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 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)
March 31, 1999
Assets
Restricted cash $ 370
Receivables and deposits, net of $328 for
doubtful accounts 636
Restricted escrows 275
Other assets 168
Investment properties:
Land $ 4,464
Buildings and related personal property 20,000
24,464
Less accumulated depreciation (8,751) 15,713
$17,162
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 9
Tenant security deposit liabilities 79
Accrued property taxes 91
Other liabilities 551
Due to Corporate General Partner 578
Mortgage note payable 11,431
Partners' Capital (Deficit)
General partners $ (418)
Depositary unit certificate holders
(2,440,000 units authorized;
1,222,000 units issued and outstanding) 4,841 4,423
$17,162
See Accompanying Notes to Financial Statements
b) U.S. REALTY PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1999 1998
Revenues:
Rental income $ 1,130 $ 1,328
Other income 40 48
Gain on sale of investment property 2,794 --
Total revenues 3,964 1,376
Expenses:
Operating 350 373
General and administrative 50 65
Depreciation 178 212
Interest 398 549
Property taxes 105 116
Total expenses 1,081 1,315
Net income $2,883 $ 61
Net income allocated to general partners (1%) $ 29 $ 1
Net income allocated to depositary unit
certificate holders (99%) 2,854 60
$2,883 $ 61
Net income per depositary unit certificate $ 2.34 $ .05
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)
Depositary
Depositary Unit
Unit General Certificate
Certificates Partners Partners Total
Original capital contributions 1,222,000 $ 2 $ 30,550 $ 30,552
Partners' capital (deficit) at
December 31, 1998 1,222,000 $ (447) $ 1,987 $ 1,540
Net income for the three months
ended March 31, 1999 -- 29 2,854 2,883
Partners' capital (deficit) at
March 31, 1999 1,222,000 $ (418) $ 4,841 $ 4,423
See Accompanying Notes to Financial Statements
d)
U.S. REALTY PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1999 1998
Cash flows from operating activities:
Net income $ 2,883 $ 61
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 178 212
Amortization 2 4
Gain on sale of investment property (2,794) --
Change in accounts:
Restricted cash 187 (50)
Receivables and deposits (216) (84)
Other assets 101 20
Accounts payable (6) 1
Tenant security deposit liabilities (41) 9
Accrued property taxes (112) 47
Due to Corporate General Partner 18 6
Other liabilities (19) (51)
Net cash provided by operating activities 181 175
Cash flows from investing activities:
Net proceeds from sale of investment property 9,002 --
Property improvements and replacements (29) (40)
Net (deposits to) withdrawals from restricted
escrows (3) 3
Net cash provided by (used in) investing
activities 8,970 (37)
Cash flows from financing activities:
Payments on mortgage notes payable (246) (138)
Repayment of mortgage note payable (8,905) --
Net cash used in financing activities (9,151) (138)
Net increase 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 $ 402 $ 528
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" 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 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
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 the financial statements and footnotes thereto included in
the Partnership's annual report on Form 10-KSB for the 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, a publicly traded real
estate investment trust ("AIMCO"), with AIMCO being the surviving corporation
(the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in
the Corporate General Partner. The Corporate General Partner does not believe
that this transaction will have a material effect on the affairs and operations
of the Partnership.
NOTE C - 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
reconstruction in October of 1993.
NOTE D - DISPOSITION OF PROPERTY
On February 1, 1999, The Gallery _ Knoxville, located in Knoxville, Tennessee,
was sold to an unaffiliated third party for $9,300,000. After closing expenses
of approximately $298,000, the net proceeds received by the Partnership were
approximately $9,002,000. The Partnership was required to use the net proceeds
from the sale of the property to pay down the mortgage encumbering the
Partnership's properties. The sale of the property resulted in a gain on sale
of investment property of approximately $2,794,000.
NOTE E - 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. The Partnership Agreement provides for certain payments
to affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following payments were made to the
Corporate General Partner and its affiliates during the three months ended March
31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating expenses) $ 37 $ 72
Reimbursement for services of affiliates 29 28
(included in general and administrative and operating
expenses) (1)
Due to Corporate General Partner 578 554
(1) Included in "Reimbursement for services of affiliates" for the three months
ended March 31, 1998 is approximately $1,000 in reimbursements for
construction oversight cost. There were no such costs incurred for the
three months ended March 31, 1999.
During the three months ended March 31, 1999 and 1998, affiliates of the
Corporate General Partner were entitled to receive 5% of gross receipts from all
of the Registrant's residential properties for providing property management
services. The Registrant paid to such affiliates approximately $37,000 and
$34,000 for the three months ended March 31, 1999 and 1998, respectively.
For the three months ended March 31, 1998, affiliates of the Corporate General
Partner were entitled to receive varying percentages of gross receipts from the
Registrant's commercial properties for providing property management services.
The Registrant paid to such affiliates approximately $38,000 for the three
months ended March 31, 1998. Effective October 1, 1998 (the effective date of
the Insignia Merger) these services for the commercial properties were provided
by an unrelated party.
An affiliate of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $29,000 and
$28,000 for the three months ended March 31, 1999 and 1998 respectively.
During the first quarter of 1999, an affiliate of the Corporate General Partner
acquired 243,831 DUC's representing 19.95% of the total outstanding DUC's.
During April 1999, an affiliate of the Corporate General Partner (the
"Purchaser") commenced a tender offer for up to 305,500 of the outstanding DUC's
in the Partnership at $6.35 per unit, net to the seller in cash. The tender
offer is scheduled to expire May 20, 1999.
NOTE F - SUBSEQUENT EVENT
The General Partner has received a non-binding letter of intent from an
unaffiliated party interested in pursuing the purchase of The Gallery -
Huntsville. The General Partner is currently evaluating the terms of the offer
and plans to make a decision with regard to the sale before June 30, 1999.
NOTE G - SEGMENT REPORTING
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has two reportable segments: residential properties and
commercial properties. The Partnership's residential property segment consists
of two apartment complexes located in Arkansas and Florida. The Partnership
rents apartment units to tenants for terms that are typically twelve months or
less. The commercial property segment consists of a shopping center located in
Alabama, which leases space to various retail businesses with terms ranging from
12 months to 10 years and a shopping center in Tennessee which was sold during
February 1999.
Measurement of segment profit or loss
The Partnership evaluates performance based on net income. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies in the Partnership's annual report on
Form 10-KSB for the year ended December 31, 1998.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segments consist of 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. The "Other" Column includes partnership administration
related items and income and expense not allocated to the reportable segments
(in thousands).
1999 RESIDENTIAL COMMERCIAL OTHER TOTALS
Rental income $ 715 $ 415 $ -- $ 1,130
Other income 30 3 7 40
Interest expense -- -- 398 398
Depreciation 115 63 -- 178
General and administrative expense -- -- 50 50
Gain on sale of assets -- 2,794 -- 2,794
Segment profit (loss) 339 2,985 (441) 2,883
Total assets 10,920 5,398 844 17,162
Capital expenditures for
investment properties 29 -- -- 29
1998
Rental income $ 666 $ 662 $ -- $ 1,328
Other income 38 4 6 48
Interest expense -- -- 549 549
Depreciation 113 99 -- 212
General and administrative expense -- -- 65 65
Segment profit (loss) 280 389 (608) 61
Total assets 11,192 12,253 616 24,061
Capital expenditures for
investment properties 40 -- -- 40
NOTE H - LEGAL PROCEEDINGS
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled EVEREST PROPERTIES, LLC. V.
INSIGNIA FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of
California, county of Los Angeles. The action involves 44 real estate limited
partnerships (including the Partnership) in which the plaintiffs allegedly own
interests and which Insignia Affiliates allegedly manage or control (the
"Subject Partnerships"). This case was settled on March 3, 1999. The
Partnership is responsible for a portion of the settlement costs. The expense
will not have a material effect on the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time.
The discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of two apartment complexes and a
commercial shopping center. The following table sets forth the average
occupancy of the properties for the three months ended March 31, 1999 and 1998:
Average
Occupancy
Property 1999 1998
Twin Lakes Apartments
Palm Harbor, Florida 96% 93%
Governor's Park Apartments
Little Rock, Arkansas 94% 94%
The Gallery _ Huntsville
Huntsville, Alabama 90% 95%
The Corporate General Partner attributes the increase in occupancy at Twin Lakes
Apartments to a strong reputation in the Palm Harbor area concerning customer
service provided by the apartment's personnel. Management has been able to
maintain a higher standard of service for their tenants than local competition
at lower rental rates. The Corporate General Partner attributes the decrease in
occupancy at The Gallery _ Huntsville to the continuing vacancy of space that
was occupied during the three months ended March 31, 1998.
Results of Operations
The Registrant's net income for the three months ended March 31, 1999 was
approximately $2,883,000 as compared to approximately $61,000 for the three
months ended March 31, 1998. The increase in net income is primarily
attributable to the gain on sale of investment property of approximately
$2,794,000 realized on the sale of The Gallery _ Knoxville. On February 1,
1999, The Gallery _ Knoxville, located in Knoxville, Tennessee, was sold to an
unaffiliated third party for $9,300,000. After closing expenses of
approximately $297,000 the net proceeds received by the Partnership were
approximately $9,002,000. The Partnership used the proceeds from the sale of
the property to pay down the mortgage encumbering the Partnership's properties
by approximately $8,905,000.
Excluding the impact of the sale of The Gallery _ Knoxville, the increase in net
income was attributable to an increase in total revenues and a decrease in total
expenses. Total revenues increased due to an increase in rental income at the
Partnership's investment properties. The increase in rental income was
attributable to an increase in occupancy at Twin Lakes Apartments, which was
partially offset by a decrease in occupancy at The Gallery _ Huntsville, as
noted above.
The decrease in total expenses was primarily attributable to a decrease in
interest expense. Interest expense decreased as a result of the pay down of the
mortgage encumbering the Partnership's investment properties, as noted above.
Operating, depreciation, and general and administrative expenses remained
relatively constant for the comparable periods. Included in general and
administrative expenses for the three months ended March 31, 1999 and 1998 are
management reimbursements to the Corporate General Partner allowed under the
Partnership Agreement. In addition, 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 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
All of the Partnership's cash is restricted pursuant to the terms of the
mortgage loan encumbering the Partnership's properties. At March 31, 1999 the
Partnership had approximately $187,000 of restricted cash as compared to
approximately $184,000 of restricted cash at December 31, 1998.
During April 1999, an affiliate of the Corporate General Partner (the
"Purchaser") commenced a tender offer to acquire up to 305,500 of the
outstanding Depository Unit Certificates ("DUCs") in the Partnership at a
purchase price of $5.50 per DUC, which price was subsequently increased to $6.35
per DUC, net to the seller in cash. The tender offer is scheduled to expire
May 20, 1999. In addition to the Purchaser's offer, affiliates of MacKenzie
Patterson, Inc., an unaffiliated third party, commenced a tender offer on March
25, 1999 to acquire up to 70,000 DUCs at a purchase price of $5.00 per DUC,
which price was subsequently increased to $6.25 per DUC, net to seller in cash.
The MacKenzie Patterson offer is scheduled to expire on May 18, 1999. Depending
on the number of DUCs tendered in these offers, the ability of holders of DUCs
over the next twelve months may be severely restricted.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, State, and Local legal and regulatory requirements. Capital
improvements planned for each of the Registrant's properties are detailed below.
The Gallery - Huntsville
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Corporate General
Partner on interior improvements, it is estimated that the property requires
approximately $144,000 of capital improvements over the near term. The
Partnership has budgeted, but is not limited to, capital improvements of
approximately $11,000 for 1999 which includes tenant improvements. As of March
31, 1999, no capital improvements have been performed.
The Gallery - Knoxville. This property was sold February 1, 1999.
Governor's Park Apartments
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Corporate General
Partner on interior improvements, it is estimated that the property requires
approximately $231,000 of capital improvements over the near term. The
Partnership has budgeted, but is not limited to, capital improvements of
approximately $257,000, for 1999 which includes roofing, stairwells, and balcony
repairs. As of March 31, 1999 approximately $3,000 has been incurred consisting
primarily of appliance and floor covering replacements.
Twin Lakes Apartments
Based on a report received from an independent third party consultant analyzing
necessary exterior improvements and estimates made by the Corporate General
Partner on interior improvements, it is estimated that the property requires
approximately $436,000 of capital improvements over the near term. The
Partnership has budgeted, but is not limited to, capital improvements of
approximately $454,000 for 1999 which includes roofing, gutter repairs, and
exterior lighting. As of March 31, 1999 approximately $26,000 has been incurred
consisting primarily of appliance and floor covering replacements and land
improvements.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The total mortgage indebtedness of $11,431,000 requires a balloon payment on
August 1, 2001. The Corporate General Partner will attempt to refinance such
indebtedness and/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 assessing the feasibility of refinancing the
mortgage encumbering the Partnership's investment properties.
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 Corporate 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 1. LEGAL PROCEEDINGS
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties, LLC. v.
Insignia Financial Group, Inc., et al. in the Superior Court of the State of
California, county of Los Angeles. The action involves 44 real estate limited
partnerships (including the Partnership) in which the plaintiffs allegedly own
interests and which Insignia Affiliates allegedly manage or control (the
"Subject Partnerships"). This case was settled on March 3, 1999. The
Partnership is responsible for a portion of the settlement costs. The expense
will not have a material effect on the Partnership's overall operations.
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.
U.S. REALTY PARTNERS LIMITED PARTNERSHIP
By: U.S. Realty I Corporation
Corporate General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Carla R. Stoner
Carla R. Stoner
Senior Vice President Finance and
Administration
Date: May 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from U.S. Realty
Partners Limited Partnership 1999 First 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 636
<ALLOWANCES> 328
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,464
<DEPRECIATION> (8,751)
<TOTAL-ASSETS> 17,162
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 11,431
0
0
<COMMON> 0
<OTHER-SE> 4,423
<TOTAL-LIABILITY-AND-EQUITY> 17,162
<SALES> 0
<TOTAL-REVENUES> 3,964
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,081
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 398
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,883
<EPS-PRIMARY> 2.34<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
