UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 33-6678
UNION SQUARE HOTEL PARTNERS LIMITED PARTNERSHIP
Exact name of registrant as specified in its charter
Delaware 13-3389008
State or other jurisdiction of incorporation I.R.S. Employer Identification No.
3 World Financial Center, 29th Floor, New York, New York 10285
Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
DEPOSITARY UNITS OF LIMITED PARTNERSHIP INTEREST
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (x)
Documents Incorporated by Reference: See Exhibit Index on Page 8.
PART I
Item 1. Business
(a) General Development of Business.
Union Square Hotel Partners L.P. (the "Partnership), formerly Shearson Union
Square Associates L.P. (see Item 10. "Certain Matters Involving Affiliates"),
is a Delaware limited partnership formed in June 1986. The general partner of
the Partnership is Union Square/GP Corp., (the "General Partner"), formerly
Shearson Union Square/GP Corp. (see Item 10. "Certain Matters Involving
Affiliates"), a Delaware corporation and an affiliate of Lehman Brothers Inc.
("Lehman"), formerly Shearson Lehman Brothers Inc. (see Item 10. "Certain
Matters Involving Affiliates"). The Partnership was formed to acquire the
Hyatt on Union Square (the "Property" or "Hotel") located in San Francisco,
California and operated under a long-term lease (the "Operating Lease") by
California Hyatt Corporation ("California Hyatt"), a subsidiary of Hyatt
Corporation ("Hyatt"). The Hotel was renamed the Grand Hyatt San Francisco on
February 1, 1990. See Note 3 to the Financial Statements contained herein at
Item 8 for additional information concerning the Hotel and the Operating Lease.
Between September 24, 1986, the date of the initial closing, and March 26,
1987, the date of the final closing, 7,174,100 depositary units of limited
partnership interest ("Units", holders of Units are herein referred to as
"Unitholders") were issued. The net proceeds of the offering, after payment of
offering and organization costs and acquisition fees aggregated $67,650,091.
The Partnership commenced operation on August 29, 1986 with the acquisition of
the Hotel for a purchase price of $127,727,472. The purchase price, related
costs and establishment of initial reserve accounts were funded by the issuance
of (1) a first mortgage loan (the "Mortgage Loan") for $70,000,000; (2) a loan
payable secured by a second mortgage on the Hotel (the "Loan Payable") for
$13,325,000; and (3) a note payable (the "Note Payable") for $55,000,000. The
Note Payable was issued by an affiliate of the General Partner to enable the
Partnership to consummate the purchase of the Hotel and was repaid in full on
January 13, 1987 from the proceeds of the offering.
Renovation Plan. During 1988, the Partnership and California Hyatt mutually
agreed upon a renovation program (the "Renovation Plan") which was to be
effected for a cost not expected to exceed $20,000,000. During 1989 and early
1990, the Renovation Plan was completed. The Hotel was renamed The Grand Hyatt
San Francisco and reopened on February 1, 1990. The total amount expended
toward the Renovation Plan was $20,676,768, of which $1,886,383 came from the
FF&E Reserve Fund, $1,874,379 was the California Hyatt's contribution and
$16,916,006 was funded by the Partnership. For information regarding the
financing of the Renovation Plan, please refer to Note 3 to the Financial
Statements contained herein at Item 8.
The Restructuring. Due to the funding of the Renovation Plan and the downturn
in operating results of the Hotel, the Partnership experienced decreasing
levels of liquidity. As a result, the Partnership was not able to meet its
January 2, 1992 debt-service payment with respect to the Mortgage Loan or the
December 31, 1991 repayment of an unsecured note due to the Mortgage Lender
with respect to the Renovation Plan (the "Unsecured Note"). Following the
Partnership's receipt of a notice of default (the "Default Notice") and the
acceleration of the Partnership's debt obligations, the Partnership consummated
a restructuring of its financing and property leasing arrangements (the
"Restructuring"). See Note 4 to the Financial Statements which is incorporated
herein by reference thereto for information concerning the terms of the
Restructuring.
(b) Financial Information About Industry Segments.
The Partnership's sole business is to own and lease the Hotel that is operated
by California Hyatt, under the Operating Lease. All of the Partnership's
revenues and assets relate solely to such industry segment.
(c) Narrative Description of Business.
The Partnership's principal objectives were to (i) provide quarterly cash
distributions, a portion of which were anticipated to be non-taxable due to
depreciation deductions, (ii) preserve and protect capital and (iii) achieve
long-term appreciation in the value of the Property for distribution upon sale.
However, due to the poor economic conditions in the hospitality industry and
the resulting decline in the Hotel's operations, objective (i) has not been
achieved and it is unlikely that objectives (ii) and (iii) can be achieved. <PAGE>
Competition.
The Hotel operates in a highly competitive market. The Partnership has
identified 21 existing first-class and luxury properties with a total of
approximately 12,885 guest rooms which are competitive with the Hotel.
The Westin St. Francis, the Hyatt Regency, the Fairmont Hotel, the Ritz Carlton
and the Sheraton Palace with a total of 3,485 guest rooms are considered by the
Partnership to be primary competitors. These hotels are considered primary
competitors due to their size, meeting facilities and market mix relative to
the Hotel. The remaining sixteen properties, with a total of approximately
9,400 rooms, are secondary competitors which compete with the Hotel to a lesser
degree.
Eight hotels, the Ritz Carlton, the Sheraton Palace, the Mandarin Hotel, the
Pan Pacific Hotel (formerly the Portman Hotel), the Nikko Hotel, the Park
Hyatt, the San Francisco Marriott and the Hyatt Fisherman's Wharf opened after
the Partnership commenced operations. These hotels have a total of 4,110 rooms
and compete in varying degrees with the Hotel. The continued introduction of
new properties has exerted downward pressure on occupancy and room rates
throughout the city.
Employees.
The Partnership's business is managed by the General Partner and the
Partnership has no employees. The Hotel's staff are employees of California
Hyatt.
Item 2. The Property
The Hotel, which is located on Union Square at the center of San Francisco's
downtown retail district, has 693 rooms, two restaurants, one lounge and 22,000
square feet of meeting and banquet facilities and four retail tenants. The
36-story Hotel encompasses approximately 660,000 total square feet on a 35,391
square foot site. It was built in 1973 and substantially refurbished in 1982
and 1989, at which time the Hotel was converted to a Grand Hyatt. See Note 3
to the Financial Statements incorporated herein by reference thereto for
additional information regarding the Hotel.
Item 3. Legal Proceedings
See Note 8 to the Financial Statements, incorporated herein by reference
thereto.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the Unitholders for a vote during the fourth
quarter of the Partnership's past fiscal year.
PART II
Item 5. Market for the Partnership's Limited Partnership interests and
Security Holder Matters
(a) Market Information. The Partnership has issued no common stock. There is
no established trading market for the units. The securities issued by the
Partnership consist of units of Limited Partnership interest.
(b) Holders. The number of Unitholders as of December 31, 1994 was 5,773.
(c) Dividends. Beginning with the second quarter of 1988, the General Partner
has deferred payment of distributions and will not resume payment until such
time as the Hotel's cash flow reaches a sufficient level in excess of its debt
service. The terms of the First Mortgage Loan provide that at the time of any
cash distribution, a cash flow to debt service ratio of not less than 1.2:1
must have been met or exceeded for the four most recently completed quarters
and that cash available for debt service immediately after such distributions
must be not less than $3,500,000.
As of the end of the prior fiscal year, the cash flow to debt service ratio was
0.83:1, and the Partnership's cash generated by property operations available
for debt service was $5,649,380. This ratio is determined based on the
contract interest rate of 9.699%.
Pursuant to the settlement of class actions against the Partnership and others
(the "Settlement"), Shearson paid cash distributions to class member Limited
Partners, in the amount of $.40 per Unit on February 12, 1993, $.30 per Unit on
February 14, 1992 and $.10 per Unit on March 8, 1991. See Note 8 to the
Financial Statements incorporated herein by reference thereto for additional
information concerning the Settlement.
Item 6. Selected Financial Data
For the Years ending December 31,
1994 1993 1992 1991 1990
Total Income $ 7,005,899 $ 5,412,650 $ 4,255,525 $ 2,841,245 $ 1,563,720
Net Loss (11,015,227) (12,404,566) (13,825,960) (15,257,829) (22,509,326)
Net Loss
Per Unit(1) (1.52) (1.71) (1.91) (2.11) (3.11)
Long-term
obligations(2) 130,684,497 126,508,947 122,783,001 111,644,711 102,851,341
Total Assets 106,774,719 109,887,083 115,656,493 120,254,329 125,999,197
Cash
Distributions
Per Unit (1) .00 .00 .40(3) .30(3) .10(3)
(1) Based on 7,174,100 units outstanding.
(2) Accrued interest is not included in long-term obligations with the
exception of interest accrued on the Loan Payable, which according to the
original terms of this note, is not payable currently. In addition, pursuant
to the Restructuring, past due interest on the Mortgage Loan is being deferred
and will be due and payable upon maturity of the Mortgage Loan. Accordingly,
such deferred interest is included as a long-term obligation.
(3) Paid by Shearson pursuant to the Settlement.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership's liquidity and capital resources have been substantially
impacted by the funding of the Renovation Plan which was completed in January
1990 (the "Renovation Plan") and extensive borrowing subsequent to the initial
offering. Combined with weak results from operations since 1989, these factors
led to a default by the Partnership on its January 2, 1992 debt-service payment
with respect to its $70 million first mortgage loan (the "Mortgage Loan").
This default created other defaults under the Partnership's subordinate
financings. Effective June 30, 1992, a restructuring of the Partnership's
indebtedness and property leasing arrangements (the "Restructuring") was
successfully executed resulting in the waiver or cure of each of the
Partnership's defaults. Please refer to Note 4 to the Financial Statements,
which are incorporated herein by reference thereto for additional details
regarding the Restructuring and the Mortgage Loan.
There can be no assurance that the Partnership's hotel (the "Hotel" or
"Property") will generate sufficient cash flow to enable the Partnership to
satisfy its debt service obligations. The Partnership made its quarterly debt
service payments, due on January 2, 1994, April 2, 1994, July 5, 1994 and
October 3, 1994, as well as the quarterly debt service payment, due on January
2, 1995 to the Bank of Nova Scotia ("BNS"), with cash flow from operations. In
addition, on July 5, 1994 a payment of $405,083 was made to BNS representing
the excess of rents received by the Partnership less disbursements for the
period from July 1, 1993 through June 30, 1994, as required by the Amended and
Restated Promissory Note Secured by the Deed of Trust dated June 30, 1992.
This payment was applied toward reducing BNS's portion of the accrued interest
on the Partnership's Mortgage Loan. While the General Partner currently
expects that the Partnership's cash flow will be sufficient to meet the minimum
pa yment on April 2, 1995 due under the restructured terms of the Mortgage
Loan, there can be no assurance that cash flow will continue to be sufficient
to satisfy future payments. The General Partner is prepared to request
financial support from an affiliate, Lehman Brothers Holdings Inc. ("Lehman
Brothers Holdings"), to supplement cash flow from the Hotel should the need
arise. Lehman Brothers Holdings has indicated that it would evaluate the need
for additional funding on a quarterly basis.
On April 27, 1993, Lehman Brothers Inc. elected not to renew the Guaranty of
the minimum pay rate under the restructured Mortgage Loan for the year
commencing July 4, 1993. The General Partner believes that this decision does
not reflect a change of position by Lehman Brothers Inc., and that they will
evaluate the future need for additional funding on a quarterly basis. The
General Partner anticipates the need for continued interest accruals and
deferrals pursuant to the Restructuring, for the foreseeable future. However,
if the Partnership continues to remit only the minimum debt service payments,
interest will continue to accrue. This accrual of interest may affect the
Partnership's ability to refinance and/or sell the hotel property at a price
which enables the repayment of the Partnership's restructured debt, including
the accrued and deferred interest.
At December 31, 1994, the Partnership had cash, which is held in an interest
bearing account, of $2,668,685 compared to $1,488,632 at December 31, 1993.
The increase primarily is due to the increase in cash provided by operating
activities.
Replacement reserve receivable decreased from $327,929 at December 31, 1993 to
$89,506 at December 31, 1994, largely due to expenditures for furniture,
fixtures and equipment ("FF&E") exceeding additions to the reserve. Rent
receivable increased by $40,703 from December 31, 1993 to $194,244, due to the
increase in rent from operations and the timing of payments.
California Hyatt was required to reimburse the Partnership $3,000,000 with
respect to the installation of life safety systems at the Hotel (including
sprinklers) and the necessary abatement of asbestos. The terms of this
agreement required California Hyatt to make 36 monthly payments of principal
plus interest beginning in January 1991, as a deduction from the Hotel's
operating profit. Thus, the Partnership reduced building costs and established
a receivable from California Hyatt in the amount of $600,000 at December 31,
1990, which represented management's estimate of the portion of such
reimbursements in excess of normal lease payments otherwise anticipated to be
received. As a result of the amendment to the Hotel lease, completed as part
of the Restructuring, California Hyatt's effective commitment to reimburse the
Partnership for the installation of life safety systems at the Hotel (including
sprinklers) and the necessary abatement of asbestos, was reduced in 1992 by
$187,500. Accordingly, this amount was added to the Partnership's cost of the
life safety system. As a result of the final payment made March 31, 1994,
"Receivable - Life Safety System" declined from $6,287 at December 31, 1993 to
$0 at December 31, 1994.
Accounts payable and accrued expenses increased to $66,420 at December 31, 1994
compared with $44,718 at December 31, 1993, primarily due to the accrual of
$18,400 for additional taxes due to the City of San Francisco for 1991, 1992
and 1993. Accrued interest increased to $11,580,105 at December 31, 1994
compared with $7,885,464 at December 31, 1993, which is the net of accrued
interest expense for the period less the minimum interest payments and the
payment from excess cash flow made on the Mortgage Loan. Deferred interest
increased from $7,452,135 at December 31, 1993 to $8,020,283 at December 31,
1994 and Notes and Loans - Affiliate increased from $45,209,234 at December 31,
1993 to $48,891,636 at December 31, 1994. These accounts have increased due to
compounding of interest on the principal balances.
Due to the downturn in operating results of the Hotel, the General Partner
suspended payment of cash distributions starting with the second quarter of
1988. However, a cash distribution in the amount of $.40 per unit, which
represents the third and final distribution pursuant to the Settlement, was
paid to class member Limited Partners on February 12, 1993. See Note 8 to the
Financial Statements contained herein at Item 8. Future distributions will be
dependent on the Partnership's cash flow from operations and will be restricted
until such time as the Hotel's cash flow reaches a sufficient level in excess
of its debt service as required under the terms of the restructured Mortgage
Loan.
Results of Operations
1994 versus 1993
The Partnership's Hotel operates in a highly competitive environment which
continues to have an adverse affect on the Partnership's rental income.
Operations during the year ended December 31, 1994, while improved over results
for the corresponding period in 1993, continued to be affected by a combination
of reduced travel and strong competition in the San Francisco hotel market.
The average occupancy rate and average room rate for the year ended December
31, 1994 were 75.45% and $141.17, respectively, compared to 71.42% and
$138.43, respectively, for the corresponding period in 1993.
For the year ended December 31, 1994, the Partnership incurred a net loss of
$11,015,227 compared to a net loss of $12,404,566 for the year ended December
31, 1993. The decrease in the Partnership's net loss is primarily attributable
to an increase in income from operations and a decrease in depreciation and
amortization due to a portion of personal property becoming fully depreciated,
which was partially offset by an increase in interest expense.
For the year ended December 31, 1994, rental income included operating income
of $5,816,107 compared to $4,045,593 for the same period in 1993. The
improvement for the year ended December 31, 1994 is largely due to improved
Hotel operating results. Operating results were positively impacted by
increases in room sales, telecommunication sales and other rental income,
resulting from higher average occupancy and room rates at the Hotel during 1994
compared to 1993. Also contributing is the reduction of room, food and
beverage, and telecommunications expenses. Miscellaneous income decreased by
$253,887 to $2,765 in 1994 reflecting the one-time receipt of real estate tax
abatements in 1993.
Total expenses were $18,021,126 for the year ended December 31, 1994, compared
to $17,817,216 for the year ended December 31, 1993. The increase primarily is
due to a larger interest expense resulting from the accrual of interest on the
principal debt balance and an increase in the prime rate in 1994, partially
offset by a decrease in depreciation and amortization expense.
1993 versus 1992
The Partnership's Hotel operates in an intensely competitive environment which
had an adverse affect on the Partnership's rental income. Operations during
the year ended December 31, 1993, while improved compared to 1992 results, were
affected by reduced travel due to the sluggish national and Pacific Rim
economies, and strong competition in the San Francisco market.
The average occupancy rate and average room rate for the year ended December
31, 1993 were 71.42% and $138.43, respectively, compared to 68.2% and $137.04,
respectively, for the corresponding period in 1992.
For the year ended December 31, 1993, the Partnership incurred a net loss of
$12,404,566 compared to a net loss of $13,825,960 for the year ended December
31, 1992. The decrease in the Partnership's net loss primarily was
attributable to an increase in rents from operations. In addition, the
Partnership incurred lower general and administrative expenses during the year
ended December 31, 1993. For the year ended December 31, 1993, rental income
included operating income of $4,045,593 compared to $3,155,626 for the same
period in 1992. The improvement for the year ended December 31, 1993 largely
was due to improved Hotel operating results and the modified rent calculation
pursuant to the Restructuring beginning with the third quarter of 1992.
Operating results were impacted positively by increases in both room and food
and beverage sales, which were the result of higher average occupancy and room
rates at the Hotel during 1993 as compared to 1992. The Partnership recognized
miscellaneous income of $256,652 for the year ended December 31, 1993 which
related to real estate tax reductions.
Total expenses were $17,817,216 for the year ended December 31, 1993, compared
to $18,104,772 for the year ended December 31, 1992. The decline primarily was
due to the decrease in Partnership general and administrative expenses
resulting from lower consulting and legal fees in 1993.
The Restructuring resulted in the Partnership recording a gain of $23,287 for
the year ended December 31, 1992.
Item 8. Financial Statements and Supplementary Data
See Item 14 "Exhibits, Financial Statement Schedules, and Reports on Form 8-K"
for a listing of the financial statements filed with this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers or directors. The General Partner, Union
Square/GP Corp., formerly Shearson Union Square/GP Corp., is an affiliate of
Lehman, and has offices at the same location as the Partnership. The General
Partner manages and controls substantially all of the Partnership's affairs and
has general responsibility and ultimate authority in all matters affecting the
Partnership business. All of the officers and directors of the General Partner
are also officers and employees of Lehman.
Certain officers of the General Partner are now serving (or in the past have
served) as officers or directors of entities which act as general partners of a
number of real estate limited partnerships which have sought relief under the
United States Bankruptcy Code. The partnerships which have filed bankruptcy
petitions own real estate which has been adversely affected by the economic
conditions in the markets in which that real estate is located and,
consequently, the partnerships sought the protection of the bankruptcy laws
primarily to protect the partnerships' assets from loss through foreclosure.
The Officers and/or Directors of the General Partner are as follows:
Name Office
Jeffrey C. Carter President, Director and Chief Financial Officer
Rocco F. Andriola Director and Vice President
There is no family relationship among any of the foregoing directors or
officers. All of the foregoing directors have been elected to serve one year
terms. The business experience during the past five years of each of the
directors and officers of the General Partner of the Partnership is detailed
below.
Jeffrey C. Carter, 49, is a Senior Vice President of Lehman Brothers in the
Diversified Asset Group. Mr. Carter joined Lehman Brothers in September 1988.
From 1972 to 1988, Mr. Carter held various positions with Helmsley-Spear
Hospitality Services, Inc. and Stephen W. Brener Associates, Inc. including
Director of Consulting Services at both firms. From 1982 through 1987, Mr.
Carter was President of Keystone Hospitality Services, an independent hotel
consulting and brokerage company. Mr. Carter received his B.S. degree in Hotel
Administration from Cornell University and an M.B.A. degree from Columbia
University.
Rocco F. Andriola, 36, is a Senior Vice President of Lehman Brothers in its
Diversified Asset Group. Since joining Lehman Brothers in 1986, Mr. Andriola
has been involved in a wide range of restructuring and asset management
activities involving real estate and other direct investment transactions.
From 1986-89, Mr. Andriola served as a Vice President in the Corporate
Transactions Group of Shearson Lehman Brothers' office of the general counsel.
Prior to joining Lehman Brothers, Mr. Andriola practiced corporate and
securities law at Donovan Leisure Newton & Irvine in New York. Mr. Andriola
received a B.A. degree from Fordham University, a J.D. degree from New York
University School of Law, and an LL.M degree in Corporate Law from New York
University's Graduate School of Law.
Certain Matters Involving Affiliates
On July 31, 1993, Shearson Lehman Brothers Inc. ("Shearson") sold certain of
its domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to this sale,
Shearson changed its name to Lehman Brothers Inc. The transaction did not
affect the ownership of the Partnership or the Partnership's General Partners.
However, the assets acquired by Smith Barney included the name "Shearson."
Consequently, effective October 21, 1993, the General Partner changed its name
to Union Square/GP Corp., and effective December 29, 1993, the Partnership
changed its name to Union Square Hotel Partners Limited Partnership to delete
any reference to "Shearson."
Item 11. Executive Compensation
All of the directors and executive officers of the General Partner are
employees of Lehman Brothers Inc. They do not receive any salaries or other
compensation from the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
To the knowledge of the General Partner, no person owns more than 5% of the
outstanding Units.
Item 13. Certain Relationships and Related Transactions
All of the officers and directors of the General Partner are employees of
Lehman Brothers Inc. For information regarding transactions with affiliates,
please refer to Note 6 to the Financial Statements incorporated herein by
reference thereto.
PART IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K
(a) (1) and (2)
UNION SQUARE HOTEL PARTNERS LIMITED PARTNERSHIP
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants F-1
Financial Statements:
Balance Sheets - At December 31, 1994 and 1993 F-2
Statements of Operations - For the years ended
December 31, 1994, 1993 and 1992 F-3
Statements of Changes in Partners' Capital (Deficit) -
For the years ended December 31, 1994, 1993 and 1992 F-3
Statements of Cash Flows - For the years ended
December 31, 1994, 1993 and 1992 F-4
Notes to Financial Statements F-5
Independent Accountants' Report on Schedule III F-12
Schedule III - Real Estate and Accumulated Depreciation F-13
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted as (1)
the information required is disclosed in the financial statements and notes
thereto; (2) the schedules are not required under the related instructions; or
(3) the schedules are inapplicable.
Exhibit Index
(a)(3) Exhibits
3.a Amended and restated Agreement of Limited Partnership of
Shearson Union Square Associates dated August 18, 1986 (included in
Amendment No. 2 to registration Statement No. 33-6678) incorporated by
reference.
10.a Stipulation and Agreement of Compromise and Settlement filed in
the Court of Chancery of the State of Delaware in and for New Castle
County in June 8, 1990.
10.b Documents for Restructuring of Indebtedness Encumbering the
Grand Hyatt Union Square Hotel among Shearson Union Square Associates
Limited Partnership, as Borrower, and The Bank of Nova Scotia, as First
Lien Holder, Capital Growth Mortgage Investors, L.P., as Second Lien
Holder, Hyatt Corporation, as Third Lien Holder, and California Hyatt
Corporation, as Hotel Manager dated June 30, 1992.
(b) Reports on form 8-K filed in the fourth quarter of fiscal 1994.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNION SQUARE HOTEL PARTNERS, L.P.
BY: Union Square GP/Corp.
General Partner
Date: March 30, 1995
BY: s/Jeffrey C. Carter/
Name: Jeffrey C. Carter
Title: President, Director and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNION SQUARE/GP CORP.
General Partner
Date: March 30, 1995
BY: s/Jeffrey C. Carter/
Name: Jeffrey C. Carter
Title: President, Director and
Chief Financial Officer
Date: March 30, 1995
BY: s/Rocco F. Andriola/
Name: Rocco F. Andriola
Title: Director and Vice President
Report of Independent Public Accountants
To the Partners of
Union Square Hotel Partners, L.P.:
We have audited the accompanying balance sheets of Union Square Hotel Partners,
L.P. (formerly Shearson Union Square Associates, L.P.), as of December 31, 1994
and 1993, and the related statements of operations, partners' deficit and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable basis
for our opinion.
As discussed in Note 2 to the financial statements, the carrying value of the
Partnership's real estate exceeds estimated fair value as of December 31, 1994
and 1993. The recovery of the carrying value of the Partnership's real estate
is dependent upon the improvement of market conditions. The ultimate outcome
of this matter cannot presently be determined. In accordance with generally
accepted accounting principles, no provision for impairment is required.
Accordingly, no provision for any asset impairment has been made in the
accompanying financial statements.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Union Square Hotel Partners,
L.P. as of December 31, 1994 and 1993, and the results of its operations and
its cash flows for each of the years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 4 to the
financial statements, the Partnership has suffered recurring losses from
operations and the guaranty of the Partnership's debt service payments by an
affiliate of the General Partner expired during 1993, which raises substantial
doubt about the Partnership's ability to continue as a going concern. The
General Partner's plans in regard to these matters are also described in Note
4. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 24, 1995
Balance Sheets
December 31, 1994 and 1993
Assets 1994 1993
Real estate, at cost (Note 3):
Land $ 32,231,229 $ 32,231,229
Building 80,121,007 80,060,478
Furniture, fixtures
and equipment 28,749,108 27,423,641
141,101,344 139,715,348
Less-accumulated depreciation (38,235,817) (33,222,871)
102,865,527 106,492,477
Cash 2,668,685 1,488,632
Replacement reserve
receivable (Note 3) 89,506 327,929
Rent receivable (Note 4) 194,244 153,541
Receivable-life safety system - 6,287
Deferred charges, net of accumulated
amortization of $3,388,028 in 1994
and $2,926,568 in 1993 956,757 1,418,217
Total Assets $106,774,719 $109,887,083
Liabilities and Partners' Deficit
Liabilities:
Accounts payable and
accrued expenses $ 66,420 $ 44,718
Due to affiliates (Note 6) 28,342 17,372
Mortgage loan payable
(Note 4) 70,000,000 70,000,000
Accrued interest 11,580,105 7,885,464
Deferred interest 8,020,283 7,452,135
Notes and Loans - Affiliate
(Notes 4, 5, and 6) 48,891,636 45,209,234
Loan payable-Hyatt (Note 4) 3,772,578 3,847,578
Total Liabilities 142,359,364 134,456,501
Partners' Deficit:
General Partner (1,039,066) (928,914)
Limited Partners (34,545,579) (23,640,504)
Total Partners' Deficit (35,584,645) (24,569,418)
Total Liabilities and
Partners' Deficit $106,774,719 $109,887,083
Statements of Operations
For the years ended December 31, 1994, 1993 and 1992
Income 1994 1993 1992
Rental income (Notes 3 and 4):
Operating income $ 5,816,107 $ 4,045,593 $ 3,155,626
Replacement escrow 1,147,573 1,080,728 1,031,793
Interest income 39,454 29,677 45,608
Miscellaneous income 2,765 256,652 22,498
Total Income 7,005,899 5,412,650 4,255,525
Expenses
Interest expense
(Notes 4, 5 and 6) 12,337,774 11,453,674 11,130,646
Depreciation and amortization 5,474,406 6,165,463 6,513,409
General and administrative 208,946 198,079 460,717
Total Expenses 18,021,126 17,817,216 18,104,772
Net Loss before
extraordinary item (11,015,227) (12,404,566) (13,849,247)
Extraordinary Item
Gain on restructuring,
net (Note 4) - - 23,287
Net Loss $(11,015,227) $(12,404,566) $(13,825,960)
Net Loss Allocated (Note 2):
To the General Partner $ (110,152) $ (124,045) $ (138,260)
To the Limited Partners (10,905,075) (12,280,521) (13,687,700)
$(11,015,227) $(12,404,566) $(13,825,960)
Per limited partnership unit
(7,174,100 outstanding):
Net Loss before
extraordinary item $ (1.52) $ (1.71) $ (1.91)
Net Loss $ (1.52) $ (1.71) $ (1.91)
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1994, 1993 and 1992
Limited General Total
Partners' Partner's Partners'
Balance at December 31, 1991 $ 2,327,717 $ (666,609) $ 1,661,108
Net loss (13,687,700) (138,260) (13,825,960)
Balance at December 31, 1992 (11,359,983) (804,869) (12,164,852)
Net loss (12,280,521) (124,045) (12,404,566)
Balance at December 31, 1993 (23,640,504) (928,914) (24,569,418)
Net loss (10,905,075) (110,152) (11,015,227)
Balance at December 31, 1994 $(34,545,579) $(1,039,066) $(35,584,645)
Statements of Cash Flows
For the years ended December 31, 1994, 1993 and 1992
Cash Flows from Operating Activities:
1994 1993 1992
Net loss $(11,015,227) $(12,404,566) $(13,825,960)
Adjustments to reconcile
net loss to net cash
provided by (used for)
operating activities:
Depreciation and
amortization 5,474,406 6,165,463 6,513,409
Gain on restructuring - - (23,287)
Rental income from
replacement escrow (1,147,573) (1,080,728) (1,031,793)
Increase in deferred
interest on loan
payable-affiliate 3,682,402 3,306,097 2,755,459
Increase (decrease)
in cash arising from
changes in operating
assets and liabilities:
Rent receivable (40,703) 140,518 (294,059)
Due from Hyatt - 30,355 -
Receivable -
life safety
system 6,287 68,713 137,500
Accounts payable
and accrued
expenses 21,702 (219,687) 145,552
Due to affiliates 10,970 (55,081) (18,154)
Due to California
Hyatt - - (678,063)
Accrued and
deferred
interest 4,262,789 3,678,827 7,623,267
Net cash provided by (used for)
operating activities 1,255,053 (370,089) 1,303,871
Cash Flows from Investing Activities:
Proceeds from replacement
reserve receivable 1,385,996 1,410,987 513,076
Additions to real estate (1,385,996) (1,410,987) (513,076)
Net cash used for
investing activities - - -
Cash Flows from
Financing Activities:
Loan payable - Hyatt (75,000) (75,000) (250,000)
Restructuring note
payable - affiliate - - 1,000,000
Restructuring costs - - (1,018,085)
Net cash used for financing
activities (75,000) (75,000) (268,085)
Net increase (decrease) in cash 1,180,053 (445,089) 1,035,786
Cash at beginning of period 1,488,632 1,933,721 897,935
Cash at end of period $ 2,668,685 $ 1,488,632 $ 1,933,721
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period
for interest $ 4,392,583 $ 4,468,750 $ 6,968
Notes to Financial Statements
December 31, 1994, 1993 and 1992
1. Organization
Union Square Hotel Partners L. P. (the "Partnership"), formerly Shearson Union
Square Associates Limited Partnership (see below), was formed in June 1986
under the Delaware Revised Uniform Limited Partnership Act for the purpose of
acquiring the Hyatt on Union Square (the "Hotel"), located in San Francisco,
California, under a long-term operating lease.
Initial capital of $1,000 was contributed by Union Square/GP Corp. (the
"General Partner"), formerly Shearson Union Square/GP Corp. (see below), a
Delaware corporation and an affiliate of Lehman Brothers Inc. The agreement of
limited partnership authorized the issuance of a maximum of 7,174,100
Depository Units (the "Units") which represent Partnership interests. At March
26, 1987, an aggregate of 7,174,100 units was issued, and the offering was
terminated.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham
& Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson changed
its name to Lehman Brothers Inc. ("Lehman"). The Transaction did not affect
the ownership of the General Partner. However, the assets acquired by Smith
Barney included the name "Shearson." Consequently, effective October 21, 1993,
the General Partner changed its name to Union Square/GP Corp., and effective
December 29, 1993, the Partnership changed its name to Union Square Hotel
Partners Limited Partnership.
2. Significant Accounting Policies
Basis of Accounting. The accompanying financial statements of the Partnership
have been prepared on the accrual basis of accounting.
Real Estate Depreciation. Real estate investments, which consist of land,
building and personal property, are recorded at cost, less accumulated
depreciation. Cost includes the initial purchase price of the property plus
closing costs, acquisition and legal fees, and capital improvements.
Depreciation is computed using the straight-line method based on the estimated
useful life of 40 years. Depreciation of real property is computed over the
remaining useful life of the building. Depreciation of the personal property
is computed under the straight-line method over an estimated useful life of 7
years.
When building and personal property are sold or otherwise disposed of, when
required, the asset account and related accumulated depreciation account are
relieved, and any gain or loss is included in operations.
The current estimated market value of the hotel real estate investment as of
December 31, 1994 continues to improve from that of prior years. However,
while the property has not been appraised recently, management believes that
the carrying value of the Partnership's real estate exceeds fair market value
at December 31, 1994. The Partnership's hotel real estate investments is
carried at cost, less accumulated depreciation. The Partnership's depreciated
investment is exceeded by the amount of the outstanding nonrecourse
indebtedness. Accordingly, no adjustment has been made to the carrying value.
The ultimate outcome of this matter presently can not be determined. In
accordance with generally accepted accounting principles, a provision for
impairment is not required. Accordingly, no provision for any asset impairment
has been made in the accompanying financial statements.
Deferred Charges. The following fees and costs have been capitalized and are
amortized on a straight-line basis over the following periods:
Mortgage consent fee 7 years
Mortgage and loan origination fee 10-1/3 years
Mortgage loan placement fee 10-1/3 years
Loan negotiation fee 10-1/3 years
An improvement program supervisory fee incurred in 1989 has been capitalized on
a pro rata basis, based on annual improvement program expenditures in relation
to the total expected expenditures during the term of the improvement program,
and is depreciated using the applicable method and life.
Offering Costs. Offering costs are nonamortizable and have been deducted from
the Limited Partners' capital.
Income Taxes. No income tax provision (benefit) has been recorded on the books
of the Partnership, as the respective shares of taxable income (loss) are
reportable by the partners on their individual tax returns.
Concentration of Credit Risk. Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
in excess of the financial institutions' insurance limits. The Partnership
invests available cash with high credit quality financial institutions.
Partnership Agreement. Pursuant to the terms of the Partnership Agreement, all
profits and losses incurred prior to the month in which Unitholders were first
admitted shall be allocated 99.99% to the General Partner and .01% to the
Assignor Limited Partner. Thereafter, all income, profits and losses shall be
allocated 99% to the Unitholders and 1% to the General Partner, except for the
profits from the sale or other disposition of all or any substantial part of
the Hotel.
Profits of the Partnership from the sale or other disposition of all or any
substantial part of the Hotel shall be allocated to the General Partner in an
amount equal to the greater of 1% of the profits or the amount distributable to
the General Partner as sale or refinancing proceeds from such sale. All
remaining profits shall be allocated among the Unitholders.
Net cash flow shall be distributed 99% to the Unitholders and 1% to the General
Partner until each Unitholder has received an aggregate cumulative compounded
distribution for each fiscal year equal to 12% of their capital investment
("Preferred Return"). Thereafter, distributions shall be allocated 90% to the
Unitholders and 10% to the General Partner.
Sale or refinancing proceeds shall be distributed 99% to the Unitholders and 1%
to the General Partner until such time as the Unitholders have received
cumulative distributions of sale or refinancing proceeds in an amount equal to
their unreturned original investment plus an aggregate amount of the net cash
flow and sale or refinancing proceeds equal to their aggregate Preferred
Return. Any remaining sale or refinancing proceeds shall first be applied to
the payment to the General Partner of a subordinated disposition fee, if any,
equal to 3% of sales proceeds and thereafter shall be allocated 90% to the
Unitholders and 10% to the General Partner. In conjunction with the settlement
agreement discussed in Note 8, the General Partner's share of the proceeds, in
the event of a sale or refinancing of the property, will be reduced to 5%.
3. Real Estate
The Partnership's real estate consists of a 693-room hotel known as the Grand
Hyatt San Francisco (formerly "Hyatt on Union Square") located in Union Square
in San Francisco, California. The Hotel was originally constructed in 1973 and
was purchased by the Partnership on August 29, 1986.
The Hotel was purchased subject to an operating lease with California Hyatt
Corporation ("California Hyatt"), a subsidiary of Hyatt Corporation ("Hyatt"),
which provides for an initial term of 20 years expiring on December 31, 1994
and two 10-year renewal options. On August 19, 1986, the first 10-year renewal
option was exercised, extending the lease term to December 31, 2004.
Rent payable under the lease has been modified by the restructuring agreement
effective June 30, 1992 (see note 4). Pursuant to the terms of the operating
lease, California Hyatt is required to maintain a reserve fund ("FF&E Reserve
Fund") for the replacement of furnishings and equipment in the Hotel. This
reserve is funded by the operating revenues of the Hotel and will be funded at
3% of the Hotel's gross receipts through 1997 and 4% thereafter. During 1988,
the Partnership and California Hyatt mutually agreed upon a renovation program
which was to be effected for a cost not expected to exceed $20,000,000. During
1989 and early 1990, the renovation program was completed. The Hotel was
renamed The Grand Hyatt San Francisco and reopened on February 1, 1990. Other
conditions of the renovation program provided that 70% of the 1990 replacement
escrow was to be applied to the Partnerships liability to California Hyatt in
1990. From January 1, 1991 to June 30, 1992, 70% of replacement escrow income
was to be applied to the outstanding balance of the loan payable - Hyatt. As
of December 31, 1990, $20,676,768 related to the renovation program was
<PAGE>
expended. In connection with the reopening of the Hotel in 1990, the
Partnership recorded a write-down in carrying value of personal property which
was replaced during the renovation, based on the original purchase price
allocated to such property.
During 1991, the Partnership and California Hyatt reached an agreement on the
revised terms of California Hyatt's contribution to the renovation program.
This contribution was to be 10% of the total renovation costs, in excess of
funds provided by the FF&E Reserve, up to a maximum of $2,000,000. As a result
of the revised agreement, the total contribution from California Hyatt (which
was fully funded at December 31, 1991) amounted to $1,874,379, and accordingly,
a reduction in the renovation contribution in the amount of $125,621 was
recorded. In addition, renovation costs in excess of $20,000,000 were to be
assumed and capitalized by the Partnership.
At December 31, 1990, the Partnership recorded a receivable from California
Hyatt in the amount of $600,000. This balance represented the net proceeds to
be reimbursed to the Partnership under the second amendment to the lease
relating to the costs incurred for the asbestos removal and installation of the
life safety systems. Payments were to be received in 36 equal monthly
installments, including interest at prime plus .5%. The balance due was
reduced by $187,500 as a result of the Restructuring Agreement.
Asbestos was removed or abated where necessary, in conjunction with the
installation of sprinklers and other life safety systems. As disclosed in the
original prospectus, the Hotel contains asbestos in certain areas which have
been determined to be nonhazardous and in conformity with all current statutes.
This situation may or may not impact the future value of the property.
The following is summarized information with respect to the operations of the
Hotel provided by the lessee for the years ended December 31, 1994, 1993 and
1992.
1994 1993 1992
Hotel revenues $ 38,252,425 $ 36,024,256 $ 34,392,536
Hotel expenses (26,698,442) (26,829,851) (26,026,302)
Gross operating profit 11,553,983 9,194,405 8,366,234
Less:
Adjustments to gross
operating profit:
FF&E Reserve 1,147,573 1,080,728 1,031,793
Taxes 1,491,415 1,479,842 1,583,514
Other adjustments 2,213,762 2,908,545 2,013,034
4,852,750 5,469,115 4,628,341
Adjusted gross
operating profit $ 6,701,233 $ 3,725,290 $ 3,737,893
Rental income to
the Partnership $ 5,816,107 $ 4,045,593 $ 3,155,626
4. Restructuring Agreement
Under the terms of the Mortgage Loan, a regular installment of interest in the
amount of $3,394,650 was due on January 2, 1992. Under the terms of the Note
Payable, $1 million in principal and $341,502 in accrued interest was due on
December 31, 1991. None of the foregoing payments were made, and the
Partnership did not have sufficient funds to make such payments. On January 9,
1992, the Partnership received a notice from the First Mortgagee that the
Partnership was in default on its obligations with respect to the Mortgage Loan
and Note Payable. Such defaults entitled the Mortgage Lender to accelerate the
Mortgage Loan and Note Payable subject to any defenses available to the
Partnership. On January 21, 1992, an affiliate of the General Partner, which
guaranteed the Note Payable, fulfilled its commitment to repay the outstanding
balance of the Note Payable. On March 3, 1992, the Partnership received a
notice whereby the bank declared the entire principal and interest under the M
ortgage Loan immediately due and payable. On March 9, 1992, the First
Mortgagee recorded, with the San Francisco County Recorder, a Notice of Default
and Election to Sell under Deed of Trust (the "Default Notice").
The default on the Mortgage Loan also constituted an event of default under the
"Loan Payable - affiliate," the Supplemental Loan and the Hyatt Loan. On March
25, 1992, the Partnership received a notice of acceleration from the holder of
the Loan Payable - affiliate, which declared the entire principal and accrued
interest on the loan due and payable.
On June 30, 1992, Union Square Hotel Partners Limited Partnership (the
"Partnership") consummated a restructuring of its financing and property
leasing arrangements.
Mortgage Loan Payable - First Deed of Trust Note. Under the terms of the
restructuring, the outstanding principal amount of the Note - $70,000,000 -
will continue to accrue interest at the annual rate of 9.699%. Payments of
interest will be limited, however, to the Partnership's cash flow from the
Hotel. Minimum interest payments (the "Minimum Payments") must be made
semi-annually and shall be computed on the principal balance of the First Deed
of Trust, less a $15,000,000 principal participation purchased by Lehman
Brothers Lending Corp, formerly Shearson Lending Corp, an affiliate of the
General Partner. The par rate for the Minimum Payments are as follows: 6.5%
through January 2, 1994; 7.5% through January 2, 1995; 8.5% through January 2,
1996; and 9.699% thereafter until maturity on January 2, 1997. The amount of
any accrued and unpaid interest is to be added to the principal of the First
Deed of Trust Note.
Lehman Brothers Holdings Inc. (the "Guarantor") formerly Shearson Lehman
Brothers Holdings Inc., an affiliate of the General Partner, provided a payment
guaranty (the "Guaranty") to the Bank with respect to the Minimum Payments
required to be made through July 3, 1993. The Guarantor may, at its sole
option, extend the Guaranty for successive one-year periods through the
maturity date of the First Deed of Trust Note. In the event that the Guarantor
does not elect to extend the Guaranty, the Partnership's interest payments
thereafter will be due and payable quarterly, rather than semi-annually as
previously provided. On April 27, 1993, Lehman Brothers Inc. elected not to
renew the Guaranty of the minimum pay rate commencing July 4, 1993.
The Bank waived immediate repayment of the Past Due Interest, but the amount
will accrue interest at a the Bank's "prime" rate plus one percent. The
balance is due upon maturity of the note.
Loan Payable - Affiliate - Second Deed of Trust Note. Capital Growth Mortgage
Investors, L.P. ("Capital Growth"), the holder of the second deed of trust in
the Hotel, agreed to reduce the interest rate applicable to the note from 12.5%
to 11%. The reduction of the interest rate is effective from and after January
2, 1992. Capital Growth also agreed to waive the mandatory prepayments on
account of interest of $261,199, $1,014,379 and $1,996,457, otherwise required
to be paid on January 2, 1995, January 2, 1996 and January 2, 1997,
respectively. Capital Growth also agreed to waive any prepayment (or yield
maintenance) charges in connection with the prepayment of all or any portion of
the principal or accrued interest under the Second Deed of Trust Note.
Capital Growth also agreed to automatically extend the maturity date of the
Second Deed of Trust Note to the same maturity date as the First Deed of Trust
Note, so long as the maturity date is no later than January 2, 1999.
Loan Payable - Hyatt - Third Deed of Trust Note. Hyatt Corporation ("Hyatt")
the holder of a third deed of trust note collateralized by the Hotel forgave
$2,000,000 of the outstanding indebtedness under the Third Deed of Trust Note.
Hyatt also reduced the interest rate from one percent above the prime rate to
the lesser of (i) the prime rate or (ii) eight percent. Hyatt also agreed to a
deferral of interest to the extent that the interest payments otherwise
required to be paid under the note are not available from cash flow. Hyatt
also agreed to extend the maturity date of the note to the maturity date of
the First Deed of Trust Note-January 2, 1997. The Partnership made principal
payments of $75,000 during 1994 and 1993 and $250,000 during 1992.
The effect of these concessions by Hyatt is a calculated amount of $1,041,372
for the Partnership resulting in a reduction of the Third Deed of Trust Note by
such amount. The amount has been recorded as the extraordinary item, gain on
restructuring for $23,287, net of restructuring expenses of $1,018,085.
Operating lease - California Hyatt Corporation. California Hyatt Corporation
operates the Hotel under the terms of a lease agreement ("the Lease") with the
Partnership. California Hyatt agreed to change the amount to be retained by
California Hyatt under the terms of the lease effective July 1, 1992 through
December 31, 1996, from an amount equal to 20% of the Hotel's net profit to an
amount equal to (i) one percent of the Hotel's gross revenues plus (ii) 7.5% of
the Hotel's net profit. California Hyatt agreed that after December 31, 1996
and until the First Deed of Trust Note matures, but in any event not after
January 2, 1999, the amount to be retained by California Hyatt will be an
amount equal to (i) one percent of the Hotel's gross revenues plus (ii) ten
percent of the Hotel's net profit. Thereafter, the amount to be retained by
California Hyatt will return to 20% of the Hotel's net profit as required by
the Lease for periods prior to the restructuring. Amounts due to the Partne
ship will be remitted 20 days after the end of each month.
Furthermore, California Hyatt agreed that the Partnership will have the
unilateral right to terminate the Lease, without cause, at any time from the
date of the restructuring through December 31, 1998, upon payment of a fee in a
fixed amount ranging from $10,000,000 to $16,032,500, which amount increases
with the passage of time. California Hyatt further agreed that upon payment of
the Early Termination Fee, it would cause Hyatt to forgive the entire amount of
indebtedness under the Third Deed of Trust Note.
In addition, California Hyatt agreed that the Partnership may terminate the
Lease, without the payment of a termination fee, in the event that (i) the
Hotel generates a deficit for any calendar year and (ii) the Partnership
prepays all indebtedness due under the Third Deed of Trust Note. California
Hyatt may, however, cure any such deficit and avoid a termination of the Lease
by paying the amount of such deficit to the Partnership.
Restructuring expense note. In order to provide the Partnership with the funds
to cover the costs of restructuring and ongoing administrative expenses, Lehman
Lending Corp. has committed to lend the Partnership up to $1,000,000. Advances
borrowed under this agreement will accrue interest at prime plus 1% and all
principal and accrued interest will be due and payable on the maturity date of
the Bank of Nova Scotia Note. The entire $1,000,000 is outstanding as of
December 31, 1994 and 1993.
5. Note Payable
In order to effect the renovation program, the Partnership has obtained the
consent of the First Mortgagee for various modifications of the first Mortgage
Loan which permits the use of substantially all of the Partnership's reserve
funds for reinvesting into the Hotel and also permits Hyatt Corporation to
provide financing to the Partnership. In consideration for such consent, the
Partnership paid a fee of $1,000,000 to the First Mortgagee which is evidenced
by a note, bearing interest at 9.699%, compounded annually, due either upon the
sale of the Hotel or December 31, 1991, whichever occurs first (see Note 6).
As a result of the Partnership's failure to pay the principal and accrued
interest on December 31, 1991, the note was declared in default. The lender
pursued its remedies under which, Lehman Holdings, Inc. ("LB Holdings"),
formerly Shearson Lehman Holdings Inc., is required to make payment as
guarantor of the note. LB Holdings fulfilled its commitment to repay the
outstand ing balance in January 1992. The Partnership's obligation is included
in Notes & Loans - Affiliates.
6. Transactions with Related Parties
Notes Payable. LB Holdings, an affiliate of the General Partner, has fulfilled
it's guarantee of payment of the $1,000,000 plus interest thereon to the First
Mortgagee (see Note 5). As a result, the Partnership is now obligated to LB
Holdings in the amount of $1,341,502 in the form of a note which bears interest
at 9.699% and becomes payable upon the sale of the property.
As required under the class action settlement, on March 4, 1991, an affiliate
of the General Partner and the Partnership entered into the Settlement Loan up
to a maximum of $10 million, bearing interest at an annual simple interest rate
of 5%. Proceeds of the loan were to be used to the extent needed to fund
operating and fixed expenses. On the effective date of the loan, $8,217,302 of
the proceeds were used to retire an interim loan plus accrued interest. On
July 12, 1991, the remaining proceeds of $1,782,698 were drawn and used to pay
a portion of the interest with respect to the First Mortgage Loan indebtedness.
As of December 31, 1994 and 1993, the full principal balance of $10,000,000
remains outstanding. The outstanding principal and accrued interest matures
and becomes payable upon the sale of the property or upon a refinancing which
provides proceeds sufficient to repay other existing indebtedness.
On July 12, 1991, a note was issued from an affiliate of the General Partner in
the amount of $1,611,953 (the Supplemental Loan). The Supplemental Loan
specifically provided for the proceeds to be used to pay a portion of the
interest with respect to the First Mortgage Loan indebtedness. The note bears
interest at an annual rate of prime plus 1%. The entire note balance remains
outstanding at December 31, 1994 and 1993. The outstanding principal and
accrued interest mature and become payable upon the sale of the Property or
upon a refinancing which provides proceeds sufficient to repay other existing
indebtedness.
The letter of default issued March 3, 1992 by the Bank of Nova Scotia also
constituted an event of default under the Supplemental Loan. The default was
cured through the restructuring of the Mortgage Loan Payable (see Note 4).
A summary of Notes and Loans - Affiliate is summarized as follows:
1994 1993
LB Holdings - Guarantee $ 1,606,702 $ 1,464,646
Settlement loan 10,000,000 10,000,000
Supplemental loan 2,047,071 1,899,667
Second Deed of Trust (Note 4) 34,237,863 30,844,921
Restructuring note (Note 4) 1,000,000 1,000,000
$48,891,636 $45,209,234
Fees and Compensation. The General Partner and its affiliates earned fees and
compensation in connection with syndication and acquisition services rendered
to the Partnership of approximately $10,000,000. Under the terms of the
Partnership Agreement, the Partnership reimburses the General Partner, at cost,
for the performance of certain administrative services provided by a third
party. For the years ended December 31, 1994, 1993, and 1992, cost of such
services were $37,325, $49,920, and $58,474 respectively. At December 31, 1994
and 1993, $28,342 and $17,372 were due to the General Partner for the
performance of these services.
Cash. Cash reflected on the Partnership's balance sheet at December 31, 1994
was on deposit with an affiliate of the General Partner. Cash reflected on the
Partnership's balance sheet at December 31, 1993 was on deposit with an
unaffiliated party.
7. Reconciliation of Financial Statement Net Loss and Partners' Deficit to
Federal Income Tax Basis Net Loss and Partners' Deficit
1994 1993 1992
Financial statement net loss $(11,015,227) $(12,404,566) $(13,825,960)
Tax basis depreciation over
financial statement deprecation (936,081) (842,152) (1,032,964)
Tax basis amortization over
financial statement amortization (291,450) (14,320) (14,320)
Tax basis income from
forgiveness of debt over
financial statement income from
forgiveness of debt - - 954,845
Financial statement replacement
reserve income over tax
basis income - (924,996) (862,498)
Financial statement legal costs
over tax basis legal costs - - 879,520
Other 1,033 10,878 309,964
Federal income tax basis
net loss $(12,241,725) $(14,175,156) $(13,591,413)
Financial statement
partners' deficit $(35,584,645) $(24,569,418) $(12,164,852)
Current year financial
statement net loss over
federal income tax basis
net loss (1,226,498) (1,770,590) 234,547
Cumulative financial statement
net loss over federal income
tax basis net loss (18,952,092) (17,181,502) (17,416,049)
Federal income tax basis
partners' deficit $(55,763,235) $(43,521,510) $(29,346,354)
Because many types of transactions are susceptible to varying interpretations
under Federal and state income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
taxing authorities.
8. Litigation
During 1989, two class actions were brought by Unitholders in the Court of
Chancery of the State of Delaware (the Delaware Chancery Court) against the
Partnership and others. In addition, during 1989, two class actions were filed
by Unitholders in the United States District Court for the Northern District of
California. Pursuant to a court order dated October 24, 1989, the Delaware
Chancery Court actions were consolidated by the Delaware Chancery Court (the
Consolidated Delaware Action). In all of the cases, the plaintiffs sought
damages in an unspecified amount as well as attorneys' fees and costs.
On December 18, 1990, the Delaware Chancery Court approved a settlement of the
Consolidated Delaware Action which became effective March 4, 1991. The terms
of the settlement called for Shearson to provide Unitholders cash
distributions, to the extent the Hotel did not generate sufficient cash flow,
of 1%, 3% and 4% of class members' capital contributions in 1990, 1991 and
1992, respectively. On March 8, 1991, the first of these distributions was
paid to class member Limited Partners in the amount of $.10 per $10 Unit, on
February 14, 1992, the second distribution under the settlement was paid in the
amount of $.30 per $10 Unit, and on February 12, 1993 the third and final cash
distribution under the settlement was paid in the amount of $.40 per $10 Unit.
Shearson also agreed to lend the Partnership up to a maximum of $10 million to
cover debt service and other operating expenses through January 4, 1993, and to
pay plaintiffs' attorneys' fees and expenses up to $1,350,000 and $50,000 ,
respectively. As of December 31, 1991, the Partnership had borrowed and
expended the full $10 million available under the Shearson Loan.
Subsequent to the settlement of the Consolidated Delaware Action, the
California complaints were dismissed pursuant to a stipulation on January 3,
1991.
Report of Independent Accountants
To the Partners of
Union Square Hotel Partners, L.P.:
Our report on the financial statements of Union Square Hotel Partners, L.P.
(formerly Shearson Union Square Associates, L.P.), a Delaware Limited
Partnership, is included in this Form 10-K. In connection with our audit of
such financial statements, we have also audited the related financial statement
schedule listed in the index of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included herein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 24, 1995
UNION SQUARE HOTEL PARTNERS, L.P.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1994
Cost Capitalized
Subsequent
Initial Cost to Partnership To Acquisition
----------------------------- ---------------
Buildings and Buildings and
Description Encumbrances Land Improvements Improvements
Commercial
Property:
Partnership
Owned:
Hotel Complex
San Francisco,
CA $124,991,222 $ 32,231,229 $ 95,496,243 $ 13,373,872
$124,991,222 $ 32,231,229 $ 95,496,243 $ 13,373,872
UNION SQUARE HOTEL PARTNERS, L.P.
Schedule III - Real Estate and Accumulated Depreciation (cont.)
December 31, 1994
Gross Amount at Which Carried at Close of Period
Buildings and Accumulated
Description Land Improvements Total Depreciation
Commercial Property:
Partnership Owned:
Hotel Complex
San Francisco, CA $ 32,231,229 $108,870,115 $141,101,344 $ 38,235,817
$ 32,231,229 $108,870,115 $141,101,344 $ 38,235,817
(2) (1)
UNION SQUARE HOTEL PARTNERS, L.P.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1994
Life on which
Depreciation
in Latest
Date of Date Income Statements
Description Construction Acquired is Computed
Commercial Property:
Partnership Owned:
Hotel Complex
San Francisco, CA 1973 1986 (3)
(1) For federal income tax purposes, the amount of accumulated depreciation is
$66,772,934.
(2) For federal income tax purposes, the basis of land, building and personal
property is $141,438,877.
(3) Buildings and improvements - 40 years; personal property - 7 years.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1994, 1993 and 1992:
Real Estate investments: 1994 1993 1992
Beginning of year $139,715,348 $138,304,361 $137,791,285
Acquisitions 1,385,996 1,410,987 513,076
End of year $141,101,344 $139,715,348 $138,304,361
Accumulated Depreciation:
Beginning of year $ 33,222,871 $ 27,519,175 $ 21,466,169
Depreciation expense 5,012,946 5,703,696 6,053,006
End of year $ 38,235,817 $ 33,222,871 $ 27,519,175
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 2,668,685
<SECURITIES> 0
<RECEIVABLES> 194,244
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