-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NQ1ej5XUfsShYU10EMdXiofcwfMYszN5oYFUmy5cwjb0wlnfmMbXjMBpPmMkIHsb ywpiQpS7JLWhM/+8gXudmA== 0000711642-99-000077.txt : 19990505 0000711642-99-000077.hdr.sgml : 19990505 ACCESSION NUMBER: 0000711642-99-000077 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED INVESTORS INCOME PROPERTIES CENTRAL INDEX KEY: 0000830056 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 431542903 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-17646 FILM NUMBER: 99610185 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 10QSB 1 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, 1999 [ ] TRANSITION REPORT PURSUANT TO 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________to________ Commission file number 0-17646 UNITED INVESTORS INCOME PROPERTIES (Exact name of small business issuer as specified in its charter) Missouri 43-1483942 (State or other jurisdiction of (IRS 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 INCOME PROPERTIES BALANCE SHEET (Unaudited) (in thousands, except unit data) March 31, 1999 Assets Cash and cash equivalents $ 1,077 Receivables and deposits 225 Other assets 86 Investment properties: Land $ 1,862 Buildings and related personal property 10,708 12,570 Less accumulated depreciation (3,500) 9,070 Investment in joint venture 651 $11,109 Liabilities and Partners' Capital (Deficit) Liabilities Accounts payable $ 11 Tenant security deposit liabilities 60 Accrued property taxes 23 Other liabilities 28 Distribution payable 154 Partners' Capital (Deficit) General partner's $ (23) Limited partners' (61,063 units issued and outstanding) 10,856 10,833 $11,109 See Accompanying Notes to Financial Statements b) UNITED INVESTORS INCOME PROPERTIES STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended March 31, 1999 1998 Revenues: Rental income $ 459 $ 421 Other income 35 28 Total revenues 494 449 Expenses: Operating 150 158 General and administrative 38 22 Depreciation 100 99 Property taxes 34 37 Total expenses 322 316 Equity in net income of joint venture 9 2 Net income $ 181 $ 135 Net income allocated to general partner (1%) $ 2 $ 1 Net income allocated to limited partners (99%) 179 134 $ 181 $ 135 Net income per limited partnership unit $ 2.93 $ 2.19 Distributions per limited partnership unit $ 2.50 $ 2.50 See Accompanying Notes to Financial Statements c) UNITED INVESTORS INCOME PROPERTIES STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partner's Partners' Total Original capital contributions 61,063 $ -- $15,266 $15,266 Partners' (deficit) capital at December 31, 1998 61,063 $ (24) $10,830 $10,806 Distributions to partners -- (1) (153) (154) Net income for the three months ended March 31, 1999 -- 2 179 181 Partners' (deficit) capital at March 31, 1999 61,063 $ (23) $10,856 $10,833 See Accompanying Notes to Financial Statements d) UNITED INVESTORS INCOME PROPERTIES STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Three Months Ended March 31, 1999 1998 Cash flows from operating activities: Net income $ 181 $ 135 Adjustments to reconcile net income to net cash provided by operating activities: Equity in net income of joint venture (9) (2) Depreciation 100 99 Amortization of lease commissions 2 2 Change in accounts: Receivables and deposits (51) (26) Other assets 2 18 Accounts payable (14) (3) Tenant security deposit liabilities 1 2 Accrued property taxes 16 24 Other liabilities (19) (11) Net cash provided by operating activities 209 238 Cash flows from investing activities: Property improvements and replacements (57) (40) Distribution to joint venture (3) -- Net cash used in investing activities (60) (40) Cash flows used in financing activities: Distributions to partners -- (154) Net increase in cash and cash equivalents 149 44 Cash and cash equivalents at beginning of period 928 728 Cash and cash equivalents at end of period $1,077 $ 772 Supplemental disclosure of non-cash financing activity: Distributions payable to partners of $154,000 were accrued at March 31, 1999 and paid in April 1999. 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, 1999, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1999. For further information, refer to 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, 1998. NOTE B - TRANSFER OF CONTROL Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership interest in the General Partner. The General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. NOTE C - INVESTMENT IN JOINT VENTURE The Partnership owns a 35% interest in Corinth Square ("Corinth"), a joint venture with United Investors Income Properties II, an affiliated partnership in which the General Partner is also the sole general partner. The joint venture owns a 24,000 square foot medical office building located in Prairie Village, Kansas. The Partnership reflects its interest in its joint venture property utilizing the equity method, whereby the original investment is increased by advances to the joint venture and by the Partnership's share of the earnings of the joint venture. The investment is decreased by distributions from the joint venture and by the Partnership's share of losses of the joint venture. NOTE D - 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 (based on a percentage of revenue) and for reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to affiliates of the General Partner during the three months ended March 31, 1999 and 1998: 1999 1998 (in thousands) Property management fees (included in operating expenses) $ 22 $ 21 Reimbursement for services of affiliates (included in general and administrative expenses and operating expenses) 10 8 During the three months ended March 31, 1999 and 1998, affiliates of the General Partner were entitled to receive 5% of the gross receipts from all of the Partnership's residential properties as compensation for providing property management services. The Partnership paid to such affiliates $22,000 and $20,000 for the three months ended March 31, 1999 and 1998, respectively. During the three months ended March 31, 1998, affiliates of the General Partner were entitled to varying percentages of gross receipts from the Partnership's commercial property as compensation for providing property management services. These services were performed by affiliates of the General Partner for the three months ended March 31, 1998 and were $1,000. Effective October 1, 1998 (the effective date of the Insignia Merger) these services for the commercial property were provided by an unrelated party. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $10,000 and $8,000 for the three months ended March 31, 1999 and 1998, respectively. NOTE E - INVESTMENT IN CORINTH SQUARE JOINT VENTURE The Partnership owns a 35% interest in Corinth, a joint venture with United Investors Income Properties II, an affiliated partnership, in which the General Partner is also the sole general partner. Corinth is accounted for using the equity method of accounting (see "Note C"). The condensed balance sheet of Corinth at March 31, 1999, is summarized as follows (in thousands): Assets Commercial property, net $1,741 Other assets 166 Total $1,907 Liabilities and Partners' Capital Liabilities $ 48 Partners' capital 1,859 Total $1,907 Condensed statements of operations of Corinth for the three months ended March 31, 1999 and 1998, are as follows (in thousands): 1999 1998 Revenue $ 99 $ 89 Costs and expenses 73 85 Net income $ 26 $ 4 NOTE F - SEGMENT REPORTING The Partnership has two reportable segments: residential properties and commercial properties. The Partnership's residential segment consists of three apartment complexes located in Mountlake Terrace, Washington; Atlanta, Georgia and Medford, Oregon. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. The commercial property segment consists of a medical complex located in Atlanta, Georgia. This property leases space to various medical practices at terms that range from seven to ten years. The Partnership evaluates performance based on net income. The accounting policies of the reportable segments are the same as those of the Partnership as described in the Partnership's annual report on Form 10-KSB for the year ended December 31, 1998. The Partnership's reportable segments are investment properties that offer different products and services. The reportable segments are each managed separately because they provide distinct services with different types of products and customers. Segment information for the three months ended March 31, 1999 and 1998 is shown in the tables below (in thousands). The "Other" column includes Partnership administration related items and income and expense not allocated to the reportable segments. 1999 Residential Commercial Other Totals Rental income $ 415 $ 44 $ -- $ 459 Other income 27 -- 8 35 Depreciation 84 16 -- 100 General and administrative expense -- -- 38 38 Equity in income of joint venture -- -- 9 9 Segment profit (loss) 191 11 (21) 181 Total assets 7,963 1,632 1,514 11,109 Capital expenditures for investment properties 57 -- -- 57 1998 Residential Commercial Other Totals Rental income $ 382 $ 39 $ -- $ 421 Other income 20 1 7 28 Depreciation 83 16 -- 99 General and administrative expense -- -- 22 22 Equity in income of joint venture -- -- 2 2 Segment profit (loss) 143 5 (13) 135 Total assets 8,027 1,652 1,280 10,959 Capital expenditures for Investment properties 40 -- -- 40 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 disclosure 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 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 three apartment complexes and a commercial office building. The following table sets forth the average occupancy of the properties for each of the three month periods ended March 31, 1999 and 1998: Average Occupancy Property 1999 1998 Bronson Place Apartments Mountlake Terrace, Washington 98% 96% Meadow Wood Apartments Medford, Oregon 93% 83% Defoors Crossing Apartments Atlanta, Georgia 94% 92% Peachtree Corners Medical Building Atlanta, Georgia 74% 74% The General Partner attributes the increased occupancy at Meadow Wood Apartments to improved market conditions and rental rate adjustments made during 1998. Results of Operation The Partnership realized net income of $181,000 for the three month period ended March 31, 1999, compared to net income of $135,000 for the three month period ended March 31, 1998. The increase in net income is due primarily to an increase in total revenues which is partially offset by an increase in total expenses. The increase in total revenues is primarily attributable to increased rental income. Rental income increased as a result of increased rental rates at Bronson Place, DeFoors Crossing and Peachtree Corners and increased occupancy at Meadow Wood. The increase in total expenses is primarily due to an increase in general and administrative expenses which was partially offset by a decrease in operating expense. General and administrative expenses increased due to an increase in professional fees related to the oversight of the Partnership. Included in general and administrative expenses at both December 31, 1998 and 1997 are reimbursements to the General Partner allowed under the Partnership Agreement associated with its management of the Partnership. Costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. 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. 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, 1999, the Partnership had cash and cash equivalents of approximately $1,077,000 compared to approximately $772,000 at March 31, 1998. Cash and cash equivalents increased by approximately $149,000 since December 31, 1998, due to approximately $209,000 of cash provided by operating activities, which was partially offset by approximately $60,000 of cash used in investing activities. Cash used in investing activities consisted primarily of property improvements and replacements and to a lesser extent, a distribution to joint venture. The Partnership invests its working capital reserves in a money market account. 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 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, 1999, the Partnership has spent approximately $46,000 on capital improvements at Bronson Place Apartments, primarily consisting of carpet and vinyl replacements, electrical improvements and structural improvements. These improvements were funded from cash flow from operations. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $68,000 of capital improvements over the near term. The Partnership has budgeted, but is not limited to, capital improvements of approximately $76,000 for 1999 at this property consisting primarily of carpet and vinyl replacements. Defoors Crossing During the three months ended March 31, 1999, the Partnership has spent approximately $3,000 on capital improvements at Defoors Crossing Apartments, primarily consisting of carpet and vinyl replacements and appliances. These improvements were funded from cash flow from operations. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $78,000 of capital improvements over the near term. The Partnership has budgeted, but is not limited to, capital improvements of approximately $94,000 for 1999 at this property consisting primarily of carpet and vinyl replacements, landscaping, signage and parking lot repairs. Meadow Wood During the three months ended March 31, 1999, the Partnership has spent approximately $8,000 on capital improvements at Meadow Wood Apartments, primarily consisting of carpet replacements, appliances and landscaping improvements. These improvements were funded from cash flow from operations. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $99,000 of capital improvements over the near term. The Partnership has budgeted, but is not limited to, capital improvements of approximately $112,000 for 1999 at this property consisting primarily of parking lot improvements, carpet and vinyl replacements and appliances. Peachtree Medical Building The Partnership did not make any capital improvements at Peachtree Medical Building during the three months ended March 31, 1999. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $86,000 of capital improvements over the near term. The Partnership has budgeted, but is not limited to, approximately $43,000 in tenant improvements for 1999. 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 and tenant improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. The Partnership made a distribution of cash generated from operations of approximately $154,000 ($2.50 per limited partnership unit) during the three month period ended March 31, 1998. In March 1999, the Partnership declared and accrued a distribution of cash generated from operations of approximately $154,000 ($2.50 per limited partnership unit), which was paid in April 1999. No other distributions were made during the three month period ended March 31, 1999. The Partnership's distribution policy will be reviewed on a quarterly basis. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, the timing of debt maturities, refinancings and/or property sales. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after required capital improvements to permit additional distributions to its partners in 1999 or subsequent periods. Potential Tender Offer On October 1, 1998, Insignia Financial Group, Inc. merged into Apartment Investment and management Company ("AIMCO"), a real estate investment trust, whose Class A Common Shares are listed on the New York Stock Exchange. As a result of such merger, AIMCO and AIMCO Properties, L.P., a Delaware limited partnership and the operating partnership of AIMCO ("AIMCO OP") acquired indirect control of the General Partner. AIMCO and its affiliates currently own 1.556% of the limited partnership interests in the Partnership. AIMCO is presently considering whether it will engage in an exchange offer for additional limited partnership interests in the Partnership. There is a substantial likelihood that, within a short period of time, AIMCO OP will offer to acquire limited partnership interests in the Partnership for cash or preferred units or common units of limited partnership interests in AIMCO OP. While such an exchange offer is possible, no definite plans exist as to when or whether to commence such an exchange offer, or as to the terms of any such exchange offer, and it is possible that none will occur. A registration statement relating to these securities has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This Form 10-QSB shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state. Year 2000 Compliance General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Over the past two years, the Managing Agent has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Managing Agent presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. However, if such modifications and replacements are not made, or not completed in time, the Year 2000 issue could have a material impact on the operations of the Partnership. The Managing Agent's plan to resolve Year 2000 issues involves four phases: assessment, remediation, testing, and implementation. To date, the Managing Agent has fully completed its assessment of all the information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase Computer Hardware: During 1997 and 1998, the Managing Agent identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. In August 1998, the mainframe system used by the Managing Agent became fully functional. In addition to the mainframe, PC-based network servers, routers and desktop PCs were analyzed for compliance. The Managing Agent has begun to replace each of the non-compliant network connections and desktop PCs and, as of March 31, 1999, had completed approximately 75% of this effort. The total cost to the Managing Agent to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million of which $1.3 million has been incurred to date. The remaining network connections and desktop PCs are expected to be upgraded to Year 2000 compliant systems by July 31, 1999. Computer Software: The Managing Agent utilizes a combination of off-the-shelf, commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied, and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. During 1998, the Managing Agent began converting the existing property management and rent collection systems to its management properties Year 2000 compliant systems. The estimated additional costs to convert such systems at all properties, is $200,000, and the implementation and the testing process is expected to be completed by July 31, 1999. The final software area is the office software and server operating systems. The Managing Agent has upgraded all non-compliant office software systems on each PC and has upgraded 80% of the server operating systems. The remaining server operating systems are planned to be upgraded to be Year 2000 compliant by July 31, 1999. Operating Equipment: The Managing Agent has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 1997, the Managing Agent began taking a census and inventory of embedded systems (including those devices that use time to control systems and machines at specific properties, for example elevators, heating, ventilating, and air conditioning systems, security and alarm systems, etc.). The Managing Agent has chosen to focus its attention mainly upon security systems, elevators, heating, ventilating and air conditioning systems, telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put the Managing Agent at risk financially or operationally. The Managing Agent intends to have a third-party conduct an audit of these systems and report their findings by July 31, 1999. Any of the above operating equipment that has been found to be non-compliant to date has been replaced or repaired. To date, these have consisted only of security systems and phone systems. As of March 31, 1999 the Managing Agent has evaluated approximately 86% of the operating equipment for the Year 2000 compliance. The total cost incurred for all properties managed by the Managing Agent as of March 31, 1999 to replace or repair the operating equipment was approximately $400,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $325,000, which is expected to be completed by August 30, 1999. The Managing Agent continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within its enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Managing Agent continues to conduct surveys of its banking and other vendor relationships to assess risks regarding their Year 2000 readiness. The Managing Agent has banking relationships with three major financial institutions, all of which have indicated their compliance efforts will be complete before May 1999. The Managing Agent has updated data transmission standards with two of the three financial institutions. The Managing Agent's contingency plan in this regard is to move accounts from any institution that cannot be certified Year 2000 compliant by June 1, 1999. The Partnership does not rely heavily on any single vendor for goods and services, and does not have significant suppliers and subcontractors who share information systems (external agent). To date the Partnership is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Partnership's results of operations, liquidity, or capital resources. However, the Partnership has no means of ensuring that external agents will be Year 2000 compliant. The Managing Agent does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000 The total cost of the Year 2000 project to the Managing Agent is estimated at $3.5 million and is being funded from operating cash flows. To date, the Managing Agent has incurred approximately $2.8 million ($0.6 million expensed and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 million relates to repair of hardware and software and will be expensed as incurred. The Partnership's portion of these costs are not material. Risks Associated with the Year 2000 The Managing Agent believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Managing Agent has not yet completed all necessary phases of the Year 2000 program. In the event that the Managing Agent does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios could include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Partnership. The Partnership could be subject to litigation for, among other things, computer system failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Managing Agent has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27 - Financial Data Schedule, is filed as an exhibit to this report. b) Reports on Form 8-K: None filed during the quarter ended March 31, 1999. 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/ Timothy R. Garrick Timothy R. Garrick Vice President - Accounting Date: May 4, 1999 EX-27 2
5 This schedule contains summary financial information extracted from United Investors Income Properties 1999 First Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000830056 UNITED INVESTORS INCOME PROPERTIES 1,000 3-MOS DEC-31-1999 MAR-31-1999 1,077 0 0 0 0 0 12,570 3,500 11,109 0 0 0 0 0 10,833 11,109 0 494 0 0 322 0 0 0 0 0 0 0 0 181 2.93 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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