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
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
or
[ ] 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 0-15656
U.S. REALTY PARTNERS LIMITED PARTNERSHIP
(Exact name of small business issuer as specified in its charter)
South Carolina 57-0814502
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X . No .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
U.S. REALTY PARTNERS LIMITED PARTNERSHIP
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
September 30, 1998
Assets
Restricted cash $ 390
Receivables and deposits, net of $80 for
doubtful accounts 518
Restricted escrows 270
Other assets 293
Investment properties:
Land $ 6,534
Buildings and related personal property 26,894
33,428
Less accumulated depreciation (11,163) 22,265
$23,736
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 42
Tenant security deposit liabilities 116
Accrued property taxes 405
Other liabilities 483
Due to corporate general partner 560
Mortgage notes payable 20,644
Partners' Capital (Deficit)
General partners $ (447)
Depositary unit certificate holders
(1,222,000 units issued and outstanding) 1,933 1,486
$23,736
See Accompanying Notes to Financial Statements
b)
U.S. REALTY PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Revenues:
Rental income $ 1,150 $ 1,298 $ 3,798 $ 3,923
Other income 42 36 140 121
Total revenues 1,192 1,334 3,938 4,044
Expenses:
Operating 414 595 1,193 1,402
General and administrative 48 58 167 166
Depreciation 215 213 640 634
Interest 579 565 1,664 1,688
Property taxes 170 112 404 339
Total expenses 1,426 1,543 4,068 4,229
Net loss $ (234) $ (209) $ (130) $ (185)
Net loss allocated to
general partners (1%) $ (2) $ (2) $ (1) $ (2)
Net loss allocated to depositary
unit certificate holders (99%) (232) (207) (129) (183)
$ (234) $ (209) $ (130) $ (185)
Net loss per depositary
unit certificate $ (.19) $ (.17) $ (.11) $ (.15)
See Accompanying Notes to Financial Statements
c)
U.S. REALTY PARTNERS LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Depositary
Depositary Unit
Unit General Certificate
Certificates Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 1,222,000 $ 2 $ 30,550 $ 30,552
Partners' (deficit) capital at
December 31, 1997 1,222,000 $ (446) $ 2,062 $ 1,616
Net loss for the nine months
ended September 30, 1998 -- (1) (129) (130)
Partners' (deficit) capital at
September 30, 1998 1,222,000 $ (447) $ 1,933 $ 1,486
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
d)
U.S. REALTY PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1998 1997
Cash flows from operating activities:
Net loss $ (130) $ (185)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation 640 634
Amortization of lease commissions and software 10 35
Change in accounts:
Restricted cash (58) (11)
Receivables and deposits (87) (354)
Other assets 10 56
Accounts payable 14 4
Tenant security deposit liabilities (5) 1
Accrued property taxes 271 276
Due to Corporate General Partner 12 18
Other liabilities (38) 72
Net cash provided by operating activities 639 546
Cash flows from investing activities:
Property improvements and replacements (122) (91)
Deposits to restricted escrows (3) (53)
Net cash used in investing activities (125) (144)
Cash flows from financing activities:
Payments on mortgage notes payable (514) (402)
Net cash used in financing activities (514) (402)
Net change in cash and cash equivalents -- --
Cash and cash equivalents at beginning of period -- --
Cash and cash equivalents at end of period $ -- $ --
Supplemental disclosure of cash flow information:
Cash paid for interest $1,630 $1,630
See Accompanying Notes to Financial Statements
e)
U.S. REALTY PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of U.S. Realty Partners Limited
Partnership (the "Partnership") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of U. S. Realty I Corporation (the "Corporate General Partner"), all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and nine
month periods ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1998. For
further information, refer to the financial statements and footnotes thereto
included in the Partnership's annual report on Form 10-KSB for the year ended
December 31, 1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
NOTE B - RECONCILIATION OF CASH FLOWS
The Partnership considers all cash to be restricted for tenant security deposits
and for the purpose of the deposit of Net Cash Flow, as defined by the debt
restructure in October of 1993.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Corporate General
Partner and its affiliates for the management and administration of all
Partnership activities. Affiliates of the Corporate General Partner provide
property management and asset management services to the Partnership. The
Partnership Agreement provides for payments to affiliates for services and as
reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.
Transactions between the Partnership and affiliates of the Corporate General
Partner for the nine months ended September 30, 1998 and 1997 were as follows:
1998 1997
(in thousands)
Property management fees (included in operating expense) $220 $220
Reimbursement for services of affiliates, including
approximately $3,000 and $6,000 of construction oversight
reimbursements in 1998 and 1997, respectively (included in
general and administrative and operating expenses) 89 78
Due to Corporate General Partner--
includes principal and accrued interest 560 542
For the period of January 1, 1997 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
Corporate General Partner with an insurer unaffiliated with the Corporate
General Partner. An affiliate of the Corporate General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent which placed the master policy.
The agent assumed the financial obligations to the affiliate of the Corporate
General Partner, which receives payment on these obligations from the agent.
The amount of the Partnership's insurance premiums accruing to the benefit of
the affiliate of the Corporate General Partner by virtue of the agent's
obligations is not significant.
NOTE D - SUBSEQUENT EVENT
Subsequent to September 30, 1998, the Partnership entered into an agreement with
an unaffiliated party to sell The Gallery - Knoxville. The potential purchaser
is currently conducting the due diligence review of the property, pursuant to
the Contract to Purchase and Sell Property. The Corporate General Partner
expects the sale to be completed by November 1998.
NOTE E - TRANSFER OF CONTROL; SUBSEQUENT EVENT
On October 1, 1998, Insignia Financial Group, Inc. completed its merger with and
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 of the Insignia Merger, AIMCO acquired control
of the Corporate General Partner. In addition, AIMCO also acquired
approximately 51% of the outstanding common shares of beneficial interest of
Insignia Properties Trust ("IPT"), the entity which controls the Corporate
General Partner. Also, effective October 1, 1998 IPT and AIMCO entered into an
Agreement and plan of Merger pursuant to which IPT is to be merged with and into
AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger requires the
approval of the holders of a majority of the outstanding IPT Shares.
AIMCO has agreed to vote all of the IPT Shares owned by it in favor of the IPT
Merger and has granted an irrevocable limited proxy to unaffiliated
representatives of IPT to vote the IPT Shares acquired by AIMCO and its
subsidiaries in favor of the IPT Merger. As a result of AIMCO's ownership and
its agreement, the vote of no other holder of IPT is required to approve the
merger. The Corporate General Partner does not believe that this transaction
will have a material effect on the affairs and operations of the Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of two apartment complexes and
two commercial shopping centers. The following table sets forth the average
occupancy of the properties for the nine months ended September 30, 1998 and
1997:
Average
Occupancy
1998 1997
Twin Lakes Apartments
Palm Harbor, Florida 93% 94%
Governor's Park Apartments
Little Rock, Arkansas 92% 92%
The Gallery - Huntsville
Huntsville, Alabama 93% 97%
The Gallery - Knoxville
Knoxville, Tennessee 89% 92%
The Corporate General Partner attributes the decrease in occupancy at both The
Gallery - Knoxville and The Gallery - Huntsville to the continuing vacancy of
space that was occupied during the nine months ended September 30, 1997.
Brochures have been mailed to prospective tenants for The Gallery - Huntsville
which has started to generate the renewed interest in the available space. The
Gallery - Knoxville is currently under contract for sale. The Corporate General
Partner expects the sale to be completed by November 1998.
Results of Operations
The Partnership's net loss for the three and nine months ended September 30,
1998, was approximately $234,000 and $130,000, respectively as compared to
approximately $209,000 and $185,000, respectively for the three and nine months
ended September 30, 1997. The decrease in net loss is primarily attributable to
an increase in other income and a decrease in operating expense. The decrease in
net loss was partially offset by an increase in property tax expense and a
decrease in rental income. Other income increased primarily due to increases in
lease cancellation fees at both Twin Lakes Apartments and Governor's Park
Apartments. Operating expense decreased as a result of a decrease in other
leasing expense, amortization of lease commissions and maintenance expense.
Other leasing expense decreased due to a major tenant at The Gallery - Knoxville
moving out during 1997. As a result, the remaining unamortized lease commission
of $60,000 was expensed in the third quarter of 1997. Amortization expense
decreased due to software becoming fully amortized in 1997 and a decrease of
lease commissions as discussed above. Maintenance expense decreased as a result
of an exterior painting project at Twin Lakes Apartments that was started and
completed in the third quarter of 1997. Rental income decreased as a result of
the decrease in occupancy at both The Gallery - Huntsville and The Gallery -
Knoxville as noted above. Property tax expense increased as a result of a
correction in the amount accrued for taxes during 1997.
Included in operating expense for the nine months ended September 30, 1998 is
approximately $23,000 of major repairs and maintenance comprised of exterior
building repairs, major landscaping and window coverings. Included in operating
expense for the nine months ended September 30, 1997 is approximately $141,000
of major repairs and maintenance comprised primarily of exterior building
repairs, major landscaping and exterior painting.
As part of the ongoing business plan of the Partnership, the Corporate General
Partner monitors the rental market environment of each 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 Corporate General Partner attempts to
protect the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, due to changing market conditions, which can result in the use of
rental concessions and rental reductions to offset softening market conditions,
there is no guarantee that the Corporate General Partner will be able to sustain
such a plan.
Liquidity and Capital Resources
Based on the terms of the debt restructure, all cash is considered restricted.
Restricted cash at September 30, 1998 was $58,000 as compared to $11,000 at
September 30, 1997. Net cash provided by operating activities increased
primarily as a result of a decrease in net loss as discussed above and an
increase in receivables and deposits as compared to September 30, 1997. These
increases were offset by a decrease in other liabilities as compared to
September 30, 1997. These changes are due to the timing of payments to vendors,
the timing of rental collections and a decrease in accrued interest as a result
of increased payments on the mortgage note payable throughout 1997 and 1998.
Net cash used in investing activities decreased due to a decrease in deposits to
restricted escrows which was partially offset by an increase in property
improvements and replacements. Net cash used in financing activities increased
as a result of an increase in principal payments on the mortgage notes payable.
Total principal and interest payments are based upon excess cash flows at the
properties and are allocated first to accrued interest and the remainder to
principal. Although excess cash flows were relatively consistent for the nine
months ended September 30, 1998 and 1997, the increase in principal payments is
attributed to lower accrued interest; therefore, a larger portion of the
payments are applied to principal.
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. Such assets are
currently thought to be sufficient for any near-term needs of the Partnership.
The Corporate General Partner is currently assessing the need for capital
improvements at each of the Partnership's properties. To the extent that
additional capital improvements are required, the Partnership's distributable
cash flow, if any, may be adversely affected at least in the short term. The
mortgage indebtedness of approximately $20,857,000 requires a balloon payment on
August 1, 2001. The Corporate General Partner will attempt to refinance such
indebtedness or sell the properties prior to such maturity date. If the
properties cannot be refinanced or sold for a sufficient amount, the Partnership
will risk losing such properties through foreclosure. Pursuant to the loan
agreement, Net Cash Flow of the Partnership is required to be paid to the
mortgage holder on a monthly basis to reduce accrued interest and principal. No
distributions can be made until all long-term debt is repaid. The Corporate
General Partner is currently negotiating with an unaffiliated third party for
the sale of The Gallery - Knoxville. The sale is anticipated to occur during
November 1998. The Corporate General Partner is currently assessing the
feasibility of marketing The Gallery - Huntsville or refinancing the mortgage
encumbering the Partnership's investment properties.
Transfer of Control; Subsequent Event
On October 1, 1998, Insignia Financial Group, Inc. completed its merger with and
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 of the Insignia Merger, AIMCO acquired control
of the Corporate General Partner. In addition, AIMCO also acquired
approximately 51% of the outstanding common shares of beneficial interest of
Insignia Properties Trust ("IPT"), the entity which controls the Corporate
General Partner. Also, effective October 1, 1998 IPT and AIMCO entered into an
Agreement and plan of Merger pursuant to which IPT is to be merged with and into
AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger requires the
approval of the holders of a majority of the outstanding IPT Shares.
AIMCO has agreed to vote all of the IPT Shares owned by it in favor of the IPT
Merger and has granted an irrevocable limited proxy to unaffiliated
representatives of IPT to vote the IPT Shares acquired by AIMCO and its
subsidiaries in favor of the IPT Merger. As a result of AIMCO's ownership and
its agreement, the vote of no other holder of IPT is required to approve the
merger. The Corporate General Partner does not believe that this transaction
will have a material effect on the affairs and operations of the Partnership.
Year 2000
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 to define the applicable year. The Partnership is
dependent upon the Corporate General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any 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.
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 are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Managing
Agent and the Partnership.
Status of Progress in Becoming Year 2000 Compliant
The Managing Agent's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing and implementation. To date, the
Managing Agent has fully completed its assessment of all information systems
that could be significantly affected by the Year 2000, and has begun the
remediation, testing and implementation phase on both hardware and software
systems. Assessments are continuing in regards to embedded systems in operating
equipment. The Managing Agent anticipates having all phases complete by June 1,
1999.
In addition to the areas the Partnership is relying on the Managing Agent to
verify compliance with, the Partnership has certain operating equipment,
primarily at the property sites, which needed to be evaluated for Year 2000
compliance. The focus of the Corporate General Partner was to the security
systems, elevators, heating-ventilation-air-conditioning systems, telephone
systems and switches, and sprinkler systems. The Corporate General Partner is
currently engaged in the identification of all non-compliant operational
systems, and is in the process of estimating the costs associated with any
potential modifications or replacements needed to such systems in order for them
to be Year 2000 compliant. It is not expected that such costs would have a
material adverse affect upon the operations of the Partnership.
Risk Associated with the Year 2000
The Corporate General Partner believes that the Managing Agent has an effective
program in place to resolve the Year 2000 issue in a timely manner and has
appropriate contingency plans in place for critical applications that could
affect the Partnership's operations. To date, the Corporate General Partner
is not aware of any external agent with a Year 2000 issue that would materially
impact the Partnership's results of operations, liquidity or capital resources.
However, the Corporate General Partner has no means of ensuring that external
agents will be Year 2000 compliant. The Corporate General Partner does not
believe that the inability of external agents to complete their Year 2000
resolution 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.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
U.S. REALTY PARTNERS LIMITED PARTNERSHIP
By: U. S. Realty I Corporation
Corporate General Partner
By: /s/Patrick Foye
Patrick Foye
Executive Vice President
By: /s/Timothy R. Garrick
Timothy R. Garrick
Vice President - Accounting
(Duly Authorized Officer)
Date: November 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
U.S. Realty Partners Limited Partnership 1998 Third Quarter 10-QSB and
is qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000788955
<NAME> U.S. REALTY PARTNERS LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 518
<ALLOWANCES> 80
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 33,428
<DEPRECIATION> (11,163)
<TOTAL-ASSETS> 23,736
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 20,644
0
0
<COMMON> 0
<OTHER-SE> 1,486
<TOTAL-LIABILITY-AND-EQUITY> 23,736
<SALES> 0
<TOTAL-REVENUES> 3,938
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,068
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,664
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (130)
<EPS-PRIMARY> (.11)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
