See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES STATEMENT OF CHANGES IN PARTNERS' (DEFICIENCY) 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' (deficiency) capital at December 31, 2004 61,063 $ (65) $ 6,643 $ 6,578 Distributions to partners -- (52) (5,170) (5,222) Net income for the nine months ended September 30, 2005 -- 95 2,752 2,847 Partners' (deficiency) capital at September 30, 2005 61,063 $ (22) $ 4,225 $ 4,203 See Accompanying Notes to Financial Statements
UNITED INVESTORS INCOME PROPERTIES STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Nine Months Ended September 30, 2005 2004 Cash flows from operating activities: Net income $ 2,847 $ 157 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 242 313 Gain on sale of investment property (2,666) -- Change in accounts: Receivables and deposits (4) (8) Other assets (16) (23) Accounts payable (26) 2 Tenant security deposit liabilities 4 4 Accrued property taxes 16 28 Due to affiliates (5) (17) Other liabilities 1 28 Net cash provided by operating activities 393 484 Cash flows from investing activities: Property improvements and replacements (227) (75) Net proceeds from sale of investment property 4,941 -- Net cash provided by (used in) investing activities 4,714 (75) Cash flows from financing activities: Loan costs incurred (31) (22) Distributions to partners (5,222) (579) Net cash used in financing activities (5,253) (601) Net decrease in cash and cash equivalents (146) (192) Cash and cash equivalents at beginning of period 356 509 Cash and cash equivalents at end of period $ 210 $ 317 Supplemental disclosure of non-cash information: Property improvements and replacements included in accounts payable $ 11 $ -- See Accompanying Notes to Financial Statements
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" or "UIRE"), a Delaware corporation and a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, 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, 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 financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2004. On May 1, 2003, Everest Properties, Inc. a California corporation ("Everest") acquired all of the capital stock of the General Partner. In connection with this transaction, the General Partner and the Partnership entered into a Services Agreement effective May 1, 2003 (the "Services Agreement") with NHP Management Company ("NHP"), an affiliate of AIMCO, whereby NHP agreed to provide portfolio and property management services for the Partnership. The portfolio management services included the services the General Partner of the Partnership generally performs or procures in connection with the management of the Partnership, subject to certain limitations provided for in the Services Agreement. As compensation for providing the portfolio management services and the property management services, the General Partner paid and assigned over to NHP all of the income, distributions, fees, commissions, reimbursements and other payments payable by the Partnership to the General Partner or any of its affiliates. On February 27, 2004, AIMCO/IPT, Inc. ("IPT"), a subsidiary of AIMCO, reacquired from Everest all of the capital stock of the General Partner. As of February 27, 2004, the Services Agreement was terminated. The Partnership Agreement provides that the Partnership is to terminate on December 18, 2018 unless terminated prior to such date. The accompanying statements of operations for the three and nine months ended September 30, 2005 have been restated as of January 1, 2004 to reflect the operations of Meadow Wood Apartments which sold on July 22, 2005 (see Note C -Disposition of Investment Property), as income from discontinued operations in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". Included in income from discontinued operations is net income for Meadow Wood Apartments of approximately $12,000 and $130,000 for the three and nine months ended September 30, 2005, respectively, and net income of approximately $49,000 and $141,000 for the three and nine months ended September 30, 2004, respectively. Included in income from discontinued operations for the three and nine months ended September 30, 2005 are revenues of approximately $42,000 and $372,000, respectively. Included in income from discontinued operations for the three and nine months ended September 30, 2004 were revenues of approximately $186,000 and $511,000, respectively. Reclassification: Certain balances from 2004 have been reclassified to conform to the current year presentation. Note B - 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 payments to affiliates for services and for reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Pursuant to the Services Agreement discussed in "Note A", all such payments for services provided for in the Partnership Agreement were paid to NHP during the period from May 1, 2003 until February 27, 2004 when the services agreement was terminated. During the nine months ended September 30, 2005 and 2004, affiliates of the General Partner received 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 $58,000 and $63,000 for the nine months ended September 30, 2005 and 2004, respectively, which is included in operating expenses and income from discontinued operations. An affiliate of the General Partner charged the Partnership reimbursement of accountable administrative expenses amounting to approximately $63,000 and $73,000 for the nine months ended September 30, 2005 and 2004, 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 amount is not payable until the limited partners receive an amount equal to their adjusted capital investment and a cumulative distribution equal to an 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 September 30, 2005, the limited partners had not received their return. During the nine months ended September 30, 2005, the General Partner determined that the limited partners would not receive both their adjusted capital investment and applicable return with future property sales or financings. Therefore, the General Partner reversed the real estate commission previously accrued associated with the 1999 sale of Peachtree Corners Medical Building. The Partnership insures 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, general liability 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 nine months ended September 30, 2005 and 2004, the Partnership was charged by AIMCO and its affiliates approximately $24,000 for both periods for insurance coverage and fees associated with policy claims administration. Note C - Disposition of Investment Property On July 22, 2005, the Partnership sold Meadow Wood Apartments to a third party for a gross sales price of $5,075,000. The net proceeds realized by the Partnership were approximately $4,941,000 after payment of closing costs of approximately $134,000. The Partnership recognized a gain of approximately $2,666,000 during the three and nine months ended September 30, 2005 as a result of the sale and this amount is included in gain on sale of discontinued operations. The property's operations included income of approximately $12,000 and $130,000 for the three and nine months ended September 30, 2005, respectively, and income of approximately $49,000 and $141,000 for the three and nine months ended September 30, 2004, respectively. Included in the income from discontinued operations for the three and nine months ended September 30, 2005 are revenues of approximately $42,000 and $372,000, respectively. Included in the income from discontinued operations for the three and nine months ended September 30, 2004 were revenues of approximately $186,000 and $511,000, respectively. The Partnership distributed approximately $4,842,000 to the partners (approximately $4,794,000 to the limited partners or $78.51 per limited partnership unit) from proceeds from the sale of Meadow Wood Apartments. Note D - Subsequent Event On October 21, 2005, the Partnership obtained financing for Bronson Place Apartments with a mortgage loan in the principal amount of approximately $1,912,000. The loan was financed under a permanent credit facility ("Permanent Credit Facility") with Fannie Mae. The Permanent Credit Facility has a maturity of September 16, 2007, with one five-year extension option. The Permanent Credit Facility includes properties in other partnerships that are affiliated with the general partner of the Partnership. The Permanent Credit Facility creates separate loans for each property. The loans under the Permanent Credit Facility are not cross-collateralized or cross-defaulted with the other property loans. The loan on Bronson Place Apartments has a variable interest rate of the Fannie Mae discounted mortgage-backed security index plus 85 basis points, which rate is currently 4.95% per annum, and resets monthly. Monthly principal payments are required based on a 30-year amortization schedule using the interest rate in effect during the first month that the mortgage on Bronson Place Apartments was financed under the Permanent Credit Facility. The loan is prepayable without penalty. In accordance with the terms of the loan agreement relating to the mortgage, the payment of the mortgage may be accelerated at the option of the lender if an Event of Default, as defined in the loan agreement occurs. Events of Default include, but are not limited to nonpayment of monthly interest and reserve requirements and nonpayment of amounts outstanding on or before the maturity date. Note E - Contingencies 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, filed in the United States District Court for the District of Columbia, 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. In June 2005 the Court conditionally certified the collective action on both the on-call and overtime issues, which allows the 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, and AIMCO Properties, L.P. and NHP Management Company will have the opportunity to move to decertify the collective action. Because the court denied plaintiffs' motion to certify state subclasses, on September 26, 2005, the plaintiffs filed a class action with the same allegations in the Superior Court of California (Contra Costa County). 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 financial condition or results of operations. The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment properties 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 properties, the Partnership could potentially be liable for environmental liabilities or costs associated with its properties. Mold The Partnership is aware of lawsuits against owners and managers of multifamily properties 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 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 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 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, 2005 and 2004: Average Occupancy Property 2005 2004 Bronson Place Apartments 89% 90% Mountlake Terrace, Washington Defoors Crossing Apartments (1) 95% 90% Atlanta, Georgia (1) The General Partner attributes the increase in average occupancy at Defoors Crossing Apartments to strong resident relations and customer service, improved marketing to potential quality residents, and leasing incentives. The Partnership's financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment properties, interest rates on mortgage loans, costs incurred to operate the investment properties, 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 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, 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 which 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 recognized net income for the three and nine months ended September 30, 2005 of approximately $2,664,000 and $2,847,000, respectively compared to net income of approximately $51,000 and $157,000 for the three and nine months ended September 30, 2004, respectively. The increase in net income for the three months ended September 30, 2005 is due to the recognition of a gain on sale of discontinued operations slightly offset by a decrease in income from discontinued operations and an increase in net loss from continuing operations. The increase in net income for the nine months ended September 30, 2005 is due to the recognition of a gain on sale of discontinued operations and an increase in income from continuing operations slightly offset by a decrease in income from discontinued operations. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" the accompanying statements of operations for the three and nine months ended September 30, 2005 have been restated as of January 1, 2004 to reflect the operations of Meadow Wood Apartments, as income from discontinued operations. On July 22, 2005, the Partnership sold Meadow Wood Apartments to a third party for a gross sales price of $5,075,000. The net proceeds realized by the Partnership were approximately $4,941,000 after payment of closing costs of approximately $134,000. The Partnership recognized a gain of approximately $2,666,000 during the three and nine months ended September 30, 2005 as a result of the sale and this amount is included in gain on sale of discontinued operations. The property's operations included income of approximately $12,000 and $130,000 for the three and nine months ended September 30, 2005, respectively, and income of approximately $49,000 and $141,000 for the three and nine months ended September 30, 2004, respectively. Included in income from discontinued operations for the three and nine months ended September 30, 2005 are revenues of approximately $42,000 and $372,000, respectively. Included in income from discontinued operations for the three and nine months ended September 30, 2004 were revenues of approximately $186,000 and $511,000, respectively. The Partnership's income from continuing operations for the nine months ended September 30, 2005 and 2004 was approximately $51,000 and $16,000, respectively. The increase in income from continuing operations for the nine months ended September 30, 2005 is due to an increase in total revenues partially offset by an increase in total expenses. Total revenues increased for the nine months ended September 30, 2005 due to an increase in rental income and other income. Rental income increased due to an increase in occupancy at Defoors Crossing Apartments and an increase in the average rental rate at Bronson Place Apartments. Other income increased due to an increase in resident utility reimbursements and lease cancellation fees at DeFoors Crossing Apartments and an increase in interest income. The Partnership recognized a loss from continuing operations of approximately $14,000 for the three months ended September 30, 2005 compared to income of approximately $2,000 for the three months ended September 30, 2004. The decrease in income is due to a decrease in total revenues and an increase in total expenses. Total revenues decreased for the three months ended September 30, 2005 due to a decrease in rental income partially offset by an increase in other income. Rental income decreased primarily due to an increase in bad debt expense at Bronson Place Apartments and an increase in concessions at DeFoors Crossing Apartments. Other income increased due to an increase in interest income. Total expenses for the three and nine months ended September 30, 2005 increased due to an increase in operating expense partially offset by decreases in property tax expense and general and administrative expense for the nine months ended September 30, 2005. Depreciation expense remained relatively constant for the comparable periods. Operating expense increased due to an increase in advertising, property and maintenance expense at DeFoors Crossing Apartments. Advertising expense increased due to an increase in periodical advertising and referral fees at the property in an effort to attract qualified tenants. Property expense increased due to an increase in salaries and related employee benefits. Maintenance expense increased due to an increase in contract services at DeFoors Crossing Apartments. Property tax expense decreased due to a decrease in the assessed value of DeFoors Crossing Apartments by the local taxing authority. General and administrative expenses decreased for the nine months ended September 30, 2005 due to the reversal of the real estate commission owed to the General Partner and previously accrued in association with the 1999 sale of the Peachtree Corners Medical Building. During the nine month period ended September 30, 2005, the General Partner determined that the limited partners will not receive their adjusted capital investment and applicable return with future sales or financings and accordingly, reversed the previous accrual of $21,000. Included in general and administrative expenses are the accountable reimbursements charged by an affiliate of the General Partner as allowed under the Partnership Agreement. Also included in general and administrative expenses at both September 30, 2005 and 2004 are costs associated with the quarterly and annual communications with investors and regulatory agencies. Liquidity and Capital Resources At September 30, 2005, the Partnership had cash and cash equivalents of approximately $210,000 compared to approximately $317,000 at September 30, 2004. Cash and cash equivalents decreased by approximately $146,000 since December 31, 2004, due to approximately $5,253,000 of cash used in financing which was partially offset by approximately $4,714,000 and $393,000 of cash provided by investing and operating activities. Cash used in financing activities consisted of distributions paid to the partners and loan costs incurred related to the anticipated financing to be obtained for Bronson Place Apartments during the fourth quarter of 2005 (see Note D - Subsequent Event). Cash provided by investing activities consisted of net proceeds from the sale of Meadow Wood Apartments slightly offset by 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. 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 each of the Partnership's properties are detailed below. Bronson Place During the nine months ended September 30, 2005, the Partnership completed approximately $73,000 of capital improvements at Bronson Place Apartments consisting primarily of floor covering and appliance replacements, cabinet and structural upgrades, ground lighting, office computers and plumbing fixtures. These improvements were funded from operating cash flow. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine expenditures are anticipated during the remainder of 2005. Such capital expenditures will depend on the physical condition of the property as well as the anticipated cash flow generated by the property. DeFoors Crossing During the nine months ended September 30, 2005, the Partnership completed approximately $82,000 of capital improvements at DeFoors Crossing Apartments consisting primarily of floor covering and appliance replacements, plumbing and interior lighting upgrades and major landscaping. These improvements were funded from operating cash flow. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine expenditures are anticipated during the remainder of 2005. Such capital expenditures will depend on the physical condition of the property as well as the anticipated cash flow generated by the property. Meadow Wood The Partnership completed approximately $83,000 of capital improvements at Meadow Wood Apartments consisting primarily of floor covering and appliance replacements and an office computer. The property sold on July 22, 2005. The additional 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 distributed the following amounts during the nine months ended September 30, 2005 and 2004 (in thousands, except per unit data):
Nine Months Per Limited Nine Months Per Limited Ended Partnership Ended Partnership September 30, 2005 Unit September 30, 2004 Unit Operations $ 380 $ 6.16 $ 579 $ 9.38 Sale (1) 4,842 78.51 -- -- $ 5,222 $84.67 $ 579 $ 9.38
(1) Proceeds from the sale of Meadow Wood Apartments. Future cash distributions will depend on the levels of net cash generated from operations, property sales and/or financings. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance, that the Partnership will generate sufficient funds from operations after capital expenditures to permit any additional operating distributions to its partners during the remainder of 2005 or subsequent periods. Other On February 27, 2004, IPT, a subsidiary of AIMCO, reacquired from Everest all of the capital stock of the General Partner. In addition to its indirect ownership of the sole general partner of the Partnership, AIMCO and its affiliates owned 24,490 limited partnership units (the "Units") in the Partnership representing 40.11% of the outstanding units at September 30, 2005. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. AIMCO or its affiliates may acquire additional Units of limited partnership interest in the Partnership in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. 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 voting on certain amendments to the Partnership Agreement and voting to remove the General Partner. As a result of its ownership of 40.11% of the outstanding Units at September 30, 2005, AIMCO and its affiliates are in a position to influence all such voting decisions with respect to the Partnership. 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 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 Investment properties are recorded at cost, less accumulated depreciation, unless considered impaired. If events or circumstances indicate that the carrying amount of a property may be impaired, the Partnership will make an assessment of its recoverability by estimating the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the fair value of the property. Real property investments are subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership's investment properties. 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 assets. 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 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, filed in the United States District Court for the District of Columbia, 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. In June 2005 the Court conditionally certified the collective action on both the on-call and overtime issues, which allows the 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, and AIMCO Properties, L.P. and NHP Management Company will have the opportunity to move to decertify the collective action. Because the court denied plaintiffs' motion to certify state subclasses, on September 26, 2005, the plaintiffs filed a class action with the same allegations in the Superior Court of California (Contra Costa County). 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 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 INCOME PROPERTIES By: United Investors Real Estate, Inc. Its General Partner By: /s/Martha L. Long Martha L. Long Senior Vice President By: /s/Stephen B. Waters Stephen B. Waters Vice President Date: November 14, 2005 UNITED INVESTORS INCOME PROPERTIES INDEX TO EXHIBITS Exhibit 1 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. 33-20350) filed on May 2, 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 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 filed on May 2, 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 filed on May 2, 1988. 4.3 Tenth Amendment to Agreement of Limited Partnership of Partnership; incorporated by reference to Exhibit 4.3 to Partnership's Quarterly Report on Form 10-Q filed on May 15, 1989. 4.4 Certificate of Limited Partnership (Exhibit 3 to Partnership's Form 8-K filed on April 29, 1991, is incorporated herein by reference). 4.5 Amendment to Agreement of Limited Partnership effective March 28, 2005; incorporated by reference to Exhibit 4.5 to Partnership's Quarterly Report on Form 10-Q filed on May 13, 2005. 10.2 Agreement of Purchase and Sale, dated June 22, 1988, between United Investors Real Estate, Inc., as nominee for United Investors Income Properties, as purchaser, and Nilsen/Bay Ridge Development, Inc. and MBIV Development, as seller, relating to Bronson Place Apartments; incorporated by reference to Exhibit 10.1 to Partnership's Quarterly Report on Form 10-Q filed on August 11, 1988. 10.3 Agreement of Purchase and Sale, dated October 20, 1988, between United Investors Real Estate, Inc., as purchaser, and Defoors Crossing Associates, Ltd., as seller, relating to Defoors Crossing Apartments, and amendments thereto; incorporated by reference to Exhibit 10.3 to Post-Effective Amendment No.1 to Partnership's Registration Statement filed on February 1, 1989. 10.4 Agreement of Purchase and Sale, dated June 29, 1989, between United Investors Real Estate, Inc., as purchaser and CMW Properties, as seller, relating to Meadow Wood Apartments, and amendments thereto; incorporated by reference to Exhibit 10.4 to Partnership's Current Report on Form 8-K filed on October 17, 1989. 10.8 Stock Purchase Agreement dated December 4, 1992, showing the purchase of 100% of the outstanding stock of United Investors Real Estate, Inc. by MAE GP Corporation; incorporated by reference to Exhibit 10.8 to Partnership's Current Report on Form 8-K filed on December 31, 1992. 10.9 Purchase and Sale Contract between United Investors Income Properties, a Missouri limited partnership, as Seller, and The Meadow Wood Investors, LLC, an Oregon limited liability company, as Purchaser, effective May 10, 2005; incorporated by reference to Exhibit 10.9 to Partnership's Quarterly Report on Form 10-QSB filed on May 13, 2005. 10.10 Amendment of Purchase and Sale Contract between United Investors Income Properties, a Missouri limited partnership, as Seller, and The Meadow Wood Investors, LLC, a Oregon limited liability company, as Purchaser, effective June 2, 2005 incorporated by reference to Exhibit 10.10 to Partnership's Current Report on Form 8-K filed August 1, 2005. 10.11 Second Amendment of Purchase and Sale Contract between United Investors Income Properties, a Missouri limited partnership, as Seller, and The Meadow Wood Investors, LLC, a Oregon limited liability company, as Purchaser, effective June 30, 2005 incorporated by reference to Exhibit 10.11 to Partnership's Current Report on Form 8-K filed August 1, 2005. 10.12 Multifamily Note dated October 21, 2005 between United Investors Income Properties, a Missouri Limited Partnership and GMAC Commercial Mortgage Corporation. (1) 10.13 Guaranty dated October 21, 2005 by AIMCO Properties, L.P. for the benefit of GMAC Commercial Mortgage Corporation. (1) 10.14 Replacement Reserve and Security Agreement dated October 21, 2005 between United Investors Income Properties, a Missouri Limited Partnership and GMAC Commercial Mortgage Corporation. (1) 10.15 Assignment of Security Instrument dated October 21, 2005 between GMAC Commercial Mortgage Corporation and Fannie Mae. (1) 10.16 Multifamily Deed of Trust, Assignment of Rents and Security Agreement dated October 21, 2005 between United Investors Income Properties, a Missouri Limited Partnership and GMAC Commercial Mortgage Corporation. (1) 10.17 Indemnification Agreement dated October 21, 2005 between United Investors Income Properties, a Missouri Limited Partnership and AIMCO Properties, L.P. in favor of GMAC Commercial Mortgage Corporation. (1) (1) Incorporated herein by reference to the Registrant's Current Report on Form 8-K dated October 31, 2005, as filed October 27, 2005. 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 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. Exhibit 31.1 CERTIFICATION I, Martha L. Long, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of United Investors Income Properties; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: November 14, 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 Income Properties; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: November 14, 2005 /s/Stephen B. Waters Stephen B. Waters Vice President of United Investors Real Estate, Inc., equivalent of the chief financial officer of the Partnership Exhibit 32.1 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-QSB of United Investors Income Properties (the "Partnership"), for the quarterly period ended September 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: November 14, 2005 /s/Stephen B. Waters Name: Stephen B. Waters Date: November 14, 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.